Raising Finance for a Pharmacy

We believe that pharmacists and all potential pharmacy owners and managers should have access to all the necessary information, finance options and support they need in order to successfully open, start and finance their pharmacy business.

Whether you are a qualified pharmacist or already a pharmacy owner, buying, starting or running a pharmacy could be a rewarding next step for you. 

We can help provide financing  for: 

• Purchasing a pharmacy 
• Refurbishment funding
• Specialist equipment/technology asset finance 
• Equity purchase 
• Tax funding 
• Commercial mortgages

Do banks like to lend to the pharmacy sector?

The first place most would-be pharmacy owners will go to seek finance to buy or grow a pharmacy would be the high street banks.

All banks have different risk appetites, and while this varies from sector to sector (as well as individual circumstance), most banks consider pharmacists and pharmacy finance as being a relatively low risk and a good investment. Generally, the pharmacy sector is seen as a green sector which means banks and quite often happy to lend to pharmacists.

Why is there more demand for pharmacies at the moment?

There has been a big increased demand for pharmacies, especially within the last years. Pharmacies have definitely been one of the few businesses that traded well during the entire rise of the Covid-19 pandemic outbreak and through the following lockdowns.

This has also meant that pharmacy goodwill values have also held up throughout the entire pandemic. Pharmacies are businesses that are a necessary and vital service to all local communities (e.g. helping with the vaccination program). 

It is also important to note that there is a barrier to enter the market. There are restrictions to where new pharmacies open. There are ru;es about not being able to open a new pharmacy right next to an existing pharmacy. This could in fact work to your advantage as it diminishes the amount of competition in the area which gives your pharmacy a higher/ better chance to succeed. 

Start or buy a pharmacy?  

Many pharmacists dream of owning their own pharmacy. So, what is the best way of making this happen? To build? Or to buy? 

Both options come with a lot of pros and cons that you need to weigh out depending on your individual circumstances. On the downside, buying a business is often more costly than starting from scratch but it also has many added benefits.

It is much less common to start a pharmacy from scratch. This is because most areas that need a pharmacy already have one. However, if there is a gap in the market, it is possible to fill it.

Setting up a pharmacy

Setting up and building your pharmacy business from scratch is often accompanied by some substantial costs. 

To begin with, there will be the cots for the premises itself, which is most likely to be a rental agreement for at least the first couple of months or even years. The costs of applying to physically set up your pharmacy are fairly minimal however, you will need to set some money aside for necessary NHS contracts and premises registration fees. There also may be additional planning fees if a specific change of use is required.

Registering a pharmacy in the UK 

A pharmacy can only be registered by a pharmacist, a partnership consisting entirely of pharmacists or a corporate (usually a limited company). There are two key parts of the process of registering your pharmacy in the UK. The first is to make an application to the local NHS England Team for inclusion in the pharmaceutical list. Before a registered pharmacy can dispense  This process can take from four months or even longer in event of appeals. The second is the pharmacy premises needs to be registered with the General Pharmaceutical Council which can also take up to 3 months. 

What does a start up pharmacy need to fund?

If you’re going to start a pharmacy from scratch, you’ll need to purchase the property, the equipment, consumables, everything! These are the kind of costs you’ll need to consider and factor into your projections.

• Inventory, consumables and supplies
• Equipment
• Staff 
• Property
• Technology/IT
• Marketing
• Legal & insurance
• And more…

How to open a pharmacy in the UK 

There are two key parts to the process, the first is to make an application to the local NHS team in order to be included in the pharmaceutical list. Before a registered pharmacy is able to dispense prescription issues under the National Health Service, it must be included in the pharmaceutical list relating to a Health and Wellbeing Board Area.

It is important to note that this process can take up to four months or even longer in the event of appeals. The second is that the pharmacy premises must be registered with the General Pharmaceutical Council (which can take up to 3 months). 

Assemble a team of advisors 

Tapping into some expert advice may be pricey, but will be essential for you. Find a solicitor who understands you, your business plans and goal and most importantly someone who understands the independent retail pharmacy business. Having a financial broker will also help you immensely. One of the first steps in starting your business is setting up its legal status. You will also need advisors in real estate and insurance as well as lenders who are all instrumental in making your pharmacy business real. To create your own team of expert advisors you can start by enlisting our help with funding and accounts.

Create a solid business plan

Creating a business plan is one of the most important things that you need to take time out to perfect. In a way there is always a demand for people’s pharmaceutical needs. However, most of your potential customers may already be going somewhere else for all their pharmacy needs. Because of this, your business plan needs to specify why those customers will come to your pharmacy instead.

Find the optimum location

When it comes to any retail business it’s always location, location, location. It is the most critical success factor. In order to choose where the optimum location to open you pharmacy will be you must consider:

• Traffic: Are your ‘ideal customers’ likely to travel to this location?
• Visibility: Will your pharmacy be easily visible to attract customers to provide a constant flow of business to your pharmacy?
• Access: Does this location allow people to easily enter and exit? Is there parking or even a drive through option?
• Size: Can your pharmacy grow in this location?

You need to do your research! Has an independent pharmacy recently closed in the area? If so, it is important that you understand the reasons why. This may present an opportunity for you to capture a customer base that was already going to an independent pharmacy. It is also important to note that you will probably only have a six-month window to save that existing customer base.

Even the largest retailers such as KFC and Starbucks conduct extensive research before settling on a location, so maybe having one of them near you is a good sign. If you are able to set your pharmacy apart with your unique products and services, your pharmacy can thrive being near one of the big chain pharmacies. 

When choosing a location for your pharmacy you need to also consider the proximity of other businesses. 

Financing options for a pharmacy

Like any small business owner, it is important to pick the right financing option for you. At this stage, having a financial advisor or broker is crucial to begin the process as there are many financing options available including loans from traditional lenders such as commercial banks. There are 3 key elements that most lenders are primarily looking for:

• Good credit history 
• Sufficient working capital 
• A significant initial upfront investment

When you are preparing to ask for a loan, your business plan and financial statements should include three types of funding:

• Built-out capital to pay for the building of the store itself and any renovations, fixtures or any other fixed assets.
• Opening inventory financing, this is to pay for the initial stock you need to acquire to stock your pharmacy. While wholesalers can usually provide favourable terms for you it is highly unlikely that you will have a positive cash flow for at least the first six months.
• Working capital in order to fund day to day operations such as utilities, bills and payroll.

Buying a pharmacy, especially one in the right location, can definitely create a good profit. You might decide to buy an existing business rather than start your own venture from scratch. The biggest advantage of buying an existing pharmacy is that products, staff, premises, equipment, regular sales and customers are already in place.

However, buying an already operating business can be hazardous and if you aren’t careful, an extremely expensive process. This is why having the rightly skilled team in place from the get-go is so important. The team with the right skills, experience and legal know-how will be able to ensure that you do not have to pay through the roof.

Income streams and future cash flows from existing businesses are a lot easier to predict than if you were to start the business fresh from the ground up. You are in an even better position if you are able to assess the performance of the business to understand its current cash flow and value. It will be easier to agree to a price that works in yours and the seller’s best interest.

You need to also consider solicitors and accountant fees that you will need to pay. If the business you are trying to acquire is a large practice, you may need to do so as a partner. Another great option for you would be to buy out a current partner who may be retiring or selling their shares. We recognise that there are many challenges that come with Buy In and Buy Out finance and its provided funding tailored to help you make full use of the opportunity.

What information should you look at when buying a pharmacy?

• Local Competition. 
• GP practice in the local area – patient numbers.  
• Number of prescriptions that the pharmacy is doing.  
• The over the counter sales (OTC). 
• Cash flow, debts and assets of the business.

How long does it take to buy a pharmacy?

Once you have found a pharmacy that you would like to purchase, there are a few factors that can impact the time scale such as:

• Transfer of the property lease – third party landlords.
• Change of ownership – you will need approval from NHS England.
• Due diligence – make sure you use a specialist Pharmacy solicitor.

It is almost impossible to say how long any given sale of a pharmacy will take. On average, you will be able to realistically buy a pharmacy in 3-6 months.

Costs to consider when buying a pharmacy

The purchase of a Pharmacy is a major financial commitment and for most, a long-term one

Of course, you most likely need to raise acquisition finance to purchase the actual pharmacy business. You will also need to take into account any leasehold or freehold costs, or any rent and business rates.

When you are buying a pharmacy there will be many ongoing expenses that you will have to prepare for such as security measures, leases and payroll for your employees. Your largest expense is and will remain to be maintaining your prescription medication supply.

It can be difficult to maintain as you must always have enough on hand to meet monthly demand while ensuring that no medicine that you have expires before it is dispensed. Salaries and payroll come as a very close second.

You will also need to consider your ongoing costs for IT and cybersecurity, accounts, tax and marketing.

How can Samera business advisors help secure funding to purchase a pharmacy?

At Samera, we are committed to offering you financial services that will fit your business needs as well as your personal ones. We have a team of former bankers, all with extensive experience in the UK’s healthcare lending sector. We understand the sector and have the necessary contacts to ensure you get the best terms available and we connect you with the right contacts to make sure you get the best experience while obtaining your new pharmacy.

How much deposit do you need to buy a pharmacy?

We typically see pharmacists achieving 70-90% LTV (loan-to-value) rates, meaning you will often need a deposit of 10-30% of the value of the business. It all depends on the strength of the business you wish to purchase though.

What will the bank need to see before they lend? 

Target Pharmacy  

• Last three years accounts 
• Sales particulars  
• FP34 Statements – Can often take minimum 6 months  

This information will give you an indication of how the business has been trading over a period of time. What is the turnover, how many prescriptions have they undertaken (is this consistent) and what are the business profits? 

Personal information 

• CV 
• 6 months personal bank statements  
• Personal profile form 
• Last two years tax returns  

This information is important as lenders want to understand what experience you have as a pharmacist, have you taken on any extra management responsibilities that would help you run a business. 

Banks also want to understand how you conduct your personal finance, are your personal accounts well run, do you have assets in the background (property/cash)?

Funding options for pharmacists in the UK.

When funding your pharmacy, whether it be to start, buy, grow or maintain the business, you have various financial options.

• Acquisition finance. 
• Buy out a business partner/partner buy in finance
• Asset Finance
• Smaller loans to help with cashflow or stock purchase.  
• Relocation loans – Help to move the pharmacy, maybe into a GP practice.  
• Refurbishment loans – It is more important than ever for pharmacies to have the right clinical look or to add a consultation room. 
• Tax loans.

The pharmaceutical profession, like many others in the healthcare sector is highly competitive. As the demand for chemists is continuously increasing, you can find chemists on every high street, many of which are large chains or franchises. If you are working as an independent pharmacy, you will need to find a way to provide the same level of equipment as they do, which is one aspect that Samera specialises in. 

We can help you find the right type of funding for all your pharmacy needs such as: 

• Setting up a new business
• Acquiring new premises for your pharmacy 
• Acquire assets and equipment 
• Paying tax 
• Providing capital for growth 
• Acquire a pharmacy franchise

We help to match pharmacists with lenders and loaning options that are best designed and suited to you and your business specifically to assist with the growth and development of your business. The market for loans and finance options is so crowded that you may need assistance with finding the right financing option for you. This is where we are able to use our contacts and expertise to help you build your business in the most cost effective way. 

Unsecured business loans

Like many types of financing, Unsecured Business loans provide you with a large sum which you will agree to pay back over a certain term including interest. This is usually done through fixed monthly repayments. 

They are much like personal loans and are quite easy and simple to arrange. Lenders choose to approve your loan request based on various factors including your personal credit history and the credit rating of your business. 

Unsecured loans differ from secured loans in that they do not require you to put up any assets as security or collateral. This means that in the unfortunate event that something is to go wrong and you are unable to keep up the repayments of your loan, the lender will not be able to seize any assets.

However, to make up for the lack of security on the loan, lenders usually expect a personal guarantee from you and any business partners you may have. This will ensure to the lender that you will be able to make the repayments even if your business cannot. You can usually secure less money through an unsecured loan, due to the risk to the lender. You may also face higher interest payments.

Why you need Samera to arrange an unsecured loan for you.

In this day and age there are many unsecured loan providers for Pharmacists in the UK ranging from traditional high street bank lenders to the new generation of online lenders. All of whom have terms and rates that vary substantially. 

Finding the right lender for you is essential to minimise the cost of your borrowing. Here at Samera, we work with you to ensure that you get the loan that is most favourable to your needs. We use our knowledge of the UK market to find lenders that suit you with the most competitive deals. 

Secured business loans

Secured loans can be one of the most cost effective ways to borrow large amounts at once. If you are looking to borrow from £50,000 or more, a secured loan will probably be a good option for you. A major advantage of using secured loans as a means of financing your pharmacy is that it can cut the cost of borrowing and can help you borrow larger amounts than other types of lending. 

Secured loans are ‘secured’ by something you use as security in case you cannot pay the loan back. This ensures the lender that in the event that you are unable to repay back the loan, they can possess whatever assets you put up as security instead. If you do not repay as upon the agreed terms, the lender had the right to take ownership of the assets. Assets can be anything of value such as estate, cars or stock. 

You are usually able to borrow more through secured loans as they are less risky for lenders. This is why they are usually a more cost effective option as they can have lower rates of interest than Unsecured loans. 

Why do you need us to arrange a secured loan

Just like unsecured loans, secured loans have many different lenders offering various terms and rates and each of their rates vary substantially based on the ‘security’ being offered. We use our expertise and contacts to ensure that we find the most appropriate lender for you with the most competitive deal. We can also help you decide on the most appropriate and suitable form of security to offer. 

When large sums of money and long financial commitments are involved, it pays to have expert support on your side to guide you through what is often a stressful process. Our aim is to use our expertise to ease the stress and burden off you so you can focus on what you do best in your business.

Leasing 

Leasing is often a great idea if you want to maximise the use of the equipment you need without the full expense and responsibility of owning it. Leasing gives you the flexibility and freedom that could work in your favour.

With leasing you receive up to date equipment which allows you to always be ahead of your competitors and there are no upfront deposits required which works well for your cash flow.

You also have easier cash flow budgeting as repayments are fixed. The repayments are usually tailored to suit your individual circumstances. Leasing is also tax efficient as repayments may be offset against taxable profit. 

Buy-Ins and Buy-Outs

A management buy-out allows a company owner to sell their entire business to an existing management team. Instead of starting a whole new business on your own, you can join an existing practice. The simplest way to do this may be a Partner Buy-In. This is where you become a new partner and join an existing team. 

Partner Buy-Ins are common with professional practices and may be an opportunity for an existing firm to bring in new financial partners or even new talent. The most common way to Buy-In is when an existing partner is looking to leave the business or retire. 

As a new partner you will be required to put down funding to either to support the growth plans of the business or to compensate the existing partner. 

Asset finance 

Asset finance offers financial support for both small and medium sized businesses. It is the funding raised by usually a third party company, to either purchase or hire the necessary assets for your pharmacy business. Asset financing can work in a number of different ways and the terms of your loan will vary depending on the provider. 

Samera can ensure simple, fast and transparent assets and equipment finance for you.

Tax loans

Paying your taxes is something that unfortunately no business can escape from. Within your first 6 months of starting your business profit margins are usually quite low, and you may even run into cash flow issues. Tax loans allow you to spread out the cost of your tax demand into affordable monthly payments. They benefit your business as you will have a controlled cash flow, they often have flexible repayment terms and you will not have HMRC on your back or receive any fines as they will receive the funds from you on time. These types of tax loans are also quick and simple to arrange. 

Acquisition Finance

Acquisition finance is the capital you need to obtain for the sole purpose of buying another business, like a pharmacy. Acquisition financing may be the best financing option for you to buy a pharmacy as it provides immediate resources to users that can be applied to the transaction, allowing you to meet your acquisition aspirations quickly. 

Click here to read our article on How to finance a healthcare business.

Our Expert Opinion

“Understanding how pharmacy practices are financed is key to securing the best terms available. This means using a broker that knows the pharmacy market and also the banks requirements is key to funding your pharmacy practice”

Arun Mehra FCA

Samera CEO

You can book a free consultation with Arun here.