Pharmacy Partnerships, what should I consider?
Following on from my blog “You want to Buy a Pharmacy, why would you want to do that?” one of the most common entry points into pharmacy ownership is partnerships.
Quite often the first entry point for most talented young pharmacists is being offered to buy into the pharmacy where they work. This is the entry point where many ownership dreams have been created.
Now depending on your personal financial position this is sometimes the easiest and most practical entry point option. Most young pharmacists do not get a chance at buying a pharmacy outright and most do not have the financial capacity behind them to fund an outright purchase. So they team up with a few like minded pharmacy mates.
If that is one of your goals for your career then here are some things you should know:
For those who have worked in the pharmacy for a while, you have the advantage in knowing the team, the pharmacy and the inner workings of the pharmacy. More importantly you would at this stage have a good understanding if you would be comfortable going into partnership with this owner or owners. Buying a business outright, you do not necessarily have this knowledge.
In addition, having worked there before you will also be very familiar with what opportunities exist and what skills you can bring to the business to improve its performance. This inside knowledge is very important and a great asset to bring to the business. You will see things differently from the owner.
Have a Courtship before you get married
If you haven’t worked in the pharmacy before and the owner is looking for a partner, it is usually best for you to work there first for a period of time (>6 months). This will help you get to know the business more intimately, understand what opportunities there are to grow the business. You will get to know your potential partner better and the team. Hopefully you will find a great environment, team and business opportunity. Even if it doesn’t work out and you walk away from the opportunity, at least you haven't sold your soul to the devil.
Not all marriages are made in heaven
All of you will be very familiar with what happens when a marriage falls apart. There are times when it doesn’t end well. It is a very unpleasant experience for all parties. Well a business partnership is like a marriage. When it works it is beautiful. In pharmacy land there are some great partnerships where the partners have gotten together and achieved some extraordinary things. But when it doesn’t, it can be a disaster. So please be very aware of this. Partners do have disagreements and in short, businesses do fall apart. There is this thing called money which sometimes changes people, for the worse too. Whilst there are some great partnerships around, there are some horrible business divorces as well.
You do not go into business with anyone without proper protection
In any business partnership, it is absolutely vital you have a properly drawn up partnership agreement and succession agreement . Both documents will protect you and your interests. I will not go into these documents in any detail here. That is the subject for a good pharmacy lawyer for another day. There will be a time when you will have to rely on these documents and thank your lucky starts you have it in place.
Make sure you have your own advisors
You will need your own lawyer and accountant to advise you and your interests. Most importantly please ensure your advisors are experts in pharmacy. Professionals advising in an industry which they are not familiar with can be dangerous.
Know what you are buying
A common mistake is partners not truly understanding what assets they are buying. A normal market valuation determines a value for stock, fixtures and fittings and goodwill. Now if you start a partnership with a clean slate (no other assets, or liabilities) that is fine. But the partnership you are buying into has an asset that is an ongoing business. It has customer debtors, PBS amounts owing, GST refunds owing, trade creditors, PAYG Withholding to pay, employee super to pay, bank accounts, equipment finance etc etc. So it is usually best that the amount you pay is adjusted to take into account the value of the net assets of the business
The greater the number of partners, the harder it is to make a decision
Be very aware of this. You may have been given a partnership opportunity and you may have great ideas on what changes need to be made to grow the business, but not all of your partners will see things the same way. You will get a difference of opinion. This is sometimes compounded when you have a lot of other partners. The business can be held back if partners can’t make effective decisions. This is very much a business/partnership reality. It happens quite a lot.
So if you are given an opportunity to buy into the pharmacy where you work or you have been given a partnership opportunity somewhere else. You hopefully been presented with a great opportunity. Obtain sound independent advice from experts, objectively analyse the opportunity in front of you. Then determine if this is something you should take on.
Do you think you can grow this business?
Can you grow your investment?
Can you work effectively with the partner or partners?
Lastly understand that it may not work out. You need to chat with your lawyer on partnership agreements and succession agreements.
If you need some advice on a partnership opportunity, give me a call and I will help you out.