5 Things You Need To Know To Acquire a Pharmacy

Pharmacy Acquisiton Financing

Thinking of acquiring a pharmacy? This checklist will ensure you have taken all necessary steps to move forward successfully.

  • Identify the pharmacy you wish to acquire.Identify a pharmacy that has a solid customer (prescription) base. Is there an opportunity to grow the business? Is this the pharmacy for you?
  • Perform high level due diligence. Analyze the types of prescriptions being filled. Make sure you are comfortable with the product mix (controlled substance volume, durable medical equipment, compounding, workers compensation). What is the Net Operating Income (NOI) of the pharmacy? This is defined as income after all operating expenses are deducted from gross margin, but before income taxes and interest are deducted.
  • Determine the value of the pharmacy. What is a pharmacy worth? It’s worth what a buyer is willing to pay for it (in cash), or what a lender is willing to finance. It must produce a cash flow sufficient to repay the loan. Every situation is different, but lenders want to see at least 25% more cash flow than is required to service the loan.
  • Execute an agreement with the seller in writing, “Letter of Intent” or “Term Sheet.” This outlines the terms and conditions related to the acquisition, executed with the assistance of your advisor or attorney. Ultimately, after the term sheet is executed, it will guide your legal counsel in creating the final purchase agreement.
  • Obtain prequalification for financing. Get prequalified for a loan amount that will cover both your project development and working capital costs. You should feel confident knowing you have adequate capital to manage your business, and repay your debt.
  • Initiate the Asset Purchase Agreement with your attorney. With your tax planning arranged, you should consult with an industry-specific attorney to draft the purchase agreement.

Once you have followed the steps in this checklist, sit down with your lender to talk about your financing needs and the type of loan that will work best for you. Contact us for more information.

Jimmy Neil