UBC Phar400-startup or buy pharmacy-28oct2011


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Presentation to 4th Year Entry to Practice UBC Pharmacy students on starting or buying a Pharmacy

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UBC Phar400-startup or buy pharmacy-28oct2011

  1. 1. October 28, 2011 Gerry Spitzner retailSOS.ca
  2. 2.  Advantages and disadvantages of purchasing an established Pharmacy vs starting a new Pharmacy. Important factors before you start actively searching to establish new or purchase. Explain factors important in leasing & rent calculation. retailSOS.ca Gerry Spitzner 2
  3. 3.  Capital requirements for establishing a Pharmacy and possible sources of capital. Factors important in performing a Pharmacy location analysis and analysis of potential markets. retailSOS.ca Gerry Spitzner 3
  4. 4.  What, Who and Where Do I start? Key Tasks for the Prospective Owner Reasons for Wanting a Franchise Pharmacy Opening a New Pharmacy Purchasing an Established Pharmacy retailSOS.ca Gerry Spitzner 4
  5. 5.  What‟s your BIG idea? What is your why? How will you benefit? Is this right for me; right now? Are you ready? ◦ It takes time, commitment, a good idea, the right personality and at least a few basic business skills to start and run a small business successfully. retailSOS.ca Gerry Spitzner 5
  6. 6.  The BIG question... Start up a new independent practice, or purchase an established Pharmacy? Franchise, banner or independent? “Full mix” drug store, Health Centre or simply Pharmacy? retailSOS.ca Gerry Spitzner 6
  7. 7.  Pharmacy set-up support and type of pharmacy ◦ Corporate Pharmacy retail stores  (employee or owned and operated by the licensed “associate- owner”, closely related to franchise, “manager” of a chain Pharmacy) ◦ Franchise Pharmacy  (independently owned and operated, sharing in benefits, buying group, sales/promotions, contracts) retailSOS.ca Gerry Spitzner 7
  8. 8.  Pharmacy set-up support and type of pharmacy ◦ Banner Pharmacy  (independently owned and operated, working together, buying group, sales/promotions, contracts) ◦ Wholesaler  (independently owned and operated, shareholder in wholesale, buying group, working together) ◦ Independent Pharmacy  (independently owned and operated) retailSOS.ca Gerry Spitzner 8
  9. 9.  What departments and products? ◦ Consider location, clientele, age, mix, income levels, education, health providers nearby, other retail stores, etc. ◦ Alternative medicines, vitamins, OTC‟s, orthotics and mobility aids, wound care, private consultations, cosmetics, electronics, food and groceries, post office, greeting cards, books and magazines, etc. What professional services? ◦ Consultations, Medication Management, Education, Counseling, Disease state screening, Chronic disease management, Immunization, Refill services, delivery services, blister packing, LTC, Group homes, other retailSOS.ca Gerry Spitzner 9
  10. 10.  Hard skills ◦ Knowledge of Leasing ◦ Negotiation Skills ◦ Fundamentals of Financing and Accounting ◦ Project management Soft Skills ◦ Insights into complexity of issues involved in leading change ◦ Recognize your personal values and define work/life balance ◦ Cultivate a calm, clear mind even in times of stress ◦ Lead strategic change initiatives retailSOS.ca Gerry Spitzner 10
  11. 11.  Create your team of experts ◦ So you can do what you do best and they can do what they do best The first three people you need ◦ Lawyer; with Employment Law and/or leasing experience ◦ Accountant; with Tax Planning experience ◦ and a Banker; preferably with Pharmacy accounts retailSOS.ca Gerry Spitzner 11
  12. 12.  Create your team of experts The next person you need ◦ Mentors and advisors Then you need (if starting new) ◦ Commercial real estate agent ◦ A great general contractor that can get and keep the trades focused Then you need (if purchasing) ◦ Business broker retailSOS.ca Gerry Spitzner 12
  13. 13.  1. Develop a Business Plan ◦ This is an essential step and critical for the planning and viability of your business. 2. Have you undertaken extensive market research? ◦ Market research is a vital part of your Business Plan, including creating a viability report (Market Feasibility Study) 3. Do you need additional financing? ◦ Banks and other lenders or investors will require a written business plan 4. Consider and select the most appropriate structure to operate your business ◦ Partnership Agreement if applicable and Corporation retailSOS.ca Gerry Spitzner 13
  14. 14.  5. Submit your business name request (NR) for approval ◦ Recommend that you conduct a domain name search and put a hold ◦ Also recommend: contact CPBC; ask for clearance of business name 6. Incorporate your business either through a lawyer or yourself online ◦ Corporations are automatically assigned a Business Number (BN) for corporate income tax purposes ◦ As soon as you get the Incorporation documents send copy to CPBC 7. Review Pharmacy Licensure Guide from CPBC 8. Open a business bank account ◦ Visit your financial institution with a copy of your Business Registration Certificate retailSOS.ca Gerry Spitzner 14
  15. 15.  9. Register the domain name of company 10. Open accounts under your Business Name (BN) as required for payroll, GST/PST (HST). ◦ You MUST open a GST/PST/HST account if your sales are greater than $30K 11. Contact your municipality for a business license ◦ Need this to apply for a Pharmacy License 12. Determine whether there are any further licenses or regulations that apply to you or your business retailSOS.ca Gerry Spitzner 15
  16. 16.  1. As a Corporation, you must register your business for workers compensation ◦ Call WorkSafe BC 2. Open a Payroll Deductions Account under your BN which was provided with your business as part of incorporation ◦ Contact CRA 3. If you hire employees ensure you‟re aware of your requirements under the Employment Standards Act retailSOS.ca Gerry Spitzner 16
  17. 17.  Your Lawyer and Accountant ◦ You MUST keep detailed and accurate records for both your corporation and year end accounting Your Bookkeeper ◦ Detailed employee files and records ◦ Cash and credit card receipts Prescription records ◦ Hard copy storage and record keeping requirements retailSOS.ca Gerry Spitzner 17
  18. 18.  1. Identify available pharmacies for sale or suitable locations for a new one 2. Leasing Agreements 3. Determine a satisfactory purchase price 4. Evaluate and determine capital needs 5. Investigate & select best source of capital retailSOS.ca Gerry Spitzner 18
  19. 19.  Location Analysis is a Hierarchal decision… ◦ Region – Lower Mainland, Okanagan, the Island ◦ Market Area – West Van, Kelowna, Comox ◦ Trading Area – Caulfield, Glenmore, Comox “downtown” ◦ Site – specific location Location Analysis ◦ Location is the most important factor; “traffic” is the key ◦ Very difficult and expensive to re-locate ◦ You don‟t want to be “one block away from success” ◦ Doc‟s and/or nearby clinics ◦ Parking, Signage, Visibility retailSOS.ca Gerry Spitzner 19
  20. 20.  Location isn‟t… ◦ Customers may drive further to a Pharmacy they perceive having:  Better prices  Better service & services  Better selection of merchandise  Better amenities; such as private counseling area etc.  Better hours retailSOS.ca Gerry Spitzner 20
  21. 21.  Leasing ◦ Most Pharmacies lease (rent) their space ◦ Common is 5 years plus an option to renew for 5 years ◦ Once you sign you are obligated! ◦ Before you sign is the time to negotiate ◦ If you are purchasing an existing biz-need to get an assignment from landlord; usually this is a “subject to” clause retailSOS.ca Gerry Spitzner 21
  22. 22.  Leasing Agreements ◦ “Offer to lease” vs. “Lease”  “Offer” is starting point where both parties negotiate lease terms  Landlords have a standard “Offer” form.  It is at this point you try to drive your best bargain/value.  “Offer” usually includes “Sunset clause” – date by which lease must be signed or null and void.  A “lease” is a written legal document. Verbal lease does not exist.  A “lease” specifies what the lessor (landlord) will provide and what the lessee (you) will do and pay. retailSOS.ca Gerry Spitzner 22
  23. 23.  Leasing terminology What is "Base rent"? ◦ Base rent refers to the minimum or base amount of rent as set out in the lease excluding percentage rents or any other additional or operating costs. What is a "percentage lease"? ◦ A percentage lease refers to a specific type of rental arrangement that applies mainly to retailers, especially in shopping centres or multiple- tenant malls. ◦ In a percentage lease, the tenant pays a fixed or base rent plus a percentage of gross income. To create this type of rental arrangement, the tenant pays "Base Rent plus % of Gross Profits". retailSOS.ca Gerry Spitzner 23
  24. 24.  Leasing terminology What are "triple-net leases"? ◦ Triple-net leases are the most common form of commercial lease. ◦ They can be used for retail, warehouse and industrial properties. ◦ The tenant is responsible for all of the costs of operating the building (including taxes, insurance and repairs and maintenance) in a triple- net lease. What are “CAM” costs? ◦ Common area and maintenance costs; usually in a shopping centre lease. retailSOS.ca Gerry Spitzner 24
  25. 25.  Leasing Costs ◦ Downtown Vancouver/Victoria – YIKES!!! ◦ Langley/Surrey - $25 – $30/sq ft triple net plus CAM ◦ New locations/escalating construction costs ◦ Rural locations/old buildings; $12 – $25/sq ft Leasing example ◦ Store “footprints” vary ◦ Dispensary only; 1-2000 sq ft ◦ Taxes and CAM can be $5 - $8/sq ft ◦ So, a 2K sq ft store @ $30/ft plus $5  2000 x 30=$60,000/year  2000x 5=$10,000/year  Total lease cost is $70,000/12=$5,833/month retailSOS.ca Gerry Spitzner 25
  26. 26.  Desirable lease clauses ◦ Sublet clause – if excess space or for doc‟s ◦ Signing incentive; first month free while setting up ◦ Leasehold improvements clause  Often you get just the bare walls/floor ◦ Adequate signage – some landlords have restrictions ◦ Exclusive use clause – only Pharmacy or store selling certain products ◦ Contingency on financing – similar to purchasing a home ◦ Whether the tenant can assign or sublet the property retailSOS.ca Gerry Spitzner 26
  27. 27.  If purchasing determine a satisfactory purchase price ◦ Accurate pharmacy valuations are critical in successfully buying a pharmacy. Due to changes in Generic reimbursement and Professional Allowances; Pharmacy valuations are more complex and difficult than ever. Usually a multiple of earnings (EBITDA) Get expert advice from a Pharmacy biz broker or consultant. retailSOS.ca Gerry Spitzner 27
  28. 28.  Value Assessment & Price Determination ◦ Review the external business environment (i.e. the local community) ◦ Review the financial health of the business (e.g. solvency, liquidity, efficiency, sales, and profitability). ◦ Cash Flow. ◦ Assess the physical assets of the business (e.g. inventory, equipment, fixtures, technology, hardware & software, condition of the building) retailSOS.ca Gerry Spitzner 28
  29. 29.  Value Assessment & Price Determination ◦ Assess the *„Goodwill‟* that will come with the business (e.g. reputation, continued patronage, knowledge & expertise, information, any special products/services)  * Note: „Goodwill‟ is normally calculated as a multiple of annual net profit and may include number of scripts ◦ Assess the Financial liabilities of the business (eg. A/P) ◦ Assess the Financial assets of the business (eg. A/R ) ◦ Are there any outstanding legal issues or contracts? ◦ Will it be an asset or share purchase? retailSOS.ca Gerry Spitzner 29
  30. 30.  Identifying Financing Needs and Options ◦ A definition of „Capital‟:  “ Wealth, in the form of cash, equipment, property, or a combination of these factors, that can be used in the production or creation of income. ” Areas of „Capital‟ need ◦ 1. Set-up capital ◦ 2. Start-up capital ◦ 3. Operating capital retailSOS.ca Gerry Spitzner 30
  31. 31.  Common types of financing for Pharmacy 1. Personal financing 2. Debt financing  Debt financing takes the form of loans that must be repaid over time, usually with interest. 3. Equity financing  Equity financing takes the form of money obtained from investors in exchange for an ownership share in the business.  Also known as "share capital". 4. “Sweat” equity  Build equity over time at a reduced wage rate or reinvesting part or all of salary or bonus back into the business in exchange for shares or options. retailSOS.ca Gerry Spitzner 31
  32. 32.  Additional Purchasing Method ◦ Junior partnership  Buyer can purchase a pharmacy with little or no initial capital and build equity over time  Seller can ease gradually out of ownership and maintain the legacy of the independent pharmacy in the community Sources of Debt Financing ◦ CIT ◦ Banks ◦ Government loans/BDC Sources of “Sweat equity” ◦ Forewest ◦ Multi store owners in PS and PDM retailSOS.ca Gerry Spitzner 32
  33. 33.  Proven Formula with Admin and Buying support Two types ◦ “SDM Associate” concept  Own the business but not the physical assets  No capital investment or capital risk  Guaranteed minimum annual income and Benefits  “Share” in profitability  Support services in all areas of Operations ◦ “Medicine Shoppe” concept  Full Pharmacy ownership  Capital investment required  Ongoing Sales and Biz Dev support  Custom marketing strategy  Training and Professional Development retailSOS.ca Gerry Spitzner 33
  34. 34.  SDM concept ◦ “Share” profits ◦ Many “masters” ◦ Associate agreement is a renewable 3year deal ◦ Retained equity requirements ◦ Franchise agreement restricts or outlaws certain activity Medicine Shoppe concept ◦ Franchise fees ◦ Trademark rules ◦ Required program participation retailSOS.ca Gerry Spitzner 34
  35. 35.  Main Reasons: ◦ Entrepreneur ◦ Self-management ◦ Creative freedom ◦ Financial independence Additional Reasons: ◦ Not having to answer to others (regarding the pharmacy focus) ◦ Being recognized/playing an important role in meeting the business and healthcare needs of the community ◦ Achieving a level of self-fulfilment and pride ◦ Continuing a legacy of pharmacy ownership established by family and/or mentor(s) retailSOS.ca Gerry Spitzner 35
  36. 36.  Either: ◦ A desire to address some unmet healthcare need(s) for a particular patient population Or: ◦ A desire to take advantage of a particularly or potentially, lucrative business opportunity Or: ◦ A combination of the above retailSOS.ca Gerry Spitzner 36
  37. 37.  If the venture is not planned carefully, there is likely to be: ◦ A greater amount of risk in general ◦ An increased chance of specific unforeseen events ◦ A longer time lag between start-up and profitability ◦ A formidable challenge to obtaining sufficient capital retailSOS.ca Gerry Spitzner 37
  38. 38.  How to Get Started: ◦ 1. Decide on the type of pharmacy ◦ 2. Assess potential market ◦ 3. Develop a detailed business plan ◦ 4. Determine the legal structure ◦ 5. Identify financing options ◦ 6. Select a location ◦ 7. Obtain licences, permits and insurance ◦ 8. Develop a marketing and promotion plan ◦ 9. Establish the management philosophy of the business retailSOS.ca Gerry Spitzner 38
  39. 39.  Obtaining Licences, Permits, and Insurance ◦ 1. General business items (e.g. zoning, fire, business interruption, health and safety) ◦ 2. Pharmacy specific items (eg. Pharmacy License – College of Rx, software, suppliers, contracts) ◦ 3. Insurance (e.g. natural disasters, physical accidents, employee, health / injury / compensation, professional liability) retailSOS.ca Gerry Spitzner 39
  40. 40.  Types of Pharmacy ◦ Health Authority Associated Pharmacy (ambulatory care pharmacy, Cancer drug Pharmacy, HIV drug pharmacy, hospital pharmacy, corrections facility pharmacy, addiction, etc) ◦ Community Pharmacy (consulting pharmacy, compounding pharmacy, retail pharmacy, veterinary pharmacy, central fill pharmacy, etc) ◦ Other Pharmacy (nuclear pharmacy, military pharmacy, etc) retailSOS.ca Gerry Spitzner 40
  41. 41.  Determine the type of Pharmacy set-up that is most compatible with your needs and style ◦ Your pharmacy practice desires ◦ Your pharmacy training (Community residency, hospital residency, certificate training, certified diabetes educator, certified geriatric pharmacist, certified asthma educator, injection training, Pharm D, MSc, PhD, MBA, etc.) ◦ Your experience (technician, staff pharmacist, pharmacy manager, corporate staff member, other) retailSOS.ca Gerry Spitzner 41
  42. 42.  Establishing the Management Philosophy of the Business ◦ Management / Leadership Style ◦ Organizational Culture ◦ Corporate Values retailSOS.ca Gerry Spitzner 42
  43. 43.  Opportunity to select every item required for this new venture Hiring one‟s own personnel (compatibility) Finding a great location Creating sound policies and procedures Avoiding having to pay for intangible assets retailSOS.ca Gerry Spitzner 43
  44. 44.  High level of risk Longer term to profit Considerable time investment Need to do everything yourself retailSOS.ca Gerry Spitzner 44
  45. 45.  1. Key Initial Questions 2. Advantages and Disadvantages 3. Value Assessment and Price Determination 4. Purchasing Methods retailSOS.ca Gerry Spitzner 45
  46. 46.  Key Initial Questions ◦ Why is this pharmacy for sale? ◦ Is the owner retiring? ◦ Has the neighbourhood changed due to competitive, demographic or economic factors? ◦ Is the pharmacy on the verge of bankruptcy? ◦ Is there a lien on the business? ◦ Who are the Doc‟s? How long is their lease? ◦ Lease term of Pharmacy? How long? ◦ Is the current lease assignable? ◦ Zoning? Will the area change due to development? retailSOS.ca Gerry Spitzner 46
  47. 47.  Advantages ◦ Lower level of risk for the buyer ◦ No additional competition added to the marketplace ◦ Reduced set-up and start-up costs / less risk ◦ Less time required to show a profit ◦ Buyer receives established goodwill ◦ Business has an established clientele ◦ Business provides buyer with trained employees, inventory, physical facilities, and established relationships with healthcare providers retailSOS.ca Gerry Spitzner 47
  48. 48.  Potential Disadvantages ◦ Inadequate facilities ◦ Old/Outdated fixtures and equipment ◦ Inventory that may be too large and/or unsellable ◦ Established policies and procedures do not match with new owner‟s philosophy ◦ Inflated sale price ◦ Problems with the location or Landlord ◦ Undesirable established leases / lease terms or conditions ◦ Existing owner may reopen and take customers  Write them into the deal or have a non-comp clause retailSOS.ca Gerry Spitzner 48
  49. 49.  Chain drug stores, supermarkets, mass merchandisers, mail order, hospital pharmacies, primary care centres. ◦ In 2010, Pharmacy chains, franchises and banners accounted for 61% of the market, leaving 20% for supermarket and mass merchandiser pharmacies and 19% for IND‟s. ◦ In 1995 the breakdown was 60%, 8% and 32% respectively. Drug Reform Drug Shortages retailSOS.ca Gerry Spitzner 49
  50. 50.  Third Parties ◦ Plans are becoming more complex and patients don‟t understand them. Reimbursement Rates ◦ In Canada – more than 50% of prescriptions paid by Government; most of the rest is covered by an insurer like Blue Cross and NIHB; very little “cash pay”. retailSOS.ca Gerry Spitzner 50
  51. 51.  Key Industry Stat ◦ Per capita usage of prescriptions is climbing among all age groups, ranging from 4.21Rx/year among those aged 0-39 years up to 41.82/year for 60 years and up. Patient Care Service Development ◦ Home delivery, home consultation, patient charge accounts, disease management programs (diabetes, asthma), LTC, Group Homes, Workplace immunization etc. retailSOS.ca Gerry Spitzner 51
  52. 52.  Niche Development ◦ Developing a relatively narrow specialty or niche to fill an observed unmet need in the local community, such as AIDS services, addiction, pain or celiac. Chains are slow to change to the new business model retailSOS.ca Gerry Spitzner 52
  53. 53. Questions? retailSOS.ca Gerry Spitzner 53
  54. 54.  Twitter: @passion4retail LinkedIn: Gerry Spitzner Blog: retailsos.ca Email: gerry@retailsos.ca Info: gerryspitzner.tel Info: retailsos.tel retailSOS.ca Gerry Spitzner 54