Buyer FAQ
Considering owning your own pharmacy?
Perhaps you have been working for someone your whole pharmacy career and have watched everyone else enjoy the benefits of your hard work. If you are self-motivated and work hard, there is no reason why you couldn’t own your own pharmacy. There are profitable pharmacies available for sale and many different financing options available. Please read below to gain useful insights about the process and make sure to contact us for your valuation needs.
 
  1. What is the demand like for pharmacies?
    There is considerable demand for pharmacies in today’s market despite the questionable future of some sources of revenue - the larger demographic picture overshadows other concerns.
  2. What is a VTB?
    VTB: Vendor Take-Back Mortgage' A type of mortgage in which the seller offers to lend funds to the buyer to help facilitate the purchase of the property. The take-back mortgage often represents a secondary lien on the property, as most buyers will have a primary source of funding other than the seller.
  3. Is financing available for the purchase of a pharmacy?
    Financing is rarely an issue as many lenders like the risk associated with the pharmacy industry. One does not necessarily have to have your house paid off in order to buy a business. Down payments are not necessary in some cases as well.  Some vendors are able and willing to help with the financing in the form of a VTB.
  4. Do I need to buy the building?
    You don’t necessarily have to buy the building when you purchase a pharmacy. Some sellers actually would prefer to keep the building when they sell. This is not necessarily a negative thing. It will lower your overall cost to purchase the business. If the seller is willing to sell the building, it is usually the easiest part of your purchase to finance.
  5. How do I determine the value of a pharmacy?
    What you are actually buying is the cash flow of the pharmacy. The value of the pharmacy is the value of this re-occurring revenue stream. You can get a ball-park value of the pharmacy using our valuation tool. When it comes to making an offer or selling, it is recommended to seek the advice of a professional valuator. You can search professional valuators in our "support" section.
  6. Can I get financing for a pharmacy from a bank?
    Typically banks do not prefer to lend for the purchase of goodwill - a non-tangible asset. They are more likely to lend on things such as inventory or a building. However, if you have other loans to purchase the business, the bank is unlikely to go in "second place" on security of their loan.
  7. What is a multiple of earnings?
    A "multiple of earnings" is a term to describe a way of valuing a business. It is the integer that is used when multiplying the annual cash flow (earnings) of a business to derive a price. For example, a 5x multiple of earnings on a business producing $100,000 of net profit would have a value of $500,000.
  8. What is EBITDA?
    "DEFINITION of 'Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA' An indicator of a company's financial performance which is calculated in the following EBITDA calculation: Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. From Investopedia (EBITDA) 10 August 2015 http://www.investopedia.com/terms/e/ebitda.asp#ixzz3iQZ9"
  9. What information will I need from the seller to access financing for a pharmacy purchase?
    Lenders validate earnings in two ways:  financial statements and prescription volume reports.  Three years of history for each of these categories is usually required.  In addition, lenders like to have a good over-view of the non-financial aspects of the store:  competition, doctor access, size of the store, lease rates.
  10. What is the deal with leases?
    A store usually has a lease deal in place.  This is usually true, even if the seller owns the building, which is often in a different corporate entity.  The lease is a critical component of the store’s value, as it represents the ability to continue operations.  It is in the buyer’s best interest to secure the ability to get the lease assigned to them, and also to negotiate an extension.  Lenders require a lease which exists for the full duration of a loan’s amortization.
  11. What are the different types of financial information I might see?
    "Accountants prepare financial statements in a variety of formats.  These can be most or less costly to have prepared.  From lease to most expensive, financial statements can be the following: - Internally prepared by the book-keeper.  (Often just printed from the accounting software).  These statements are not usually looked at by an accountant, may have some errors, and do not have any adjustments made for revenue or expenses. - “Notice to Reader”:  prepared by an accountant, with limited review by the accountant based on the numbers provided by the book-keeper.  The accountant does little to verify the data. - “Review Engagement”:  The accountant performs some analysis and back-ground checking of the numbers provided by the book-keep to verify and re-classify expenses and revenue - “Audit Statements”:  full audit by an accountant’s team to ensure the accuracy of all statements.  This is a thorough undertaking. Pharmacy financials are almost always presented in the “Notice to Reader” format.  It is rare and usually unnecessary for a pharmacy to prepare Review Engagement or Audited statements."
  12. Why don’t we just do valuations based on prescription volume?
    Most pharmacy valuation professional and financial institutions have moved away from a per-script valuation model.  These models do not take into account new service revenue available to pharmacists in some provinces,  do not account for front store earnings, and regional variations in pricing.
  13. What are the different types of independent pharmacies and banners?
    "There are broadly three types of independent pharmacies: 1. “true” independent stores, which are not associated with a banner or franchise, and work directly with suppliers on the purchase of inventory. 2. “banner stores”, which have a marketing and purchasing agreement with one of the numerous major banner operators.  These stores generally comply with purchasing agreements put in place between the banner and the suppliers.  The banner operators also handle advertising, and branding efforts 3. Franchise stores:  a franchise model usually involves a royalty payment as a percentage of revenue.  Franchise stores are usually less costly to setup but have highly restrictive limitations on operations and sale of the business."
  14. How long does it take to pay off a pharmacy purchase?
    Most pharmacists have a ten year plan to be debt free and own the pharmacy free and clear
  15. How long does it take to buy/sell a pharmacy?
    Once a store has been identified as a purchase, and an initial conversation has occurred, it is often a multi-month project to finalize a sale.  Some sales can occur within a couple of weeks, but this is relatively rare.  Often the entire process can take 3-6 months.
  16. What is a ROFR?
    A “Right of First Refusal” is an agreement a seller has made to a second party to ensure that the second party has the ability to match any sales agreement the seller has entered.  In practice, this is usually an agreement between a banner and a banner member as part of their membership contract.  It allows the banner to find a buyer who is willing to sign an extension with the banner and prevent the potential buyer from closing on the transaction.  Of course, if the existing buyer is willing to sign on with the banner post close, then the ROFR is not an issue!
  17. Why does a lender ask for detailed information on the financials of the store?
    A financial statement is a document which is intended to show less profit to the store in order to manage tax obligations.  However, a lender (and a buyer!) is much more interested in what the “raw” performance of the store is, without all of the deductions and tax strategies.  In order to get an accurate picture of the cash flow of the store, sometimes Lenders require verification of the amounts listed in the expense lines of the store.  Usually this verification is to the benefit of the buyer in that it provides a clear understanding of the cash flow.  It also benefits the seller as it can “credit” the store with more cash flow than is indicated on the financial statements.  The lender is looking for ways to say “yes” to the transaction!
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