Are YOU ready to buy?

PLEASE NOTE reference to websites

As a young pharmacist, you graduate, gain experience in various pharmacies and eventually manage a pharmacy. For the majority, getting to this rung on the pharmacy ladder is inevitable; however the next step up is always the hardest to take. In a market characterised by high values and perhaps a sellers market, coupled with increasing risks; achieving ownership is a concern for many young pharmacists.

There are proven ways to evaluate your capacity to own and this knowledge is often readily available. Training programs such as Medici Capital's "Ownership Ready" series are designed for prospective owners to learn about the process and self evaluate their readiness for ownership. (see http://www.medici.com.au/ownershipready/ for more details)

The State of Pharmacy

Good advisors will begin by reviewing the market with you and ensuring a clear vision of pharmacy and its outlook for the future.

Facts:

• While the average pharmacy is currently achieving approximately $2.0 million in annual sales, almost 60% of pharmacies have turnover below the average. The population is skewed by a few very large pharmacies.
• Gross Margins continue to decline and we regularly now see reported margins below 30%.
• Pharmacy is increasingly reliant on prescriptions. The current average portion is approximately 74%. This figure excludes S2 & S3 shelf medication. Including S2 & S3, 85% - 90% of pharmacy sales comes from scheduled medicines. Therefore 10% - 15% of an average pharmacy's sales comes from genuine retail.

The Decision to Buy

In assessing your suitability for ownership, there are three main areas you should evaluate. It's your money and life, so it is important that you are critical and honest in your self evaluation of:

1. Your objectives and motivation
2. Your ability to handle the personal and physical demands of ownership
3. Your business competency

What are your motivations to own?
In finding the right pharmacy for you, your motives for ownership needs to be linked directly to the characteristics of the pharmacy. It is important that you are able to see past the romantic notions of being self-employed and be motivated by a desire to succeed as an owner.

Do you want better work hours / to be your own boss? Why?
Ownership will give you control and allow you to make your own decisions that directly affect the business. With ownership comes responsibility and risk. In the initial stages, "better working hours" are unlikely.

Are you left unfulfilled / bored after a day at your present job?
Find out why you are unfulfilled then challenge yourself and take some initiative. Skills and positive experiences gained now can only improve your future performance as an owner.

Do you have a pioneering spirit, a desire to change things?
Instant ideas for changes in products, services or layout regarding the prospective pharmacy may suggest that you possess some of the right motivations to own.

Are you buying or "shopping"? What happens when you don't buy?
Being disheartened, exhausted and disillusioned after an unproductive search are all positive signs. Being ready to sign the dotted line if the right pharmacy is available is a sign of your intentions.

Are you prepared for the physical and emotional demands of ownership?
A new business can be very demanding. Even with positive intentions to purchase, the new owner must have the physical stamina and well being to combat the risks and responsibilities of ownership. Pharmacy ownership demands long hours, concentration and constant attention to a varied and unpredictable customer base. Ownership can drain your physical and emotional strength as increased work load, schedules and new responsibilities are destined to play on your well being. In these instances an unrelenting commitment and a strong passion for work can protect you from burn out, illness or physical distress.

Are you prepared for long hours in order to succeed? Do you have the stamina?
It is not uncommon for new owners to work 12 or more hours a day including weekends.

Can you handle the emotional strain? Do you have family support?
Your family will also have to shoulder additional responsibility; it is easier when you have their full support.

Are you prepared, if needed, to temporarily lower your standard of living? Are you prepared to lose your savings?
In the initial stages, it is best to be prepared to sacrifice your lifestyle for the good of the business. Commitment is essential to ensure the potential of your investment is realised. The enormity of pharmacy loans is no secret. Will you be comfortable with the level of debt?

As an owner there is always the potential for loss of savings, possessions, family & friends.

Equally, you are not now remunerated for hours but for profit!

At what level do you rate your personal skills & experience?
You may be professionally and technically competent as a pharmacist. But are you commercially or business competent?

Every business requires the application of commercial skills to be successful. Without the fundamental knowledge of how to run a pharmacy, you run the risk of business failure. For the prospective owner it is most important to recognise the areas of your business that may require additional support. This is easiest to address if you are able to identify the areas in which you are most capable. By placing your core capabilities up against all the competencies needed, you will be able to realise which areas require the additional attention and development.

Do you have previous experience running a pharmacy?
In moving towards ownership, experience in running a pharmacy is highly beneficial. There are also several ways to increase your knowledge: business training courses, pharmacy conferences, and workshops are examples.

Are you good at planning and organising? Are you a good decision maker?
To be able to stay on top of the operational issues of the pharmacy is essential for smooth running. You need to manage promotions, accounting and financial records as well as inventory to name a few areas. To be the sole decision maker and success driver, ability to make sound and attentive business decisions is essential.

Do you know your professional strengths and weaknesses? -what you do / do not do best?
Constant analysis of your own capabilities will help you determine the extra personnel, training, and equipment that will be needed. Also allocating tasks according to competencies, a strong overall performance of the pharmacy is achieved and staff (including you) are content and comfortable with their role.

What is your financial capacity for ownership?
The most common challenge for prospective owners is the availability of sufficient "free" equity to buy the pharmacy they desire. Funding the investment may be the primary concern but sufficient cash flow is also critical in the early redevelopment stages of ownership.

Do you have sufficient funds for the purchase and also for working capital? How have you worked this out?
It is best to have an experienced advisor help you financially map the early months of ownership. There are a range of financial specialists in the industry who can help you develop a business plan, projections, budgets and finance applications.

Are you a risk taker?
The average pharmacy value is well above $1.0 million. Asking prices often exceed value. For a first time owner, it is very easy to be uncomfortable with these amounts of borrowing. Maybe a partnership is a better entry mode for you?

Simplified Ownership Self-assessment

Question	Assess yourself - Yes / No and how?
Your objectives and motivation
1. Do you want better work hours / to be your own boss? Why?
2. Are you left unfulfilled / bored after a day at your present job?
3. Do you have a pioneering spirit, a desire to change things?
4. Are you buying or "shopping"? What happens when you don't buy?
Your ability to handle the personal and physical demands of ownership
5. Are you prepared for long hours in order to succeed? Do you have the stamina?
6. Can you handle the emotional strain? Do you have family support?
7. Are you prepared, if needed, to temporarily lower your standard of living? Are you prepared to lose your savings?
Your business competency
8. Do you have previous experience running a pharmacy?
9. Are you good at planning and organising? Are you a good decision maker?
10. Do you know your professional strengths and weaknesses? -what you do / do not do best?
11. What is your financial capacity for ownership?
12. Do you have sufficient funds for the purchase and also for working capital? How have you worked this out?
13. Are you a risk taker? 14. Are you ready to buy?

NOTE - a more detailed Self-assessment worksheet and program is offered at the Medici Capital "Ownership Ready" Series see http://www.medici.com.au/ownershipready/ for more details

Synopsis

To be ready to buy, you must first assess yourself for capacity to buy and own a pharmacy. Having completed this process, the decision as to which pharmacy suits you is the next and obvious issue.

The Take-Away

• Ownership is not for everyone
• Professional competency does not necessarily mean you will be business or commercially competent
• If it is for you, and you have the required skills to make the transition from employment to ownership, it's can be a fantastic journey of discovery, fun, and wealth. Assuming you pick the right pharmacy for you!
• Use Medici Capital Online Indicative Valuation available at http://express.medici.com.au to test the asking price.
• Self-evaluation and personal goal setting, like all things in life, is fundamental and critical. As is planning.

Questions? Visit "Ask an Expert" (http://experts.medici.com.au)

Medici Capital, industry leaders in pharmacy valuation, finance & management consulting.

Helping pharmacists achieve their goals.