The Right Medicine for Pharmacy Financing
Pharmacists have many different options when they graduate from pharmacy school. They can join a pharmacy chain, open a place of their own, or work at a hospital. Those who aspire to starting their own pharmacy must have the skill set to both fulfill prescriptions and run a business.
There are more independent pharmacies than there are chain-run stores. Among the chains, CVS is by far the largest, followed by Walgreen’s. (Often these competitors are found near each other.) A recent graduate might want to consider working for at least a year or two in order to gain real-life experience before starting their own venture. A more experienced pharmacist likely will review options, including buying an existing pharmacy that is up for sale.
Most people aren’t able to self-fund new ventures and require an infusion of investment, whether that comes from selling equity in the company or borrowing money from a bank. This is the case regardless of whether the pharmacy is starting from the ground up or being purchased as a business acquisition. Naturally, there are different circumstances and different types of loans:
Pharmacy Acquisition Loans
In addition to traditional bank branches and credit unions, there is an abundance of FinTech companies that are available on the internet at the client of a button. Buying an existing practice from a pharmacist who wants to retire or do something else could be the easiest route to business ownership. Securing a business acquisition loan is usually easier than obtaining startup funding because the existing company has, presumably, a track record of success that can be quantified. A new venture, on the other hand, requires a lot more risk on the part of the lender.
Pharmacy Expansion and Renovation Loans
If you currently own and run a successful pharmacy business, it may not be very difficult to obtain a term loan or an SBA loan to pursue your business goals. With the Baby Boomer population aging (just watch TV ads during the 6:00 news), pharmacies cater to them by providing all sorts of medicines, as well as over-the-counter drugs, hair care and shaving products, candy and magazines. There are many different funding options for expansions and improvements to existing businesses.
Pharmacy Startup Financing
While lenders might typically shy away from providing startup funding, pharmacists are considered professionals, and their industry is held in high esteem. Conduct your research to determine whether your local area has the need for and can support a new pharmacy. For instance, in New York City, there are countless Duane Reade and CVS pharmacy locations. However, in suburban and rural areas, there may be a dearth of pharmacies. Make sure you know the competitive landscape in the area where you want to run the establishment.
Like any other type of business owners, pharmacists must determine the most appropriate form of funding for their ventures. These range from traditional small business loans from a bank, business lines of credit, cash advances, SBA loans, and other forms of financing.
Uses of funding include:
Business acquisition funding – Loans used for the purchase of an existing pharmacy business.
Building purchases – Financing for the purchase of properties and/or buildings.
Recruiting, Hiring and Training Staff – A line of credit may be the solution to cash flow crunches when a pharmacy has to recruit, hire, and pay staff.
Digitizing Customer Records – Converting patient/customers’ records from paper documentation to digital files creates efficiencies and benefits for pharmacies and their clients. Electronic files reduce the risk of errors, and a digitized system provides easier patient tracking. The benefits for customer service are abundant: digitizing patient files establishes an electronic record of prescriptions and purchase history. This information is stored for when the patient needs future medications.
Before applying for any type of pharmacy funding, there are three things to look for:
Three Accounting Mistakes for Pharmacists to Avoid:
- Not having a firm grasp on the state of your finances – If you cannot keep track of your own money, how can the bank expect that you will be a good custodian of their money? When applying for a bank loan, have P&L statements and tax returns ready. Start assembling your documents and, if purchasing an existing pharmacy, the financial data from its past year in business.
- Not having a formal accounting system in place – No one goes to pharmacy school wanting to deal with cash flow, operating expenses, and slow-paying insurance companies. Unfortunately, these issues come with the territory of running a healthcare-related business in the 21st century. Don’t take this aspect of the business lightly. Keep track of expenses. If you don’t have the time or the skill set to manage the finances, hire someone who does.
- Taking too long to send out invoices – Stay on top of receivables and reimbursements. Insurance companies are notoriously slow in paying for anything, don’t delay the process further by submitting invoices slowly.
Fortunately, doctors, dentists, pharmacists and other health professionals are held in high esteem in the United States. Their industry is considered much less risky than restaurant ownership or construction in the eyes of lenders. Thus, pharmacists are often able to borrow money with attractive repayment terms. Be sure to explore your options thoroughly.
The COVID-19 pandemic is causing disruption for business owners in healthcare industry.
Read more: How to Build a Medical Office Business Plan: 10 Steps to Draft a Strategic Plan