Buying a pharmacy can be an exciting but complex endeavour, especially if you’re new to the process. Here are essential factors to consider before when taking the plunge:
Money talks…
When considering a pharmacy purchase, you will need to delve into the financial details such as:
- What is the turnover of the pharmacy?
- How many scripts do they issue?
- How many staff are employed?
- What are the general outgoings of the pharmacy?
It is also recommended that you ask to see business accounts, VAT returns, and FP34 forms from the last three years. These documents can give you valuable insights into the pharmacy’s financial health.
Before making an offer, it’s essential to assess the pharmacy’s profitability. Can it sustain itself and provide a return on your investment?
Understanding your borrowing capacity is another crucial aspect. While lenders often view pharmacies as a secure investment, securing a loan can still present challenges. You’ll need to understand what the bank requires in terms of security and whether there might be any shortfalls.
In addition to the purchase price, you’ll need to account for various costs, including stock, legal fees, deposits, cash flow, rent, staff salaries, insurance, and other overhead expenses as these are financials that you will need to keep up with during the acquisition as well as after.
Ultimately, it’s important to have a clear picture of the full financial landscape before proceeding.
Location location location!
The pharmacy’s location is a critical factor to assess. Proximity to health centres and GP surgeries is essential, as it directly impacts customer convenience. An understanding of the area’s demographics and the broader economic factors affecting operational costs will also play a vital role in your pharmacy’s success.
Am I ready to delve into business?
Beyond the financial aspects, consider your personal readiness for this venture. Owning a pharmacy comes with a considerable commitment of time and effort. You’ll need to be prepared to work extended hours, shoulder significant responsibilities, and manage a substantial financial commitment.
Additionally, think about whether the idea of working independently and having more one-on-one interactions with patients appeals to you. This level of personal engagement is a hallmark of pharmacy ownership.
Structuring the transaction: Asset Purchase v Share Purchase
Although there are several ways you can structure a transaction, the most common ways are either a share purchase or an asset purchase.
Asset Purchase:
Pros: Asset Purchase allows you to cherry-pick specific assets such as goodwill, equipment, and stock. It doesn’t saddle you with existing liabilities and typically involves less due diligence and lower legal fees. As a result, less due diligence is required, which means cheaper legal fees.
Cons: However, it may necessitate a change of ownership application, ODS code changes which can cause delays. You will also need to transfer employees to you which means arranging new pension schemes. An asset purchase may also see a loss of existing supplier contracts which, if trading on special terms, could result in loss of some benefits.
Share Purchase:
Pros: Share Purchase involves taking over the entire legal entity of the business, including its assets and liabilities. You do not need new ODS codes, employees remain with the company, and you do not lose existing contracts with suppliers.
Cons: While it spares you from a change of ownership application, ODS code changes, and the like, it means you inherit all the company’s liabilities and often requires more extensive due diligence. As you are acquiring the shares in the company, stamp duty is applied when purchasing the shares.
How long before I can start trading?
A pharmacy sale and purchase, on average, takes approximately six months, assuming no significant or unexpected issues arise that could cause delays. Factors that can lead to delays include securing funding from a lender, the completion of the due diligence process, and obtaining necessary consents, such as landlord approval for leasehold properties.
The legal process
The legal process for completing a pharmacy acquisition involves addressing 2 or 3 key areas:
- Lending (if you are not a cash buyer)
- Property; and
- Commercial
Completing the appropriate documentation is imperative, given the high level of regulation surrounding pharmacies. The key documents include (which depend on the structure of the transaction):
- Fitness to Practice
This is usually completed when you register to become a pharmacist.
This is essential for first time buyers if their fitness to practice has not yet been checked by the GPhC. An application to the GPhC will need to be made by filling in a Fitness to Practice Form.
- NHS England Consent
Depending on how the transaction is structured, NHS England have to be notified and consent to transfer the ownership of the pharmacy.
If it’s an asset sale, consent of NHS England is a fixed requirement.
Share purchases may also require approval, especially if the NHS contract is held by a shareholder rather than a corporate entity.
- Change of ownership application;
The General Pharmaceutical Council (GPhC) will need to be notified when a change in ownership occurs.
- VAT registration
VAT registration is essential. Registration is to be completed before any transaction formally takes place ideally 4 to 6 weeks in advance to an exchange.
Completing this paperwork in advance ensures you don’t pay VAT on the purchase of goodwill and aids your cash flow (a crucial element to any new business venture)
- Employee management
All employees are automatically inherited by the buyer at the point of transfer under the Transfer of Undertakings Protection of Employment (TUPE) regulations (applicable in asset purchases only).
If an employee proves to be dismissed due to the transfer of ownership, you can face a likely unfair dismissal claim. Ensure you don’t incur a charge by providing evidence clearly stating the dismissal was due to economic or organisational reasons.
What next?
If you’re considering a pharmacy purchase, Carter Bond Solicitors can be a valuable partner in your journey.
Carter Bond:
- Are a recommended partner of the National Pharmacy Association (NPA)
- offer transparent fixed fees.
- have over 20 years of experience in pharmacy acquisitions and disposals and have represented both buyers and sellers .
- have a strong track record of success.
- emphasise long-term relationships and partner-led service makes them a reliable choice for your pharmacy acquisition needs.
- work all the main pharmacy agents and brokers
- have over 431 5* Google reviews!
For more information or assistance, you can contact Carter Bond Solicitors at 020 3476 6751 or via email at info@carterbond.co.uk. You can also find valuable resources on their YouTube channel and website at www.carterbond.co.uk.This note comprises the view of the author at the time of writing. This note is not a substitute for legal advice. Information may be incorrect or out of date and may not constitute a definitive or complete statement of the law or the legal market in any area. This note is not intended to constitute advice in any specific situation. You should take legal advice in specific situations. All implied warranties and conditions are excluded, to the maximum extent permitted by law.
