Call
Skip to main content

Pinn Deavin & Co

Menu
Pinn Deavin & Co logo
Menu
Pinn Deavin & Co logo
Menu

DID YOU PAY TOO MUCH WHEN YOU BOUGHT YOUR PHARMACY?

Pharmacist checking stock on a clipboard in a pharmacy
  • 10:28 am

Did you pay too much, when you bought your pharmacy?

The market for pharmacy acquisitions has changed significantly over the last few years. Whilst many sectors in the economy have suffered, community pharmacy has strengthened because:In today’s fast-moving environment, having a clear financial plan can help you navigate uncertainty, take advantage of opportunities and build long-term security.

  • There are a finite number of PBS approved pharmacies in Australia.
  • Only a small number are for sale, at any given time.
  • The demand by pharmacists to purchase a business, has become even stronger over time. In part because the role of community pharmacy has become more evident to the general public, which makes current and future owners more confident about the existing ownership and location rules.
  • Banks have become generally more conservative in lending, but still see pharmacy as a “safe” sector.
  • Interest rates have been relatively low in recent years.

Say 5 years ago, a prospective pharmacy purchaser might have been happy to generate a return on investment (ROI) on their pharmacy business of between 15%-20% (depending upon location, demographics etc). This ROI is expressed as a percentage, BEFORE interest and income tax. But these days, some purchasers are happy to buy the same pharmacy, which currently only returns 12% -15% on their investment. So, in some of the examples I’ve seen, this has resulted in a relative increase in market selling price of up to 25% on the same pharmacy, compared to the market only a few years ago.

What does that mean for a new owner?

If a pharmacist bought a business generating a profit of say 12% return on investment (before interest and tax) but pays interest on their loan of around (say) 5%, then the net return  on their investment implied is 7% before tax. By the time you allow for tax and repayments of principal on your business mortgage, that doesn’t leave much “buffer” of cashflow. So, if the economy suffered a “blip” or there was an interruption to normal trading, it doesn’t leave much room for error. In this hypothetical scenario, one may argue that the purchaser may have paid too much for their business.

Accordingly, before you make an offer to purchase (or become a partner) ensure that you:

  • Consider current interest rates as well as future rate increases.
  • Identify opportunities, to grow your business returns in future.
  • Prepare a Cashflow budget, taking into account profit, tax, loan repayments and personal living expenses.

Be diligent and seek professional advice before making any offer to purchase a pharmacy or become a partner. A poor decision can prove costly over the long term; a wise decision could be enjoyed over many years to come.

About The Author

Neil Featherstone, Pharmacy Advisory Specialist at Pinn Deavin & Co

Neil Featherstone

Senior Consultant 
Pharmacy Advisory
Specialist
Neil works with pharmacy owners and businesses to improve performance, build value and achieve long-term success.

View Profile

Related Article

View All Article

Need expert advice?

Our team is here to help you make confident financial decisions for your business.

Book a Consultation