Indeed starting your own pharmacy gives you the opportunity of having a piece of this highly lucrative business, but starting even a small pharmacy store can prove challenging. For you to start this business, you must adhere totally to local, state and federal regulations.
In this unique industry, starting from scratch can be faster and less expensive than buying an existing pharmacy. You can move from signing a lease to the ribbon cutting in just six months (but you will probably need to operate seven to nine months before you see positive cash flow).
Building an independent pharmacy is not as easy as it sounds; you will need a well thought-out and detailed business plan, legal and financial advice and consistent marketing.
We believe that if you have worked in an independent pharmacy or served as a pharmacist in any industry, you will have a solid background for running your own pharmacy. You also need to take your time to understand the economic landscape of the industry by analysing financial trends in the industry, evaluating your personal financial status and contacting current independent owners.
You also need to start thinking like an entrepreneur by gaining general business knowledge. If you plan to venture into this business, you should also consider the availability of physical properties that fit where you want to be, financial options, personal interests and goals for the future. All these we believe will prepare you for the dive.
Steps to Starting a Pharmacy Business
1. Understand the Industry
The global pharmaceutical industry is responsible for the development, production and marketing of medications. Reports have stated that the total pharmaceutical revenue worldwide surpassed one trillion U.S. dollars in 2016, with North America responsible for the largest portion of these revenues, because of the leading role of the U.S. pharmaceutical industry.
Also, as in many other industries, the Chinese pharmaceutical sector has shown the highest growth rate over previous years. Reports have also shown that the leading pharmaceutical companies come from the united states and Europe.
Based on prescription sales, NYC-based Pfizer is the world’s second largest pharmaceutical company. Just in 2015, the company generated some 43 billion U.S. dollars in pure pharmaceutical sales, while total revenue stood at nearly 49 billion U.S. dollars.
Proper research has shown that branded patented medicines by far make up the largest share of pharmaceutical revenues.
Humira, an anti-inflammatory drug, generated nearly 15 billion U.S. dollars in revenue worldwide in 2015. Oncologic continue to be the leading therapeutic class based on revenue. Within the past two years alone, cancer drugs made almost 79 billion U.S. dollars in revenue globally per annum.
Research has also shown that unlike any other industry, the pharmaceutical sector is highly dependent on its research and development segment. We believe that pharmaceutical companies invest 20 percent or more of their revenue in R&D measures.
It has been proven that the United States is a traditional stronghold of pharmaceutical innovations. This is because the origin of most new substances introduced to the market can be traced back to the United States. We also believe that due to the steady loss of patent protection, the invention of new drugs is of vital importance to the pharmaceutical industry.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
It is very important to know the demographics of the residential population in order to determine the type of medications and services needed, which defines the store’s potential of becoming successful.
The very major items that must be researched within the zip code of the selected location are: average age, percentage of individuals with insurance, number of written prescriptions, average household income, surrounding hospitals and medical centers, private offices, dental offices, nursing homes, and any epidemics in the area.
A location with the majority of the population being healthy college students that do not require many medical needs will be harder to get more prescription sales.
In this case, the pharmacy’s sales would consist of very basic items such as protein supplements, birth control, seasonal needs, few antibiotics, and grocery needs. But if compared to an area with a known epidemic such as HIV, or the majority of patients are elderly, the pharmacy will have a much higher potential of becoming successful.
This pharmacy will have patients on multiple medications and these patients will require more services such as immunization, patient counseling, and over the counter recommendations in very large quantities than the first pharmacy. The residential population can be obtained by contacting insurance companies and/or drug wholesalers.
3. Decide Which Niche to Concentrate On
Starting an independent pharmacy gives you the unique opportunity to realize your very own vision as both a medical practitioner and businessperson. It also gives you the advantage to have a greater impact on your patients and the local community.
We believe that with full control of your pharmacy, you can adjust the practice to meet the needs of your patients, while interacting with them on a more personal level. You can also provide a comprehensive range of unique patient-care services, which we believe can serve as a niche idea. They include;
- Asthma management, nutrition counseling and diabetes-management programs
- Medication therapy management
- Blood pressure, blood glucose, HgA1c and cholesterol screenings
- Long-term care services
- Durable medical equipment, natural and other specialty products
- Home infusion therapies
- Oxygen supply
- Medication synchronization and disease state management
The Level of Competition in the Industry
For a very long time the Pharmacy Services Industry has been seen as a safe haven for investors looking for steady growth and preservation of capital. But recently things have changed a bit due to the aging of the American population and an altered industry landscape.
Experts have stated that these stocks now have more of a growth profile than they had in the past. This means that there is much opportunity for expansion, with billions of dollars in business up for grabs. But there is also greater competition coming from every direction, as even non-traditional channels are striving to get in on the act.
This lucrative industry has been divided into two main categories: pharmacy services, which consists of pharmacy benefits managers, or PBMs, (along with clinical services providers), and large drug chains. Both groups distribute prescription drugs to consumers, but they differ in that PBMs are mail-order operations and drug chains sell from storefronts.
Recently, that the dividing lines of these two categories have become less clear. This is because for some years now, the drug chain stores have seen an increasing threat to their business share from the PBMs. They have also eyed the attractive PBM market with particular interest.
This is the reason why many chains have launched their own PBMs. The need to stay competitive in the industry has prompted some in the industry to think outside the box and use acquisitions to gain access to a bigger scope of business.
4. Know Your Major Competitors in the Industry
Even though the industry is fragmented there are pharmacies that are standing out due to their activities in the industry such as their marketing and publicity strategies, how long they have been in the business, and what services they offer to their customers.
Therefore, below are some of the most popular pharmacy companies in the United States of America;
- CVS Corporation
- Walmart Stores Inc.
- Rite Aid Corporation
- Kroger Company
- Target Corp.
- Publix Pharmacies
- Sears Holdings Corporation (KMart)
- Cerberus Capital (Albertsons)
- Kaiser Permanente (HMO)
- Costco Pharmacies
- BI-LO Inc.
- Medicine Shoppe International
- Hy-Vee Inc.
- Supervalu Inc.
- Giant Eagle Pharmacy Pittsburgh
- Fred’s Inc.
- Shopko Stores Inc.
- H E B Drug Stores
- Giant Food Inc.
- Meijer Groceries
- Ahold Financial Services (Giant)
- Shoprite supermarkets Inc. Florida
We have noted that this industry is isolated from negative macroeconomic factors, since the need for treatment is rather constant in our modern world, but we believe that there are by no means susceptible to bad cyclical downturns. For example during hard times, hospitals will try to delay purchases of the most expensive capital equipment and go for affordable ones.
Also, during times of high unemployment, patients with limited income and rising health insurance costs or loss of coverage, might reduce or shut down treatment for as long as possible. This is why the pharmacy industry that provides products and services might seem vulnerable.
We strongly believe that the severe competition in this industry can pressure operating performance, and products that are not protected by patents are open to competition in the industry. We also believe that product recalls are very hard to avoid and can have a great impact on results.
When products cause patient injuries or fatalities, companies will have no option than to pull them from the market or regulators may handover a suspension of sales to them. At this point, not only are sales and incomes affected, but activities could suffer for a period of time. This industry sector is one of the biggest sectors in the healthcare industry, driven by new ideas and technologies.
5. Decide Whether to Buy a Franchise or Start from Scratch
Starting a pharmacy from the very scratch can be a challenging but is still not impossible. Apart from building your own shop or converting a retail space, you will also need to establish new relationships with vendors and create accounts with drug wholesalers. This is why we believe that the simplest ways to open a pharmacy is through buying a franchise.
We believe contracting with a franchise can provide you with the tools necessary to secure financing, find a good location for your enterprise, hire a licensed pharmacist and employees, as well as get connected with established vendors and drug wholesalers. It also gives you the opportunity to operate under a well-known brand and operate as an independent business.
6. Know the Possible Threats and Challenges You Will Face
Indeed the general healthcare industry is estimated to be as much as 16% of the United States GDP, this is why people are eager to venture into the industry. Running your own pharmacy business can be an exciting and rewarding experience. Below are mistakes you should avoid when starting your pharmacy business;
Not defining your niche
Do not fail to define your niche and provide a compelling reason for customers to choose your pharmacy. Note that offering friendly services isn’t enough. For example, will you be like every other pharmacy in your area, including chains?
Or, will you be the only pharmacy in the area to offer free delivery, bilingual staff, compounding, specialty pet medications, or breast-feeding classes and hard-to-find nursing products?
Also have it mind that undercapitalizing the business by not having enough money to run the pharmacy until there is positive cash flow will kill your business even before you start. We advise that you plan to have three to five times the amount of your initial inventory cost as working capital.
Not allowing enough time
Note that from the very moment you receive your state pharmacy permit, it can take up to three months to get your pharmacy ready to open. It can take one month just to load your pharmacy system with the information from all the third-party plans.
Fragile marketing plan
Make it a necessity that includes a strategy, resources and investments for marketing your pharmacy.
Striving to do it alone
Starting an independent pharmacy is a complex process, so take advantage of expert knowledge to guide you.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
Have it in mind that when starting your pharmacy, that the LLC structure is the best legal entity for your pharmacy. It is a known fact that the LLCs is simpler and more flexible, you don’t need a board of directors, shareholders meetings and other managerial formalities.
It gives you the opportunity to decide how to split the profit as opposed to shareholders in corporations who have to mark them out in proportion to their percentage ownership in the company. Another advantage of LLC’s is that it also gives you the leverage to entice talented employees with a share of the profits, even if the said employees didn’t pony up their own equity in the beginning.
The LLC structure also gives tax-treatment flexibility. An LLC’s can be taxed as a corporate entity (a C Corporation) or as a “pass through” entity (an S corporation), meaning that the company avoids paying tax on both the corporate profits and the owners’ personal income.
8. Choose a Catchy Business Name
- Lincoln Pharmacy
- Potent Drugs
- Sharp Drugs
- Faraday Pharmacy
- BTS Pharmacy
- Craig Pharmacy
- Fortified Drug
- Discount Drug Mart
- Family Pharmacy
- Medicare Mart
- Truth Pharmacy
- People Drug Store
- Eagle drugs, Inc.
- Health Mart
- Favour Pharmacy
- IDL Drug Stores
- Access Pharmacy
- Knight Drugs
- Maintown Drug
- Kelvin Drug Store
- Med-X Drug
9. Discuss with an Agent to Know the Best Insurance Policies for You
The importance of pharmacies in our society continues to grow to include providing consultations and vaccinations. But as the need and importance expands, so does increased exposure to risks and mistakes. In a recent claim study, the two most common allegations against pharmacists were wrong drug and wrong dose.
Together, these two allegations comprised 75% of all lawsuits against pharmacists. Regardless of the protocols and processes in place, mistakes do happen; we strongly advice that you get insurance policies to protect you and your business. They may include;
- General Liability coverage
- Data compromise coverage
- Business property coverage
- Equipment breakdown coverage
- Professional Liability coverage
- Business auto coverage
- Employment practices liability coverage
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
We have been made to understand that modifications in the global economic environment have affected the development of business models where IP is a central element for creating value and potential growth.
In addition to these systemic changes, the international accounting practices have put a lot of pressure on firms to recognize and value all identifiable intangible assets of a business as part of an agreement (in a merger or acquisition, for example).
Due to these trends, proper valuation of IP, followed by ways to protect that value, have actually become key elements to the success and viability of a modern business. There are three methods of valuing intellectual property of your pharmacy: cost-based, market–based, and income-based valuations. But in all you need to speak to an attorney well experienced in intellectual property protection rights.
- Cost-based valuation puts into consideration both how much it took to construct the asset historically and how much it would take to redo it given current rates.
- Market-based valuation proposes comparable market transactions, be it sale or purchase, of similar assets to decide on a value.
- Income-based valuation looks at the stream of income channeled to the intellectual property on the basis of the historical earnings and expected future earnings.
11. Get the Necessary Professional Certification
Certification is simply defined as a voluntary process by which people increase their knowledge and skill in a specified field. We believe that the main agenda of voluntary certification is to promote public safety and welfare by providing assurance that their holders have the knowledge, skills and abilities required to provide services to the public at a professional level with competence. The professional certifications needed include,
- Consumer Health Advocacy Certificate
- Global Health certificate
- Institute for Clinical and Translational Research (ICTR) Certificates
- Patent Safety Certificate
- Certified Geriatric Pharmacist etc.
12. Get the Necessary Legal Documents You Need to Operate
- Sales and use tax permit
- Resale permit
- Assumed name certificate
- Employer Identification Number
- Operating agreement
13. Raise the Needed Startup Capital
When deciding to build a unique pharmacy, you have much to consider before you open the doors of your pharmacy business.
The steps you take at the beginning of this process will influence your ultimate success as a pharmacy owner. A Pharmacy Business is a business that is capital intensive, but the niche you choose will dictate the amount you will need to start your business with. Ways to generate funds for your pharmacy may include;
- Seed capital from family and friends
- Personal savings
- Venture capitalists. angel investors
- Taking your company public through IPO
- Through merger and Acquisitions
- Small business loans and grants
14. Choose a Suitable Location for your Business
Where you do business can make all the difference in your success. We strongly advice that you identify your potential pharmacy location based on local economic outlook, regional competition and the costs of doing business there. Below are steps to help guide your selection process:
Note your opportunities
We advise that you identify, analyse and evaluate potential locations. You can use local real estate resources to discover available retail or other properties that meet your criteria. You can also identify opportunities through contacting:
- Property advisors
- Pharmacy associations, including NCPA and your state pharmacy association
- Local chambers of commerce
- Commercial real estate experts
Remember to research your location
Immediately a location is identified, assess its viability through:
- Market and competitive analyses
- Demographic surveys and projections
- Recommendations from local business owners and residents
- Connecting with local physicians and other healthcare providers
15. Hire Employees for your Technical and Manpower Needs
It is your duty to be wary about the quantity of products and the cost to be paid to the distributor or manufacturer. Make very sure that you understand the key difference between buying price and the price at which you are selling to consumers because it is going to be your profit. You need to inculcate your tax, transportation expenses and all other logistics in your price.
We strongly advise that you source your products from reliable manufacturers as faulty products may affect the patient’s health. Also always remember that in case of any complaints regarding the products, you will have to refer to the manufacturer and replace them immediately.
You should also have it in mind that no successful pharmacy owner does it alone. You need to align yourself with a team of trusted advisors who know the pharmacy business and how small business works, and who can help you navigate through legal and/or business processes. They may include;
We suggest that you identify and consult with a Certified Public Accountant who is knowledgeable about different accounting systems, retail bookkeeping, financing and taxes, especially one with current pharmacy clients.
A Legal counsel
We also think you should identify an attorney specializing in commercial and retail, preferably pharmacies.
You will need someone to help evaluate your financing options through local banks, associations, suppliers and distributors and through referrals from existing owners.
An experienced Insurance agent
We also suggest that you find an insurance agent who will identify the various insurance policies and protections you will need in order to minimize your risk. It is important to have insurance that covers you for traditional business liability as well as pharmacy malpractice.
The Service Delivery Process of the Business
It is important to state that the operational process in retail is identical in different businesses. It is important that you understand the basic operational processes and workflow of a retail store because it will aid you to understand how to work your pharmacy, and this process will in turn help you to structure operations and build a concrete foundation for your pharmacy. The service processes will include:
The Purchasing process
Note that this process starts with purchasing your first other or regularly taking stock of the inventory you have at hand, including goods on the shelf as well as inventory in storage areas.
The Handling inventory process
Everyone in your store should get involved in this process. This process begins with receiving shipments, which includes unpacking boxes, sorting received items, and disposing of boxes and packing materials. All the inventories are to be stored according to the firm’s policy and everything should be taken into account.
The Customer care process
The core element of any retail store and also that of a pharmacy is the customer service; it is the hook that holds the entire workflow together. Have it mind that all your services in this business should be centered on your customers. Customer service in your pharmacy business can be broken down into three categories: in-store assistance, transaction processing and handling complaints.
The Accounting process
We believe that a very crucial component of the workflow of your pharmacy is to regularly maintain the account of your business. The store managers send daily updates to report sales numbers, refunds, lost inventory, hourly payroll data and information on bank deposits before the workflow cycle begins again the next day.
16. Write a Marketing Plan Packed with ideas & Strategies
We all know that marketing is an important aspect of operating a successful business. Indeed you may feel the need not to market your independent pharmacy because you don’t want to spend money on marketing, or you don’t know how to get started. Marketing your business is a process that you need to build and sustain. Ways to market your business may include;
Build a helpful and informative website
In this our modern age, people spend a significant amount of time online doing research before making a purchase decision. Customers who are looking to switch pharmacies will spend time online figuring out which pharmacy is right for them. If you don’t already have a website, you are missing out on a huge opportunity to gain new customers.
Sales and promotions
Sales and promotions are a great way to attract new customers to your store and promote your business. We suggest that you consider offering discounts on over-the-counter medications or giving away free, useful items such as reusable shopping bags with purchase.
Another idea is to host monthly or quarterly health-related promotions like free health screenings or gift card giveaways for flu shots.
News releases for new programs and products
We advise that anytime you implement a new program or offer new products, try sending out a news release to local media outlets announcing the launch. We believe that news releases can help you gain news coverage, helps raise brand awareness, and gets your name out in the community.
Focus on sending out news releases for programs that benefit your community, such as free vitamin programs and free health screenings.
Look to Partner with local businesses
Partnering with local businesses for promotions and events is a great way to market your pharmacy and show your appreciation to your community. We believe there are an unlimited number of ways to do this, including hosting a vaccination clinic at a nearby school or partnering with a local restaurant to offer your customers free coffee on select mornings.
Create relationships with healthcare providers
We advise that you build solid relationships with local doctors, dentists, nurses and other healthcare providers in your community.
You need to schedule time to have someone from your pharmacy visit their offices, make introductions and share marketing materials that outline the services you offer. Note that referrals from other healthcare providers are a powerful marketing tool and can help you generate new customers.
17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
When you have brand awareness as a pharmacy, it means that your customers know who you are, where you are, and you have increased sales in the marketplace. To achieve this, you need to make your brand awareness strategies flexible and susceptible to change as at when needed.
Strategies to promote brand awareness and create a corporate identity of your pharmacy may include organising an event, exhibiting yourself, sponsor something, create an experiential stunt, take to the social media, organize a public relation campaign, invest in promotional merchandise, join forces with other businesses etc.
We also advice that you always ask for insurance cards when dealing with new customers. By getting customers’ insurance information, you get some of their personal information and start the process of developing relationships with them.