Published: August 16, 2023
This article first appeared in Pharmacy Magazine
Scott Hutchinson is a relationship manager for Unity Trust Bank, which specialises in supporting businesses that provide a social benefit. Here he looks at some key considerations for pharmacists when buying or selling a pharmacy.
Scott Hutchinson says that Unity Trust Bank comes across two ways that pharmacies are sold. “There’s an off market sale, which is through a private introduction, or a sale to someone through word of mouth or to someone already working at the pharmacy.
“Then, more commonly, there’s the open market sale. There are a number of specialist agencies who sell pharmacies across the UK. They tend to handle the bulk of pharmacy sales across the country,” he says.
“When looking at the right pharmacy for a prospective owner, it’s important to consider what they can afford to buy,” says Hutchinson. “This is generally driven by how much cash is at their disposal for a deposit. For example, the maximum loan a bank might lend a pharmacist might be eighty per cent of the pharmacy purchase price.”
He says cash will also be needed for legal fees, bank fees and a valuation of the business.
Location is also an important factor. “The individual should ask themselves – do they want a pharmacy near to where they live and within reasonable commuting distance, or are they prepared to relocate?” he says.
Having located the ‘right’ pharmacy, the buyer needs to obtain its financial accounts and any information relevant to the purchase, such as the lease. If the pharmacy is being marketed through an agent there will usually be a sales pack that includes that information.
“That information will help to determine if the pharmacy is viable to buy. It can support both the buyer’s lifestyle and the loan they might need to use from the bank.”
Scott Hutchinson explains there are three key professionals a buyer will need to have to hand when purchasing a pharmacy.
“First is a lender – a bank – and if it has a sector specialist, hopefully they can provide you with guidance on purchase matters.
“When choosing a lender a person might want to consider their values and if they have any social impact. Our bank, for example, has a strong focus and impact on the community,” he says.
“By this stage, the buyer should also be speaking to an accountant and a solicitor, who will deal with the legalities of the purchase.”
“The bank is the main source to get funding,” Hutchinson says, “and the prospective buyer will need to be able to present a sound case for the bank to support their plans.”
When looking to get funding he says it is helpful to set out a business plan, “with a good set of financial forecasts”, which can be prepared with the help of an accountant.
“Ultimately that’s for the individual to decide”, says Hutchinson, ”but they may need to act quickly to secure a pharmacy that’s popular and has attracted several bids.”
“Make sure a law firm is used that has experience in commercial and corporate transactions, preferably in pharmacy,” he says. “And ensure the forecasts are realistic. Consider, for example, what would happen if the gross profit rate reduced.”
“Once someone has taken ownership of the pharmacy, if things aren’t going so well – for example, if circumstances change that affect the profits – it is important to acknowledge that quickly and speak to the bank at the earliest opportunity. It is likely they will have seen similar situations before and want to be able to offer support,” he says.
And, in general, “always speak to professionals – bank, solicitor or accountant. Even the most experienced pharmacists will need guidance from time to time and knows when to ask for that help,” he says.
“Ultimately, that’s very much a personal decision,” says Hutchinson. “But it could be a strategic sale, the owner could be nearing retirement, or there may be family-related reasons that make them decide to put the pharmacy on the market.”
In terms of an individual’s financial situation, it is important to consider any redemption fees if they have a bank loan, or any early repayment penalty clauses, says Hutchinson.
“If a person owns several pharmacies and are selling one, they need to establish if their bank will let them keep all the proceeds of that sale or if it will want to reduce the loan. These matters should always be discussed with your lender.”
When selling a pharmacy “make sure the price is in line with the market”, he says. “And if the pharmacy is being sold to an employee, perhaps the bank could also assist the new buyer.”
Specialist sales agents are a good place to start when looking to sell a pharmacy. They tend to have “a helpful handle on the market”, he says.
“Speak to the bank regarding security release. If they hold a legal charge over the property, ensure there are no issues there and that the bank is willing to release that security,” he says.
“Talk to the solicitor for legal advice. Make sure they have corporate and commercial experience in pharmacy. Also, got to your accountant for tax advice. A seller may also want to speak to other owners who are part of their pharmacy network. In doing so, they can get additional insights into selling a pharmacy.”
“Whether or not to accept an offer is a very personal decision,” Hutchinson says. “But if a seller feels the offer is below market value, or if there are some clauses attached that are particularly onerous – for example, they won’t receive all the money from the sale up front – then they need to consider such issues very carefully.”
To find out how Unity Trust Bank can support your business, visit https://www.unity.co.uk/business-loans/. Unity always recommends seeking professional independent advice ahead of any purchase.