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Pharmacy Partnership Considerations

There is a lot to consider about partnerships and the only way to begin a partnership understands that the partnership will end and therefore you plan for it. That sounds negative but it’s not. I’ve see great partnerships that have lasted people their whole careers and I have mediated and witnessed some disasters. Life changes for people and it can affect their partnerships.

There are two ways to buy into a partnership. Firstly is to buy a pharmacy with a partner having worked through the many issues involved and understand what you can afford together and who is to own what share of the business. This way you are entering the partnership and the business for the first time together. The second way is to purchase a share in a pharmacy from the current owner. This method has obvious advantages, however expectations and reality can and do vary along the way.

I’m sure you have heard, ‘come and works for me for 12 months before we go into partnership? Let’s make sure we are right for each other’. This could mean watch my business grow and create stability only to find the employer can’t let go and does not sell a percentage of the business to you in twelve months. Another year of wages verses ownership has passed you by.

However you get into a partnership you share the highs and lows and all partners need to remain flexible and keep your eye on the big picture. Communication is always the key and fair compromise and support leads to long and successful partnerships, like any good relationship.

Financial considerations

If you’re buying into a partnership will the Vendor provide the pharmacy as security for your loan? Maybe there might be a limit of borrowings against the business and the balance be supported by a mortgage on your home or cash up front.

If you want to buy say 25% of the business and the senior partner have suggested he has about five years to go, will you have paid down your loan to a level where you can afford to pay for 100% of the business at the end of five years? If you can’t then you might need to bring in a partner, sell the business or the current partner agrees to stay involved longer. Don’t forget that ban leading policies change as does the pharmacy environment along the way.

Did the partner not mention that he wants to do a shop fit and enter a brand once you pay him for the 25% ownership? That means you need to find your part of the shop fit cost plus you 25% ownership cost. Or you dilute your partnership share because of the cost and this may affect your ability to buy 100% later on. What effect will the shop fit and brand have on the business during this time? It will probably increase the value of the business making it more expensive to purchase the remainder in years to come. That’s fine because all partners have benefited along the way.

Having said all of that you do your homework with a good accountant and see it as a great opportunity which it is in most cases.

Pharmacy Partnership agreements

The agreement can cove as much or as little as you want it to cover. Important elements include the method of valuing the business should one partner wants out, what is included and a definition of what the business is relating to Goodwill, fixtures and Fittings, stock, leases, debts and creditors. What about the legal and accounting cost, they also need to be understood. Issues of financial security responsibilities should also be clarified. There are many other areas in a partnership agreement that need attention. It’s often said it’s completed and put in a draw and forgotten about. I think its good business practice to review this before you accept a new term to the lease, say every five year, to make sure partners are on the same page. In fact it can be part of a greater review of P I insurance, business insurance, health checks and cover, wills, supplier relationships, branding, location etc. It’s a great opportunity to work on the business and not in it.

Defined roles and sharing management

What skills do you bring to the partnership and what expectations of the role you want to play in the business? If you are thinking you would like to manage the financial side of the business combined with IT developments, however your partner does not want to spend the money or thought you would take over the dispensary so he could do the books and play a bit of golf, then the roles have not been defined clearly. As part of this process, communicate your expectations.

Retirement timeframes and increased ownership percentage

What about that five year plan until you can buy me out and I can retire and play golf every day. Sounds good but the reality of playing golf every day is not a reality for most people. What is a reality is the downfall of the superfund’s performance affecting the ability for people to retire. The combination of the two suggests that the five year retirement plan is now more like eight years.

I know the answer, encourage your senior partner to lock in for longer and buy a second or third pharmacy in the partnership. If you agree to do that, then I refer you to the top of the page and start again.

Whatever path you take their needs to be life beyond the pharmacy. Most people want and enjoy the security of their home and maybe a family. It’s great journey (except the school fees). Good luck!

 

 

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