Don’t Buy a Job in a White Coat: Do Your Homework Before You Buy a Pharmacy
Buying an independent pharmacy can be one of the most rewarding investments you’ll ever make — if you approach it with a sharp eye and serious due diligence. Too often, buyers jump into a deal emotionally or based on surface-level appeal, only to realize too late they’ve purchased a job, not a business.
So how do you ensure you’re buying a cash-flowing, appreciating asset, not just a workload with liabilities? Here’s a detailed checklist of what to examine before making an offer.
1. How Long Has the Pharmacy Been in Business?
Longevity says a lot. A pharmacy that has been operating for 10+ years likely has strong customer loyalty, vendor relationships, and some level of operational resilience. A pharmacy that’s only been around for a couple of years could be riskier — especially if its growth was subsidized by owner energy rather than true market demand.
2. What’s Their Niche Within the Industry?
Does the pharmacy do more than just fill scripts? Look for specialization that adds value or barriers to entry, such as:
- Compounding services
- Long-term care (LTC) contracts
- Durable medical equipment (DME)
- Specialty medication fulfillment
- Immunizations and clinical services
These create sticky revenue and insulation from competitors and PBM pressure.
3. Clean Books or a Financial Jungle?
Messy financials are a red flag. You want to see well-organized, CPA-reviewed financial statements for the past 3 years, including:
- Profit & Loss statements
- Balance sheets
- Tax returns
- Inventory tracking
- Payroll records
Sloppy books don’t just create confusion — they can hide real risks.
4. Trends Don’t Lie: Follow the Money
Review 3 years of revenue and net income trends. Is the pharmacy growing, plateauing, or declining? Also evaluate:
- Gross margins
- Number of prescriptions filled monthly
- Insurance mix (Medicare, Medicaid, PBM contracts)
- Generic vs. brand ratio
- Customer retention and foot traffic
This isn’t just about numbers — it’s about momentum. Are you stepping into a growing enterprise or one in slow decline?
5. What’s the Owner Really Taking Home?
It’s critical to quantify the true owner benefit, not just what shows on a tax return. Look at:
- Owner’s salary
- Distributions or draws
- Personal expenses run through the business (car lease, travel, cell phones, etc.)
This helps you determine the real cash flow you’ll inherit and what can be added back as owner compensation.
6. Is the Business Bankable?
If you’re financing the purchase, banks will need to verify adjusted cash flow to cover the loan. They’ll look at:
- Debt service coverage ratio (DSCR)
- Verifiable add-backs
- SBA-eligible structure
- Inventory and accounts receivable terms
If the business can’t support a fair debt load, that’s a red flag. You shouldn’t have to subsidize it out of pocket.
7. Industry & Regulatory Trends
Pharmacy is a rapidly evolving space. Ask:
- Is this business positioned to compete with chains and Amazon?
- Are there major payer or PBM changes affecting reimbursement?
- Are DIR fees or clawbacks a problem here?
- Is the pharmacy at risk of losing contracts?
A solid business today can still be on shaky ground tomorrow if it’s not prepared for what’s coming.
8. What’s the Supplier Picture Look Like?
Pharmacy margins are tightly tied to supplier contracts. Investigate:
- Who are the primary wholesalers?
- Are they on favorable terms (rebates, volume pricing)?
- Is there risk of losing a key relationship?
Also consider local medical provider relationships — are they sending scripts here, and why?
9. What Happens When the Seller Walks Away?
Sometimes the seller is the business. Be sure you understand:
- How involved is the owner day-to-day?
- Are there strong staff or pharmacists staying on?
- Are customer relationships tied to the owner personally?
Make sure you’re not walking into a vacuum that hurts retention or operations post-sale.
10. What’s the Endgame?
Ultimately, this isn’t just about buying a pharmacy — it’s about investing in an appreciating, income-producing asset. Ask yourself:
- Can I grow this business?
- Is there upside through better systems, services, or marketing?
- Can I sell it one day for more than I paid?
If the answer isn’t clearly “yes,” keep looking — or renegotiate.
Final Thought: Slow Down to Speed Up
We get it — it’s exciting to pursue ownership. But the best pharmacy acquisitions are made by buyers who take their time, dig deep, and ask the tough questions.
The goal? Buy a business that works for you — not one that just gives you more work.
Thinking about buying an independent pharmacy?
Let’s talk. We help buyers secure financing and walk through these critical steps with clarity and confidence.
