How to Finance a Pharmacy Startup
Starting an independent pharmacy requires more than finding a location and obtaining the necessary licenses. Pharmacists also need to plan for startup costs, equipment, inventory, staffing, working capital, and other expenses that can arise before the business begins generating consistent revenue.
For pharmacists considering pharmacy practice financing, understanding the different ways a new pharmacy can be financed can help create a more realistic startup plan.
How Much Does It Cost to Start a Pharmacy?
There is no single startup cost that applies to every pharmacy.
The amount of financing needed can depend on factors such as:
- Location
- Size of the pharmacy
- Leasehold improvements
- Equipment
- Initial inventory
- Technology
- Staffing
- Professional fees
- Licensing and regulatory expenses
- Working capital
A pharmacist should develop a detailed startup budget before determining how much financing is needed.
What Can Pharmacy Startup Financing Cover?
Depending on the financing program and lender, startup financing may be used for a variety of business expenses.
Potential uses can include:
- Leasehold improvements
- Pharmacy equipment
- Furniture and fixtures
- Technology systems
- Initial inventory
- Working capital
- Professional and startup expenses
- Commercial real estate
The specific eligible uses depend on the financing program and structure of the loan.
Consider Working Capital From the Beginning
One of the biggest mistakes a new pharmacy owner can make is focusing only on the cost of opening the business.
A pharmacy may need additional cash after opening to cover expenses while revenue builds.
Working capital may be needed for:
- Payroll
- Rent
- Utilities
- Inventory purchases
- Insurance
- Marketing
- Vendor payments
- Other operating expenses
Building working capital into the initial financing plan can provide additional flexibility during the early stages of the business.
SBA Financing May Be an Option
An SBA 7(a) loan can be used for several eligible business purposes, including working capital, equipment, real estate, furniture, fixtures, supplies, and other expenses. The program can therefore be relevant to certain pharmacy startup projects.
However, SBA financing is not automatically available to every startup. The business and borrower must meet applicable eligibility requirements, and the lender will evaluate the applicant’s ability to repay the loan.
What Do Lenders Look for in a Pharmacy Startup?
A startup does not have historical pharmacy financial statements, so lenders may place significant emphasis on the pharmacist and the proposed business.
Factors that may be reviewed include:
- Professional experience
- Personal credit history
- Personal financial position
- Available equity
- Business plan
- Startup budget
- Financial projections
- Location and lease
- Management plan
The strength and completeness of the overall application can be important when financing a new pharmacy.
Create a Detailed Business Plan
A business plan can help demonstrate how the pharmacy is expected to operate and generate revenue.
The plan may address:
- Target market
- Location
- Competition
- Services offered
- Staffing
- Marketing strategy
- Expected prescription volume
- Revenue projections
- Operating expenses
- Working capital needs
A detailed business plan can also help the pharmacist identify potential financial problems before opening.
Location Can Affect Financing
The location of a new pharmacy can have a major impact on the startup budget.
A pharmacist may need to consider:
- Monthly rent
- Lease terms
- Renovation requirements
- Visibility and accessibility
- Nearby healthcare providers
- Competition
- Parking
- Potential patient base
A more expensive location is not necessarily a better location if the additional cost puts unnecessary pressure on the business.
Equipment Can Be a Major Startup Expense
A new pharmacy may require significant investment in equipment and technology.
Depending on the business model, this could include:
- Dispensing equipment
- Pharmacy management software
- Computers and networking equipment
- Refrigeration
- Security systems
- Prescription processing equipment
- Furniture and fixtures
Pharmacists should determine which equipment is essential at opening and which purchases could potentially be delayed.
Inventory Requires Careful Planning
Initial inventory can represent a substantial use of startup capital.
A new pharmacy needs enough inventory to serve patients while avoiding unnecessary amounts of cash being tied up in products that may move slowly.
Inventory planning should therefore be included in the startup budget and financial projections.
Can You Finance Pharmacy Real Estate?
Some pharmacists may want to purchase the property where their new pharmacy will operate rather than lease it.
If real estate is included in the project, the financing structure may become more complex.
The lender may need to evaluate the property separately from the pharmacy business, and additional documentation or appraisal requirements may apply.
For some borrowers, combining eligible real estate and business financing may be worth exploring.
How Much Should You Borrow?
The goal should not simply be to obtain the largest possible loan.
Instead, pharmacists should determine how much capital is reasonably necessary to open the pharmacy and provide enough liquidity to operate during the early stages.
Borrowing too little could leave the business short of working capital. Borrowing more than necessary could create unnecessary debt service.
A detailed startup budget can help establish a more appropriate financing amount.
How Much Cash Should You Contribute?
Lenders may expect the pharmacist to contribute some of their own capital to the project.
The amount can vary depending on the lender, financing program, transaction structure, and strength of the borrower.
Pharmacists should also consider keeping some personal liquidity rather than putting every available dollar into the business.
Prepare Your Financial Documents Early
Starting the financing process early can help identify what documentation will be required.
Depending on the lender and transaction, this may include:
- Personal tax returns
- Personal financial statements
- Bank statements
- Resume or professional background
- Business plan
- Startup budget
- Financial projections
- Lease information
- Equipment estimates
- Real estate information, if applicable
Having these materials organized can make it easier to evaluate financing options.
Start the Financing Process Before Opening
Pharmacists should not wait until construction is underway or the opening date is approaching to begin thinking about financing.
Financing can involve application, documentation, underwriting, approval, and closing requirements.
Starting early gives the borrower more time to address questions and make adjustments to the financing plan.
Compare Financing Options
A pharmacy startup may have several potential financing options depending on the project.
These can include:
- SBA financing
- Conventional business loans
- Equipment financing
- Commercial real estate financing
- Working capital financing
The best structure depends on the pharmacist, the project, the amount of capital required, and the intended use of funds.
Final Thought
Financing a pharmacy startup requires planning beyond simply determining how much money is needed to open the doors.
Pharmacists should account for equipment, inventory, buildout costs, staffing, working capital, professional expenses, and other startup needs when creating their financing plan.
A strong business plan, realistic financial projections, organized documentation, and an early financing review can help a pharmacist build a more practical path toward opening an independent pharmacy.
