Buying a Pharmacy, Pharmacy Growth

The Entrepreneurial Pharmacy Podcast: How to Buy a Pharmacy

Are you interested in buying a pharmacy but aren’t sure how or where to even start 

Often, we get approached by entrepreneurs looking at buying a pharmacy but aren’t sure what kind of pharmacy they are buying and what the difference between an asset purchase and a common stock purchase is.  

In this episode of The Entrepreneurial Pharmacy Podcast, Ollin Sykes, CPA, CITP, CMA and Scotty Sykes, CPA, CFP bring you 40 years of pharmacy CPA insights that dive deep into how to buy a pharmacy, some things you need to consider before buying, whether you should do an asset purchase or a common stock purchase, and more!  

The Bottom Line Pharmacy Podcast is your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors, and other innovators.

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If you prefer to read this content, the video transcript is below:

Scotty Sykes: So, buying a pharmacy, where do you start? 

Ollin Sykes: All right, so we’re buying a pharmacy. We first and foremost have to decide what it is that we’re buying.  We often are approached by pharmacy candidates saying, “well, I’m buying the pharmacy”, and this is always the first question we ask “tell us exactly what you’re buying. Are you buying the assets? Are you buying the common stock?” And often we get this glazed look on their face that they don’t have a clue what it is that you’re buying. They’re buying the pharmacy which I assume they mean they’re buying the files. So, okay, so you believe you’re buying the script files. What else are you buying? You’re buying any equipment, you’re buying a script system, you’re buying the land and building, you’re buying receivables, you’re buying inventory. So, you have to decide exactly what it is that you’re buying, first and foremost. And frankly, it may be the advantage, depending on your situation, and exactly the entity that you are looking at transitioning into, to purchase the common stock and if you are purchasing the common stock, there are several different options that can be taken from a tax perspective. So, this question is very complex on the front end to kind of hone me in on exactly what it is you’re buying, and then once you know whether it’s an asset or a common stock purchase, then the next decisions begin to be made. 

Scotty Sykes: So, what are you buying really comes down to 2 options. Are you buying the assets or are you buying the stock of the pharmacy? And buying the assets would be where you have a target pharmacy, and you’re buying maybe the script files, some inventory, maybe a couple fixed assets. So, you’re just purchasing a few assets, most notably the goodwill script value there, obviously… 

Ollin Sykes: You can cherry pick really the assets that you’re buying. If you’re buying the assets, you may choose to buy the receivables, for example, at a discount. Which happens a lot of times, and certainly you don’t want to pay full value for them, and you need to do your, of course the key thing here is you’ve got to do your due diligence to see exactly what’s behind the numbers that are being presented to you by the seller or a broker, especially if it’s presented to you by a broker, because all that broker is interested in is getting paid by the seller, they could care less whether you’re a success or not, they just want to get the transaction closed and often they will push you to sign some type of non-disclosure or actually even an agreement as far as what the price is before you really start performing your due diligence. 

Scotty Sykes: And then the other side of that is the stock purchase where you’re buying the entity itself, the entity structure itself. You step in the next day as the 100 percent owner of ABC Pharmacy, Inc. 

Ollin Sykes: That’s correct. 

Scotty Sykes: And so, whatever’s attached to that pharmacy, known and unknown, is now yours as the new owner. 

Ollin Sykes: That’s correct. In fact, we received a signed engagement letter this morning from a pharmacy where a gentleman is a PIC. He’s been working at the pharmacy, he’s purchasing a common stock in a special transaction. He steps right in as the owner on the first part of April when the transaction closes as if nothing ever changed. He keeps the entity in place. He keeps the same federal ID number. He owns all the assets. He assumes any and all liabilities known and unknown that are in that entity. Takes that responsibility. He also takes responsibility for potential PBM audits or IRS or State Department of revenue audits for income tax and sales and use tax. So, he potentially is pulling on a lot of different, potentialities as far as those unknowns are concerned again, and he clearly needs to have done his due diligence and you can expect someone who’s already been working in a pharmacy as a PIC for a period of time to really have a general, pretty good general understanding of what it is he’s purchasing, but still doesn’t negate the fact that he needs to do his due diligence. 

Scotty Sykes: So, where do you begin with buying a pharmacy? Well, you need to know what you’re buying, first and foremost. 

Ollin Sykes: Correct. 

Scotty Sykes: Or have an idea of what you want to buy. 

Ollin Sykes: That’s correct. 

Scotty Sykes: So, step one, know what you’re buying. I appreciate you listening out there, and we’ll have some more episodes coming out soon! 

Ollin Sykes: Have a great day! 

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