Before you buy a pharmacy, there are steps to take which can help ensure your future purchase is a good investment and business decision. Is this a common stock or asset purchase? Has the wholesaler provided a market analysis? What does the accounting file look like? In this video Ollin Sykes, CPA describes how these due diligence questions need to be answered before buying a pharmacy, and how a pharmacy CPA or advisor can provide guidance.
Are you financially prepared to buy a pharmacy? Sykes & Company, P.A. partnered with First Financial Bank to explain how to prepare financially for this purchase.
If you prefer to read this content, the video transcript is below.
Ollin: Probably first and foremost is, of course, location, location, location. And typically, there’s going to be some type of market analysis that’s being provided potentially by maybe a wholesaler or the seller themselves, but clearly the location of this existing pharmacy and making sure that it’s appropriate for you going forward is critical first and foremost.
As you begin to dig into that process of due diligence on the location and on the actual operation, the partnering with a CPA who’s got experience with pharmacies, the due diligence thereof, determining the valuation of that pharmacy in an informal basis, and I can explain, and deciding obviously about whether this pharmacy purchase is an asset purchase or a common stock purchase becomes very important in this process. And obviously you need professional help in doing that.
When we look at the valuation of the pharmacy on a formal basis what we’re talking about doing is taking the existing accounting file, not the tax returns, not the financial statements that are provided with the accounting file, digging down on that accounting file for multiple years to see what’s in it, what’s not in it, and then recasting those numbers to reflect the reality of what it would look like without the seller involved. Recasting is essentially replacing or adding back certain numbers that would not exist should you purchase that pharmacy. So then, and only then, can you determine an appropriate valuation of that process as a part of your due diligence and price determination. Obviously digging down into those numbers you’ll be able to determine what is in your best interest from an entity setup perspective. Depending on what track you go down there, there are all types of help and assistance that you potentially could need in maximizing the valuation of the pharmacy that you’d be looking at purchasing. Obviously, securing substantial adequate financing is critical in this process.
Once you come to some type of agreement a formal letter of intent, which is binding only when financing perhaps is secured, finalizing purchase agreements and documents, the actual entity setup if that’s required depending on the type of purchase that it is, and obviously the regulatory phase and compliance issues would need to be dealt with. So, at some point adding a legal healthcare advisor who’s experienced with pharmacies and working with all those items are very important. So, once you bring all these items to a closure, and you can go down many different avenues with all these items that we’ve just talked about for the last few minutes, only then can you come to a closing and potentially a grand opening of the new pharmacy.