3. Overview of key points to consider when
establishing a new practice.
Business plan outline for buying an
established Pharmacy.
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4. Advantages and disadvantages of purchasing
an established Pharmacy vs starting a new
Pharmacy.
Important factors before you start actively
searching to establish new or purchase.
Explain factors important in leasing & rent
calculation.
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5. Capital requirements for establishing a
Pharmacy and possible sources of capital.
Factors important in performing a Pharmacy
location analysis and analysis of potential
markets.
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6. What, Who and Where Do I start?
Key Tasks for the Prospective Owner
Reasons for Wanting a Franchise Pharmacy
Opening a New Pharmacy
Purchasing an Established Pharmacy
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7. This packet of thought starters is
just that; a starting point.
Let your mind wander and consider
establishing a new practice or
taking over an existing one.
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8. What‟s your BIG idea?
What is your why?
How will you benefit?
Is this right for me; right now? Are you ready?
◦ It takes time, commitment, a good idea, the right
personality and at least a few basic business skills to start
and run a small business successfully.
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9. The BIG question...
Start up a new independent practice, or
purchase an established Pharmacy?
Franchise, banner or independent?
“Full mix” drug store, Health Centre or simply
Pharmacy?
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11. Pharmacy set-up support and type of pharmacy
◦ Corporate Pharmacy retail stores
(employee or owned and operated by the licensed “associate-
owner”, closely related to franchise, “manager” of a chain
Pharmacy)
◦ Franchise Pharmacy
(independently owned and operated, sharing in benefits,
buying group, sales/promotions, contracts)
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12. Pharmacy set-up support and type of pharmacy
◦ Banner Pharmacy
(independently owned and operated, working together, buying
group, sales/promotions, contracts)
◦ Wholesaler
(independently owned and operated, shareholder in
wholesale, buying group, working together)
◦ Independent Pharmacy
(independently owned and operated)
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13. What departments and products?
◦ Consider location, clientele, age, mix, income levels, education,
health providers nearby, other retail stores, etc.
◦ Alternative medicines, vitamins, OTC‟s, orthotics and mobility aids,
wound care, private consultations, cosmetics, electronics, food and
groceries, post office, greeting cards, books and magazines, etc.
What professional services?
◦ Consultations, Medication Management, Education, Counseling,
Disease state screening, Chronic disease management,
Immunization, Refill services, delivery services, blister packing, LTC,
Group homes, other
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14. Where do I start?
What do I need?
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15. Hard skills
◦ Knowledge of Leasing
◦ Negotiation Skills
◦ Fundamentals of Financing and Accounting
◦ Project management
Soft Skills
◦ Insights into complexity of issues involved in leading change
◦ Recognize your personal values and define work/life balance
◦ Cultivate a calm, clear mind even in times of stress
◦ Lead strategic change initiatives
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16. Create your team of experts
◦ So you can do what you do best and they can do
what they do best
The first three people you need
◦ Lawyer; with Employment Law and/or leasing experience
◦ Accountant; with Tax Planning experience
◦ and a Banker; preferably with Pharmacy accounts
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17. Create your team of experts
The next person you need
◦ Mentors and advisors
Then you need (if starting new)
◦ Commercial real estate agent
◦ A great general contractor that can get and keep the trades
focused
Then you need (if purchasing)
◦ Business broker
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18. 1. Develop a Business Plan
◦ This is an essential step and critical for the planning and viability of
your business.
2. Have you undertaken extensive market research?
◦ Market research is a vital part of your Business Plan, including
creating a viability report (Market Feasibility Study)
3. Do you need additional financing?
◦ Banks and other lenders or investors will require a written business
plan
4. Consider and select the most appropriate structure to
operate your business
◦ Partnership Agreement if applicable and Corporation
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19. 5. Submit your business name request (NR) for approval
◦ Recommend that you conduct a domain name search and put a hold
◦ Also recommend: contact CPBC; ask for clearance of business name
6. Incorporate your business either through a lawyer or
yourself online
◦ Corporations are automatically assigned a Business Number (BN) for
corporate income tax purposes
◦ As soon as you get the Incorporation documents send copy to CPBC
7. Review Pharmacy Licensure Guide from CPBC
8. Open a business bank account
◦ Visit your financial institution with a copy of your Business Registration
Certificate
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20. 9. Register the domain name of company
10. Open accounts under your Business Name (BN) as
required for payroll, GST/PST (HST).
◦ You MUST open a GST/PST/HST account if your sales are
greater than $30K
11. Contact your municipality for a business license
◦ Need this to apply for a Pharmacy License
12. Determine whether there are any further licenses
or regulations that apply to you or your business
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21. 1. As a Corporation, you must register your business
for workers compensation
◦ Call WorkSafe BC
2. Open a Payroll Deductions Account under your BN
which was provided with your business as part of
incorporation
◦ Contact CRA
3. If you hire employees ensure you‟re aware of your
requirements under the Employment Standards Act
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22. Your Lawyer and Accountant
◦ You MUST keep detailed and accurate records for both your
corporation and year end accounting
Your Bookkeeper
◦ Detailed employee files and records
◦ Cash and credit card receipts
Prescription records
◦ Hard copy storage and record keeping requirements
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23. Key Tasks for the Prospective Owner
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24. 1. Identify available pharmacies for sale or
suitable locations for a new one
2. Leasing Agreements
3. Determine a satisfactory purchase price
4. Evaluate and determine capital needs
5. Investigate & select best source of capital
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25. Location Analysis is a Hierarchal decision…
◦ Region – Lower Mainland, Okanagan, the Island
◦ Market Area – West Van, Kelowna, Comox
◦ Trading Area – Caulfield, Glenmore, Comox “downtown”
◦ Site – specific location
Location Analysis
◦ Location is the most important factor; “traffic” is the key
◦ Very difficult and expensive to re-locate
◦ You don‟t want to be “one block away from success”
◦ Doc‟s and/or nearby clinics
◦ Parking, Signage, Visibility
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26. Location isn‟t…
◦ Customers may drive further to a Pharmacy they
perceive having:
Better prices
Better service & services
Better selection of merchandise
Better amenities; such as private counseling area etc.
Better hours
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27. Leasing
◦ Most Pharmacies lease (rent) their space
◦ Common is 5 years plus an option to renew for 5 years
◦ Once you sign you are obligated!
◦ Before you sign is the time to negotiate
◦ If you are purchasing an existing biz-need to get an
assignment from landlord; usually this is a “subject to”
clause
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28. Leasing Agreements
◦ “Offer to lease” vs. “Lease”
“Offer” is starting point where both parties negotiate lease terms
Landlords have a standard “Offer” form.
It is at this point you try to drive your best bargain/value.
“Offer” usually includes “Sunset clause” – date by which lease
must be signed or null and void.
A “lease” is a written legal document. Verbal lease does not exist.
A “lease” specifies what the lessor (landlord) will provide and
what the lessee (you) will do and pay.
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29. Leasing terminology
What is "Base rent"?
◦ Base rent refers to the minimum or base amount of rent as set out in the
lease excluding percentage rents or any other additional or operating
costs.
What is a "percentage lease"?
◦ A percentage lease refers to a specific type of rental arrangement that
applies mainly to retailers, especially in shopping centres or multiple-
tenant malls.
◦ In a percentage lease, the tenant pays a fixed or base rent plus a
percentage of gross income. To create this type of rental arrangement,
the tenant pays "Base Rent plus % of Gross Profits".
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30. Leasing terminology
What are "triple-net leases"?
◦ Triple-net leases are the most common form of commercial lease.
◦ They can be used for retail, warehouse and industrial properties.
◦ The tenant is responsible for all of the costs of operating the building
(including taxes, insurance and repairs and maintenance) in a triple-
net lease.
What are “CAM” costs?
◦ Common area and maintenance costs; usually in a shopping centre
lease.
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31. Leasing Costs
◦ Downtown Vancouver/Victoria – YIKES!!!
◦ Langley/Surrey - $25 – $30/sq ft triple net plus CAM
◦ New locations/escalating construction costs
◦ Rural locations/old buildings; $12 – $25/sq ft
Leasing example
◦ Store “footprints” vary
◦ Dispensary only; 1-2000 sq ft
◦ Taxes and CAM can be $5 - $8/sq ft
◦ So, a 2K sq ft store @ $30/ft plus $5
2000 x 30=$60,000/year
2000x 5=$10,000/year
Total lease cost is $70,000/12=$5,833/month
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32. Desirable lease clauses
◦ Sublet clause – if excess space or for doc‟s
◦ Signing incentive; first month free while setting up
◦ Leasehold improvements clause
Often you get just the bare walls/floor
◦ Adequate signage – some landlords have restrictions
◦ Exclusive use clause – only Pharmacy or store selling
certain products
◦ Contingency on financing – similar to purchasing a home
◦ Whether the tenant can assign or sublet the property
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33. If purchasing determine a satisfactory purchase price
◦ Accurate pharmacy valuations are critical in successfully
buying a pharmacy.
Due to changes in Generic reimbursement and
Professional Allowances; Pharmacy valuations are
more complex and difficult than ever.
Usually a multiple of earnings (EBITDA)
Get expert advice from a Pharmacy biz broker or
consultant.
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34. Value Assessment & Price Determination
◦ Review the external business environment (i.e. the
local community)
◦ Review the financial health of the business (e.g.
solvency, liquidity, efficiency, sales, and profitability).
◦ Cash Flow.
◦ Assess the physical assets of the business (e.g.
inventory, equipment, fixtures, technology, hardware &
software, condition of the building)
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35. Value Assessment & Price Determination
◦ Assess the *„Goodwill‟* that will come with the business (e.g.
reputation, continued patronage, knowledge & expertise, information,
any special products/services)
* Note: „Goodwill‟ is normally calculated as a multiple of annual
net profit and may include number of scripts
◦ Assess the Financial liabilities of the business (eg. A/P)
◦ Assess the Financial assets of the business (eg. A/R )
◦ Are there any outstanding legal issues or contracts?
◦ Will it be an asset or share purchase?
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36. Identifying Financing Needs and Options
◦ A definition of „Capital‟:
“ Wealth, in the form of cash, equipment, property, or a
combination of these factors, that can be used in the
production or creation of income. ”
Areas of „Capital‟ need
◦ 1. Set-up capital
◦ 2. Start-up capital
◦ 3. Operating capital
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37. Common types of financing for Pharmacy
1. Personal financing
2. Debt financing
Debt financing takes the form of loans that must be repaid over time,
usually with interest.
3. Equity financing
Equity financing takes the form of money obtained from investors in
exchange for an ownership share in the business.
Also known as "share capital".
4. “Sweat” equity
Build equity over time at a reduced wage rate or reinvesting part or
all of salary or bonus back into the business in exchange for shares
or options.
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38. Additional Purchasing Method
◦ Junior partnership
Buyer can purchase a pharmacy with little or no initial capital and
build equity over time
Seller can ease gradually out of ownership and maintain the legacy
of the independent pharmacy in the community
Sources of Debt Financing
◦ CIT
◦ Banks
◦ Government loans/BDC
Sources of “Sweat equity”
◦ Forewest
◦ Multi store owners in PS and PDM
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40. Proven Formula with Admin and Buying support
Two types
◦ “SDM Associate” concept
Own the business but not the physical assets
No capital investment or capital risk
Guaranteed minimum annual income and Benefits
“Share” in profitability
Support services in all areas of Operations
◦ “Medicine Shoppe” concept
Full Pharmacy ownership
Capital investment required
Ongoing Sales and Biz Dev support
Custom marketing strategy
Training and Professional Development
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41. SDM concept
◦ “Share” profits
◦ Many “masters”
◦ Associate agreement is a renewable 3year deal
◦ Retained equity requirements
◦ Franchise agreement restricts or outlaws certain activity
Medicine Shoppe concept
◦ Franchise fees
◦ Trademark rules
◦ Required program participation
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42. Main Reasons:
◦ Entrepreneur
◦ Self-management
◦ Creative freedom
◦ Financial independence
Additional Reasons:
◦ Not having to answer to others (regarding the pharmacy focus)
◦ Being recognized/playing an important role in meeting the
business and healthcare needs of the community
◦ Achieving a level of self-fulfilment and pride
◦ Continuing a legacy of pharmacy ownership established by family
and/or mentor(s)
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43. Either:
◦ A desire to address some unmet healthcare
need(s) for a particular patient population
Or:
◦ A desire to take advantage of a particularly or
potentially, lucrative business opportunity
Or:
◦ A combination of the above
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44. Things to consider and tasks to do.
Develop a project management plan
with timing and tactical action plan.
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45. If the venture is not planned carefully, there is
likely to be:
◦ A greater amount of risk in general
◦ An increased chance of specific unforeseen events
◦ A longer time lag between start-up and profitability
◦ A formidable challenge to obtaining sufficient capital
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46. How to Get Started:
◦ 1. Decide on the type of pharmacy
◦ 2. Assess potential market
◦ 3. Develop a detailed business plan
◦ 4. Determine the legal structure
◦ 5. Identify financing options
◦ 6. Select a location
◦ 7. Obtain licences, permits and insurance
◦ 8. Develop a marketing and promotion plan
◦ 9. Establish the management philosophy of the business
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47. Obtaining Licences, Permits, and Insurance
◦ 1. General business items (e.g. zoning, fire, business
interruption, health and safety)
◦ 2. Pharmacy specific items (eg. Pharmacy License –
College of Rx, software, suppliers, contracts)
◦ 3. Insurance (e.g. natural disasters, physical accidents,
employee, health / injury / compensation, professional
liability)
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48. Types of Pharmacy
◦ Health Authority Associated Pharmacy (ambulatory care
pharmacy, Cancer drug Pharmacy, HIV drug pharmacy, hospital
pharmacy, corrections facility pharmacy, addiction, etc)
◦ Community Pharmacy (consulting pharmacy, compounding
pharmacy, retail pharmacy, veterinary pharmacy, central fill pharmacy,
etc)
◦ Other Pharmacy (nuclear pharmacy, military pharmacy, etc)
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49. Determine the type of Pharmacy set-up that is
most compatible with your needs and style
◦ Your pharmacy practice desires
◦ Your pharmacy training (Community residency, hospital
residency, certificate training, certified diabetes educator, certified
geriatric pharmacist, certified asthma educator, injection training,
Pharm D, MSc, PhD, MBA, etc.)
◦ Your experience (technician, staff pharmacist, pharmacy
manager, corporate staff member, other)
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50. Establishing the Management Philosophy of
the Business
◦ Management / Leadership Style
◦ Organizational Culture
◦ Corporate Values
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51. Opportunity to select every item required for
this new venture
Hiring one‟s own personnel (compatibility)
Finding a great location
Creating sound policies and procedures
Avoiding having to pay for intangible assets
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52. High level of risk
Longer term to profit
Considerable time investment
Need to do everything yourself
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54. 1. Key Initial Questions
2. Advantages and Disadvantages
3. Value Assessment and Price Determination
4. Purchasing Methods
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55. Key Initial Questions
◦ Why is this pharmacy for sale?
◦ Is the owner retiring?
◦ Has the neighbourhood changed due to competitive,
demographic or economic factors?
◦ Is the pharmacy on the verge of bankruptcy?
◦ Is there a lien on the business?
◦ Who are the Doc‟s? How long is their lease?
◦ Lease term of Pharmacy? How long?
◦ Is the current lease assignable?
◦ Zoning? Will the area change due to development?
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56. Advantages
◦ Lower level of risk for the buyer
◦ No additional competition added to the marketplace
◦ Reduced set-up and start-up costs / less risk
◦ Less time required to show a profit
◦ Buyer receives established goodwill
◦ Business has an established clientele
◦ Business provides buyer with trained employees, inventory,
physical facilities, and established relationships with
healthcare providers
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57. Potential Disadvantages
◦ Inadequate facilities
◦ Old/Outdated fixtures and equipment
◦ Inventory that may be too large and/or unsellable
◦ Established policies and procedures do not match with new
owner‟s philosophy
◦ Inflated sale price
◦ Problems with the location or Landlord
◦ Undesirable established leases / lease terms or conditions
◦ Existing owner may reopen and take customers
Write them into the deal or have a non-comp clause
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59. Chain drug stores, supermarkets, mass
merchandisers, mail order, hospital
pharmacies, primary care centres.
◦ In 2010, Pharmacy chains, franchises and banners
accounted for 61% of the market, leaving 20% for
supermarket and mass merchandiser pharmacies and 19%
for IND‟s.
◦ In 1995 the breakdown was 60%, 8% and 32% respectively.
Drug Reform
Drug Shortages
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60. Third Parties
◦ Plans are becoming more complex and patients don‟t
understand them.
Reimbursement Rates
◦ In Canada – more than 50% of prescriptions paid by
Government; most of the rest is covered by an insurer like
Blue Cross and NIHB; very little “cash pay”.
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61. Key Industry Stat
◦ Per capita usage of prescriptions is climbing among all age
groups, ranging from 4.21Rx/year among those aged 0-39
years up to 41.82/year for 60 years and up.
Patient Care Service Development
◦ Home delivery, home consultation, patient charge
accounts, disease management programs (diabetes,
asthma), LTC, Group Homes, Workplace immunization etc.
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62. Niche Development
◦ Developing a relatively narrow specialty or niche to fill an
observed unmet need in the local community, such as AIDS
services, addiction, pain or celiac.
Chains are slow to change to the new
business model
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