Are you ready for a second store?
Know when and how to grow
- A growing number of independent pharmacy owners have more than one store
- Adding locations can bring more revenue and increase efficiency
- Several factors may signal opportunities to grow by opening another store
- Ensure you have both the money and staff to add a new pharmacy
Bigger can be better
About one third of independent pharmacy owners (32%) have ownership stakes in two or more pharmacies.1 The number of owners with stakes in multiple stores has been growing, noted Chris Cella, national vice president for RxOwnership, which helps owners start, buy and sell independent pharmacies.
Adding a location can generate additional revenue – and more. With a second pharmacy you can:
- Pay less for drugs from your wholesaler as volume increases.
- Spread costs across multiple locations. For example, one delivery car may be able to serve both locations, if they are nearby.
- Increase services. You may upgrade to a new pharmacy management system or add a compliance packaging machine to serve multiple locations.
- Improve staffing. When pharmacies are within reasonable driving distance, you can offer an employee a full schedule split between the two locations.
Look for the signs to grow
Multiple signs can point to an opportunity for an additional pharmacy. Important signs can come from:
- Current patients. If you draw a significant number of customers from two or three different ZIP codes across a 10- to 15-mile area, Cella said, that may signal where to have another location.
- Healthcare partners. Providers who are opening a new clinic or facility may want a pharmacy on site. This can be a great opportunity to form a partnership. Keep your eyes and ears open for opportunities.
- An owner ready to sell. RxOwnership offers confidential, no-fee resources for buyers and sellers of independent pharmacies. RxOwnership may know an independent owner in your area who is ready to sell or retire.
“It can be easier to buy than build,” Cella said, and you start with an existing patient base. However, he noted, “It can take more money to buy.”
Crunch the numbers
Cella advised that before deciding to pursue another store, it is essential to conduct a thorough financial analysis. (Again, RxOwnership can help.)
Specific advice from Cella’s years of experience includes:
- Ensure your first pharmacy is on solid footing and you’re comfortable with the financials before taking on another location. Profit from the first store must be high enough to cover getting the second store up and running until it is profitable. “You don’t want to overextend on multiple locations, because then you have multiple things coming due,” Cella said.
- Understand your cash flow. Remember, a few months down the road DIR fees can wipe out a portion of your considered profit.
- Consider your financing needs. Do you need a loan, seed money or a partner?
- Develop a business plan. A business plan will define the opportunity and provide assumptions and estimates for revenue and cost. See “Business plan essentials for opening a new pharmacy.”
- Challenge your cost assumptions. Don’t blindly assume that your costs will be the same for your next store. In Cella’s experience, rent can differ greatly from market to market.
Also, consider creative options. For example, when opening a second pharmacy, you may not need a clone of your first store. A satellite pharmacy served through the first location may allow you to expand with less overhead.
Human capital is key
No successful pharmacy owner opens and operates multiple stores alone.
In deciding to open or purchase another location, it is wise to have a team of trusted advisors that includes an accountant, attorney, financial advisor, insurance agent and more. This team can offer wisdom and advice to avoid missteps and help make good decisions.
Then, when opening another store, having great people in the store is critical. An owner can manage one store him/herself but adding a second store creates an entirely new set of challenges.
You need personnel at each location who will manage it the way you want when you’re not there, Cella said. “Is there going to be someone in that second store who’s going to execute on the business plan like the owner wants?”
RxOwnership has helped thousands of independent pharmacy owners grow by opening or acquiring new stores.
“We don’t want you to open a store and fail,” the national vice president of RxOwnership said. “When you’re ready, we’ll help you grow.”
Interested in learning more?
For case studies of owners who took different approaches to managing multiple stores, check out “Owning Multiple Pharmacies.”