3 things to avoid when buying a pharmacy
The excitement and fear that pharmacists feel when they embark on the journey of owning a pharmacy begins long before the settlement date. Often, it’s the contract negotiation stage which causes the biggest rollercoaster of emotions – but it doesn’t have to be that way!
By knowing what to avoid when you embark on the buying journey, you can feel more confident that you’ve got yourself the best buy, on the best terms so that you can be the best pharmacist that you can be!
Over the years, I’ve seen buyers make a number of mistakes when buying a pharmacy. Here’s just three of those mistakes to learn from:
- Using an existing or DIY structure
Having the right ownership structure is important for so many reasons – from liability to asset protection to tax benefits. Sometimes buyers have an existing company or structure which they use for another business or which has never been used at all. Others choose to set up their structures themselves. Both options present risks, further costs and potentially, a future of financial issues.
Using an existing structure
Using an existing structure mixes the new business with an existing or historical business. From a legal perspective, this blurs the lines between two businesses which can create liability issues as well as a lack of protection for the owner in the event that one of the businesses faces difficulties such as financial distress or legal proceedings.
Opting for a DIY structure
Pharmacists who set up their own structures without full appreciation and understanding of the ownership legislation and financial/taxation consequences associated with various structures risk exposing themselves to regulatory issues and/or missing out on benefits associated with certain structures. In some instances, setting up structures incorrectly may result in having to restructure the asset which is likely to attract stamp duty.
What’s the solution? Engage your advisors early and have them set up the structure that is most appropriate for you! Although that does incur some costs, think of those costs as an insurance policy (ie. protection from future issues!).
- Negotiating the offer yourself (ie. not showing it to anyone until it’s signed!)
The pharmacy market is competitive and people like to keep things under wraps for as long as possible – but that doesn’t mean excluding your “inner circle” from your negotiations!
All too often, pharmacists start the buying journey by negotiating the offer themselves or in conjunction with the seller’s broker. What’s the problem with that? The broker works for, and is paid by, the seller. They will look after the seller’s interests – not the buyer’s interests. As friendly and helpful the seller’s broker might be, the seller’s broker is not in the buyer’s “inner circle”.
Although the offer to purchase document is often not binding on the parties, it is important to get it right. Getting it right means less back and forth during the contract negotiation stages and that everyone is on the same page from the get go. By negotiating the offer yourself, you may overlook important conditions or considerations – such as the right to interview employees – or leave out key details such as the timeframe for satisfying key conditions. This can make the contract negotiations more tedious than they need to be.
What’s the solution? Let your advisors into your “inner circle” early! Have them on board during the negotiation stage so that you can be confident that your offer contains all of the key details and timeframes for the purchase so that you can become the owner of the pharmacy sooner rather than later!
- Getting fixated on the settlement date
Dates are important and the consequences for missing a key date can be serious (and costly!) – however, there are some dates in pharmacy transactions which need to be fluid. This includes the settlement date.
Almost all pharmacy contracts are conditional on something which involves the landlord (be it a new lease or an assignment of the existing lease) and regulatory approval at both State and Federal level. Having to involve third parties who are not bound by the terms of the contract but who play a very important part in getting the contract over the line means that the parties need to be flexible. Third parties are not bound by the timeframes set out in the contract. This means that the settlement date is often extended while parties wait for landlord’s to respond or the administration number to be issued.
Getting fixated on the settlement date will likely end in disappointment because the date moves while parties wait for the final pieces of the puzzle to come together.
What’s the solution? Have an end date in mind but be prepared to be flexible. If the parties have the same goal (ie. to get it settled!), it will get there. It just takes time and patience.
Keen to know more?
If you’re interested in learning more about how to buy a pharmacy including some important tips and tricks, register for my next webinar “Buying a Pharmacy – What You Need to Know” at the following link: https://www.eventbrite.com.au/e/buying-a-pharmacy-what-you-need-to-know-tickets-159366646931
Sarah Stoddart is a commercial lawyer who specialises in the pharmacy and broader healthcare industry. She prides herself on being approachable and helping clients resolve their legal issues in a practical and timely manner.
If you require assistance with healthcare related matters including business or property transactions, regulatory approvals or leasing, please contact Sarah Stoddart on (07) 3370 0200 or firstname.lastname@example.org
This article is intended to be for general information only. It does not constitute legal advice nor does it establish a relationship of client and lawyer. Specific circumstances or changes in law may vary the accuracy or applicability of the information published. We recommend seeking specific legal advice particular to your circumstances before taking any action, or refraining from taking any action, on any issue dealt with in this article.