Medici Capital > Articles > Pharmacy Ownership: Generational Change

Article By:

Frank Sirianni

Pharmacy Ownership: Generational Change

Tuesday, 4 September 2007

As with many major business changes, an unexpected event creates an opportunity which drives the required fundamental and lasting change.

Anecdotal evidence indicates that in the period leading up to 30 June 2007, a number of older pharmacists took the opportunity to either sell their pharmacy or refinance their pharmacy to place the proceeds into Superannuation as a consequence of the Commonwealth Government's changes to Superannuation laws. Perhaps an unanticipated consequence of the "once in a lifetime" ability to contribute significant amounts into Superannuation before 30 June 2007, has been to seed generational change in pharmacy ownership.   While a consequence of this sell down by older owners has resulted in the long awaited generational change in some cases, in many cases it has not. Unfortunately, many young pharmacists do not have the financial capacity to borrow the funds required to purchase the businesses. Most have been taken up by pharmacy owners with financial capacity to borrow the required funds.

To achieve sustainable generational change, pharmacy needs to develop funding and ownership solutions for younger pharmacists, the new generation. These solutions must take account of the limited capital many of the new generation of owners will bring to the table. Medici Capital is developing an approach to provide better access to capital as well as assist pharmacists to become ownership ready.

The requirement to be a commercially competent pharmacy operator is even more important when it comes time to seek finance for the purchase of a pharmacy. With defaults in pharmacy on the rise, the onus is on the in-coming owner to prove their capacity to provide a sustainable business model.

Exiting partners may need to provide support to ensure that junior partners can obtain sufficient funds to enter into pharmacy ownership. In these instances, however, it is just as important that the senior partner protect their interests in the event that problems occur in the partnership.

Pharmacy needs to develop and monitor market transparency and access in the sale of pharmacies. The current system is heavily biased towards the sale of pharmacies to pharmacy owners with financial capacity to borrow the required funds and a quick turnaround. The new generation is not yet able to match their appetite, financial capacity, and willingness to buy with limited disclosure.   As a prospective pharmacy owner, start looking early. Know who the key players in the market are and get to know them. Understand what level of disclosure you are likely to get, and familiarise yourself with financial statements, qualitative information, and demographics. An understanding of the information you receive will greatly assist you to understand the deal on the table.   Use www.practice4sale.com.au to identify what is out there and sale prices being asked. The more you familiarise yourself with what's on offer, the better position you are in to formulate an understanding of what you're looking for.   As a pharmacy seller, look to sites such as Practice4Sale to ensure that your pharmacy is exposed to the largest audience possible. This will ensure a better outcome for yourself and prospective owners.

Fair opportunities and business models for junior partners to enable the transfer of ownership and another alternative for true sustainable generational change. In determining your exit strategy from pharmacy, understand that fair opportunities and business models for junior partners to enable the transfer of ownership may be an alternative that could work well for you. The ability to bring on a junior partner as a store manager may provide additional flexibility to your exit strategy; allowing you to comfortably reduce your workload with the assurance that the business will not be adversely affected by your absence. At the same time, however, you are providing another alternative for true sustainable generational change; ensuring that your managerial competency continues with the new junior partner.

In light of a changing state of pharmacy ownership, new owners must ensure that they compliment professional and clinical skills with the skills required to manage or own a pharmacy. It cannot be assumed that professional competency as a pharmacist will equate to commercial competency; these skills need to be developed.   Many young pharmacists will not have significant managerial or ownership experience when looking to buy into their first pharmacy. Hence it is vital that education is provided as part of the plan to purchase a pharmacy.   Medici Capital's Ownership Ready series is a great place to start. You need to know how to run a business in preparation for your own ownership opportunities.

For further information go to:
Practice4Sale:
(http://www.practice4sale.com.au/)
Practice4Sale provides a listing service for pharmacies for sale as well as partnership and job opportunities.

Medici Capital:
(http://www.medici.com.au/)
Visit Medici Capital for reference material and checklists.

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