Pharmacy loans: What are they and is it right for your business

If you're thinking of buying a pharmacy, before you dive into the world of prescriptions and pill bottles, there's a lot to think about. From navigating government regulations to checking out the financial health of your dream pharmacy, there's plenty to consider.

This guide examines how you can find the right pharmacy to buy, how much it costs to buy a pharmacy and how to find the right business loan to fund your purchase.

What factors should you consider when buying a pharmacy?

Make sure you consider the following factors if you're considering buying a pharmacy:

• Business history. How long has the pharmacy been in business? Does it have a solid base of loyal customers?
• Business performance. You'll need to review the pharmacy's financial performance in previous years to gauge how it is performing. Check previous profit figures and forecasts for the future. Is there room for growth?
• Your experience. While it's not necessary to have previous experience running a pharmacy to qualify for a loan, previous management experience is a must.
• How the industry is faring. Regulatory changes from the federal government can have a significant impact on the profitability of pharmacies. For example, changes to the Pharmaceutical Benefits Scheme (PBS) can see the cost of drugs reduced and have a significant impact on your bottom line. You'll need to make sure you're well across the latest changes to regulations before you buy.
• Why the current owner is selling. Find out why the current owner of the pharmacy is selling as this could have a huge impact on whether buying that particular pharmacy is a successful choice.
• Suppliers. There are three main suppliers for the pharmaceutical industry in Australia: Sigma, Australian Pharmaceutical Industries Limited (API) and Symbion. This lack of competition means pharmacies only have a maximum of 30 days to pay their suppliers, which can have a significant impact on business cash flow.

Business loans you can use to buy a pharmacy

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Finder Score	Min. Loan Amount	Max. Loan Amount	Loan Term	Upfront Fee	Filter Values
Promoted 8.7 Great ScotPac Boost Business Loan	8.7 Great	$10,000	$500,000	6 months to 3 years	$0 application fee		A business loan for any industry. Borrow between $10,000 and $500,000, with approved loans funded within 24 hours. Minimum monthly turnover of $10,000 and 1 year of trading history required.	Go to siteView details Compare product selection Compare	loading
8.3 Great Valiant Finance Business Terms Loans	8.3 Great	$5,000	$500,000	3 months to 3 years	Variable, starting from $0		Enquire nowView details Compare product selection Compare	loading
Scotpac Line of Credit		$50,000	$500,000	Up to 2 years	3% for facilities up to $200,000, or 2% for facilities above $200,000.		Go to siteView details Compare product selection Compare	loading
Valiant Finance Line of Credit Loans		$5,000	$1,000,000	3 months to 5 years	$0 application fee		Enquire nowView details Compare product selection Compare	loading
8.8 Great Prospa Unsecured Business Loan	8.8 Great	$5,000	$150,000	3 months to 5 years	3% origination fee		An unsecured business loan available up to $150,000 that can be funded in 1 business day. You must provide 6 months of trading history, 3 months history of existing business purchases and have a turnover of $6,000+ per month.	Go to siteView details Compare product selection Compare	loading
9 Excellent Valiant Finance Vehicle and Equipment Finance Loans	9 Excellent	$5,000	$500,000	3 months to 7 years	starting from $399 and can be paid upfront or included in the loan amount		Enquire nowView details Compare product selection Compare	loading
8.3 Great Prospa Small Business Loan	8.3 Great	$5,000	$500,000	3 months to 3 years	3.5% origination fee		Small business loans are available from $5,000 - $500,000 on terms of up to 3 years. At least six months trading history and a monthly turnover from $5,000 is necessary.	Go to siteView details Compare product selection Compare	loading
6.2 Standard ScotPac Invoice Finance	6.2 Standard	$200,000	$200,000,000	1 to 2 years	Establishment fee 1% of the limit		Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $200,000 in invoices.	Go to siteView details Compare product selection Compare	loading
8.9 Great Prospa Secured Business Loan	8.9 Great	$150,000	$500,000	3 months to 5 years	3% origination fee		A secured business loan available up to $500,000 that can be funded in 1 business day. Your business must have a turnover of at least $6,000 per month and you must provide 6 months of trading history and 3 months history for existing business purchases.	Go to siteView details Compare product selection Compare	loading
6.3 Standard ebroker Business Loan	6.3 Standard	$5,000	$5,000,000	1 to 7 years	$0 application fee		Small business loans available between $5,000 and $5,000,000. Get access to 70+ non-bank lenders on this independent platform.	Enquire nowView details Compare product selection Compare	loading

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How much will a pharmacy cost?

The price you'll need to pay depends on a range of factors. These include whether you buy a freehold or leasehold pharmacy, the size of the business, the number of staff employed and the range of products it sells.

The true value of a business can only be determined by analysing a long list of factors, including the following:

• Financial statements
• Physical and other assets
• Leases
• Market conditions
• Sales information
• Business plan
• Employee details
• Supplier details

To get an accurate idea of just how much a pharmacy is worth, you should engage the services of an accountant or business broker. They will be able to examine the business as well as its strengths and weaknesses to help determine a fair value.

How can I make sure the business is worth buying?

Before you buy a pharmacy or any other business, you'll need to examine and analyse the following factors:

• The pharmacy's financial position. Take a look at cash flow statements, debts, annual turnover and profit and loss statements from the past five years. Also consider any assets the pharmacy owns.
• The business itself. Is the pharmacy part of a franchise that restricts how it operates? Does the business space have all the necessary features and inclusions? What does the pharmacy sell apart from medications to ensure that it continues to turn a profit?
• Location. Location is a crucial factor in the success of any business that operates in the retail sphere, so consider the pharmacy's location and how that affects its ability to attract customers. For example, is it located in a busy shopping centre or close to a medical centre?
• Staff details. How many people does the pharmacy employ? What qualifications and experience do they have? How much are they paid?
• Supplier information. What supply agreements does the pharmacy have in place? Are they adequate or can you adjust them to suit your needs?

How can I finance the purchase of a pharmacy?

Banks, credit unions and a wide range of non-bank lenders can provide the business loan financing you need to purchase a pharmacy. However, it's not just as simple as filling out a quick application form with your personal details and the amount you want to borrow; you'll need to prepare a detailed business plan to prove your reliability as a borrower.

The lender will want the following details:

• The earnings and profit margins of the business
• Sales performance
• Sales and cash flow forecasts
• Any qualifications and previous experience you may have

Your accountant can run you through the process of developing a detailed business plan and loan application to help you find the financing you need.

Frequently asked questions

• Why do I need a specialist lender for a pharmacy loan?

  Specialist lenders understand the unique value drivers of a pharmacy, such as its script volume, location and 'goodwill'. They are comfortable lending against these intangible assets, whereas a standard bank may not be.

• Can I borrow 100% of the pharmacy's purchase price?

  It is possible, but you will need additional security. Lenders can achieve a 100% loan by taking security over the pharmacy's business assets as well as the equity in the pharmacist's residential property.

• How do banks value a pharmacy for lending purposes?

  Banks value a pharmacy based on a multiple of its Earnings Before Interest and Tax (EBIT). They will conduct a detailed analysis of the business's financial statements, script numbers and add-backs to determine its profitability and, therefore, its value.

• Do I need to be a registered pharmacist to get a loan?

  Yes. To legally own a pharmacy in Australia, you must be a registered pharmacist. Lenders will require proof of your registration with the Pharmacy Board of Australia as a condition of finance.

• What can I use pharmacy finance for?

  Finance can be used for several purposes, including buying an established pharmacy, purchasing a retiring partner's share, financing a brand new fit-out or refurbishment, or for working capital and stock purchases.

Written by

Tim Falk

Writer

Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 20-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio