Excerpt from Brian Keen's "Guide To Buying A Pharmacy"
Considering the many types of pharmacy to choose from - The choice of new or established pharmacy
So, What Is The Choice?
Type – New/established?
Region – Country/city?
Group Member or Independent?
Here are some tough questions, ones that will be critical to the success of your business venture: The pharmacy industry is facing challenges on a broadening front and if you aren't ready to handle them then if could even come down to a matter of survival...
Type – New/established?
Nowhere is your level of optimism vs. pessimism going to be more seriously challenged than now, when you are faced with the choice of business type: If I go out on my own, should I start from scratch or buy an existing business?
Without doubt, there are problems, pitfalls and benefits in either course. If you start from scratch, you will need – in addition to capital for establishing the business – enough money for day-to-day expenditure (working capital) and the potential to earn sufficient profit for your living needs. If the business does not earn a net profit for weeks, months or even years, you will in effect be living off your capital: On the other hand, with an established business you will generally have the attraction of instant cash flow. If however you are about maximizing capital gain by adding 'super value' and are perhaps looking for a business with problems that need fixing, or with untapped opportunities, then the picture may be different... For most people though, managing a business is enough of a challenge and, as with real estate, most people are happier leaving the 'fixer-uppers' to the 'traders'. Nevertheless, there is no doubt that some businesses without major problems offer significant untapped potential, and that is what we are aiming to help you identify. Caution again though... don't try to run before you can walk, so leave the gambling with your hard-earned assets to the roulette wheel!
New – or Starting From Scratch
You will have gathered my view that to be successful in business, any form of business, you need to be an entrepreneur – one in who hope springs eternal. Moreover, if you are gong to start your own, with a greenfields site of some shape or form, then without doubt there is no room anywhere for the pessimist in you; on the contrary, you'll need self-confidence and resilience in spades...
Plainly speaking, whether in fact entrepreneurs are born rather than made, this is one of your first tests...(on this point, I take a bet both ways – I am firmly convinced that if you've got the ambition, with the correct training you can become an entrepreneur).
Advantages seem to abound...you make all the decisions and choices to do with the establishment of the business. This includes myriad issues such as location; image; the design of your own premises and layout; marketing strategies; product ranges; hiring employees; choosing suppliers and so on.
You control and determine the operation of the business – the marketing, the financial management and the administration – you set your own standards and procedures according to your vision...
In short, you do the work and you reap the rewards; in fact, you are the determining factor in the success of the business. It will usually be less expensive to start a business from scratch, as there is no goodwill to pay for and it can be built slowly over time, and you may be able to expand the business at your own pace as the profits allow.
Disadvantages aren't perhaps apparent, but with each and every advantage, there lies a hidden disadvantage, and some are like the Titanic's iceberg! The answers to virtually all the questions you must address are unknown and unproven; you may believe they will work but unfortunately only time will tell...
To evaluate the prospects validly you must have reliable information and detailed knowledge of business operations and local trading conditions. You will need to see your business complies with all the legal restrictions; fills a need in the marketplace; is budgeted correctly; and that your selling policy is viable in terms of yielding a fair profit. And you must be sure that the potential sales or turnover will justify the investment.
And there's more: you have no proven track-record to show a lender, so it may be difficult to obtain a loan. You may have difficulty arranging credit from suppliers, again because there is no track-record and, as a result, you may even have to pay cash for some supplies in the initial period. You have no established supply lines – great, but just reflect for a moment on how much time you will need to source them. You may not be known in the local market and you have no customer base – prospective customers may well treat you with suspicion, as are your marketing and promotional strategies are untested...
Am I being harsh? Yes! But the truth is that, with only rare exceptions, starting from scratch is the tough option because you are sailing into uncharted waters... accordingly you will need a valid business plan which sets out clearly the course you intend to steer and where you intend to end up. The objective view you must hold firmly in your mind at all times is that the business is to earn an appropriate return on the capital invested – and in the process allow you to make a reasonable living as payment for the day-to-day services you provide; and this must recompense you for the use of your funds and provide the cash flow to meet your loan commitments in terms of interest and repayments. It is also important to see a return on any profits retained in the business for expansion.
After all this is said, there is an idea locked in to many people's minds that a new business needs say two years to become established and make money. That is simply untrue. Many new ventures, if properly planned and managed, are profitable from day one; or certainly fairly quickly... in fact, you should aim for immediate or quick profitability unless there are sound commercial reasons for thinking otherwise. However, given you keep a wary eye on the uncertainties of the marketplace, if the opportunity to trade in profit early-on is not present then maybe you're better off putting your money on the tables at the casino!
One thing to do before you rule out any country pharmacy is contact the Rural & Remote Pharmacy Workforce Development Program to learn what incentives it may qualify for – they may include: Emergency Locum Service; Rural Maintenance Subsidies; Start-up Allowances; and improved access to PBS. This information can be accessed via the Guild website.
Next time - Country or city location?04.02.08
