The Ins and Outs of an Independent Pharmacy Business Plan

By Scott Welle |

A well-prepared plan does more than make your case to secure pharmacy financing. It also better positions you to capitalize on changing market conditions throughout your pharmacy’s business lifecycle.
Two men with laptops writing a business plan together
When it’s time to commit to pharmacy ownership—either as a first-time buyer or a pharmacist starting a new store from scratch—you’ll need to assemble a comprehensive business plan. This document will not only make a compelling case for securing financing, but also serve as a customized guide for driving ongoing business success through well-organized planning.

It will take many hours, if not days, to pull together your pharmacy business plan, especially for a startup with unknown variables, so it’s never too early to get started. You’ll also want to assemble your advisory team to provide guidance with the plan and help you sort through the details. Seek out an accountant, attorney, consultant and lender that are well-versed on the pharmacy industry.

At a minimum, your business plan should include these components: a high-level business description; breakdown of strengths/weaknesses and opportunities/threats (i.e., a SWOT analysis); a sales strategy; and financial projections. However, to really guide your decision making as you grow your business, the plan should be more comprehensive and strategic in scope.

Let’s take a closer look at how components of the plan should come together and the importance of each section.

 

What’s in the plan

Business plans typically contain anywhere from five to 10 major sections, depending on how you choose to organize things. There’s no absolute right or wrong way to present your information; however, at a minimum, the plan should include the following:

  • Executive summary
    This is essentially a high-level value proposition of your company. It’s generally the first thing a potential investor will read, so it must be clear and compelling.

Although it might be tempting to map all this out at the start of the writing process, it’s actually best to save the executive summary for last. If you write the subsequent sections first, it’s easier to then go back and highlight the most important points from each one in a few concise paragraphs.

  • Business description
    This is where you describe your pharmacy and what it will do. Identify the type of independent pharmacy you want to operate—whether it’s standard retail, compounding, specialty or long-term care.

Define your pharmacy’s niche and what patient populations you’ll serve. Present your case for how you’ll approach your chosen market and what will differentiate your store. Assemble financial projections for the new venture.

As in any business, location is key. Note whether you’ll be in a free-standing building, office park or strip mall and whether nearby businesses or medical facilities will be driving traffic to your pharmacy.

Next, outline the amount of space you’ll need. The average pharmacy occupies roughly 1,700 square feet, split about evenly between the front and back ends.1 Of course, you don’t want to overcommit to space you won’t use at the outset, but make note of available options for expanding after the pharmacy’s launch and initial growth stages.

You’ll likely be renting space, unless the pharmacy will be located in an area where land and building costs are relatively cheap and it’s possible to make an outright purchase of the desired property. Detail how much rent you’ll be able to afford without putting strain on your operating cash flow.

Also include the timeline of the lease. Most lenders will require a 10-year lease. A 5-year lease with options to extend to 10 years may suffice.

Further, discuss how you’ll ensure a safe environment for patients and employees (e.g., the property be well-lit and protected by a security system and surveillance cameras).

  • Management and organizational structure
    Highlight the experience of the executive management team and their special business knowledge or strategic relationships that will serve as advantages. Make sure you define what their roles will be and how you will leverage their skills.
  • Market analysis
    Demonstrate that you know who your competitors will be, as well as the community demographics—the age, gender, income, education and ethnicity of the patient population. Research the prescriber threshold (e.g., the number of prescriptions by indication and physician type within a five-mile radius of your store location) so you understand the market potential.

    Include a SWOT analysis that explains the strengths and weaknesses you can control, such as your location and customer service capabilities, and the opportunities and threats determined by outside forces, such as reimbursement issues and consumer shopping behavior.
  • Sales strategy
    Explain how the pharmacy will capture and grow business within your market while prioritizing prescribers first and patients second. A patient represents a handful of scripts, while a single prescriber represents hundreds of patients and potentially thousands of prescriptions. Prescribers are physicians, hospital discharge departments, healthcare clinics, board and care facilities, urgent care centers, etc.

    Develop a marketing plan that is supported with an appropriate budget. Define your goals and customize materials and messaging for specific prescribers and patients. Identify who will do the marketing and how often will they do it.

    In addition, describe your advertising plans in terms of how much you’ll allocate to digital marketing versus traditional radio and TV spots. The current trend is to favor digital marketing, which can be more effective at a significantly lower cost. Delineate what your pharmacy website will look like and how you’ll project your presence on social media.
  • Funding requirements and financial projections
    This section is where you define the amount of money needed for your venture and show the potential returns available for investors. It will take roughly $300,000 to start a pharmacy from scratch, while purchasing an existing pharmacy with positive cash flow generally starts around $350,000 plus inventory and goes up from there. You’ll also want to factor in enough working capital to carry through the initial lag in accounts receivable as you initiate or transition third-party payor contracts.

    On an ongoing basis, inventory and labor will be your two biggest expenses. Be sure to mention inventory management practices that will prevent too much money being spent on stocking your shelves when it could be invested elsewhere in the business. Further, emphasize your ability to adjust staffing levels according to fluctuations in business, and how you structure staff compensation based on productivity (e.g., raises or bonuses tied to meeting revenue goals) rather than seniority.

    Calculate financial projections for each of your first five years with the new venture. As a rule of thumb, a start-up pharmacy should expect to break even around the third year of operation, when annual prescription counts are in the neighborhood of 25,000 and gross revenues are approaching $2 million.2 In any event, don’t inflate projections to impress a lender. Make this section as realistic as possible so that you and your potential business partners can accurately assess if the venture will be worth your time and investment?

Using your business plan as a tool
Granted, you’ll start out shaping your business plan to gain financing from a lender. But think about it as a personalized tool that will propel you toward successful pharmacy ownership. The more thought and effort you put into it, the more valuable it will be.

You’ll be laying out projections, expectations and benchmarks, all of which will help you assess performance once the pharmacy is up and running. Anticipate that you’ll revisit the plan at least annually to see whether you’re following all the strategies you initially proposed. You may discover a segment you previously overlooked, or you may identify an entirely new opportunity that would be more profitable than your current agenda. You’ll also be able to identify issues that need to be addressed so that you can frame an appropriate response.

A continually updated business plan will help you adjust to changing market conditions throughout your pharmacy’s business lifecycle. With the help of your advisory team, dedicate yourself to completing and maintaining a thorough analysis. It will pay off by vaulting you ahead of the competition when other pharmacies are grappling with how to respond to new challenges.

Having trouble defining every detail of your future pharmacy?

Get help from one of our pharmacy acquisition advisors who can work with you to analyze your target market and answer all the tough questions. They have decades of experience facilitating independent pharmacy acquisitions and will make sure your business plan sets you up for success—both with lenders and long term.
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1. National Community Pharmacists Association. 2017 NCPA Community Pharmacy Start-up Benchmarking Report. http://www.ncpa.co/pdf/2017-ncpa-startup-report.pdf
2. Ibid.


About the Author

Scott Welle

Scott Welle

Pharmacy Acquisition Advisor
AmerisourceBergen
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