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How do I Open a Pharmacy?
It all starts with a spark. Perhaps it’s an idea you’ve come across before. But for whatever reason, this time is different. This time you cannot shake your passion to pour into your community or extinguish your entrepreneurial flame. This time, your mind is made up and your vision is clear – You are going to open your own pharmacy.
PioneerRx is dedicated to saving and revitalizing independent pharmacy, so we want your new business to flourish. On this page, you will find answers to your pressing questions and a step-by-step guide to starting your own pharmacy.
Are you ready to open a pharmacy with us?
Who is ownership for?
The optimistic answer is anyone with a strong work ethic and desire to succeed. While not entirely false, there are certainly some characteristics of a successful pharmacy owner.
- Eager to Learn
- Financially Prudent
- Business Savvy
Keep in mind that pharmacy owners wear many hats and act as more of a business operator than just a pharmacist. Ownership is extremely rewarding, but you don’t want to regret your role shift down the road.
One characteristic that all new owners must possess is the ability to overcome the anxiety of the first year of ownership, according to Mark BonDurant of Independent Rx Consulting. “Most people can handle running a pharmacy,” he observes. “But the hard part of opening a store is getting through that first year. Business may be slow, and each month you’re watching thousands of dollars leave your bank account. Not everyone can handle the anxiety of the risk that comes with ownership.”
“I’ve always wanted to own a business my whole life. I knew that was what I wanted to do. … I started going in and doing the conversions and realized, ‘Hey, it might be possible to own a pharmacy of my own one day.’ That was an entirely different world that I just loved.”
PALM HARBOR PHARMACY
How long does it take to open a pharmacy?
Action-oriented tasks can be accomplished in as little as six months; however, a proper planning period commands extensive time and energy. Expect the entire process – from gathering data to grand opening – to take about 1-2 years. See Timeline below to make sure you are on the right track.
How much does it cost to open a pharmacy?
As you can imagine, there are so many factors that affect this estimate – region, store location, store type, etc. Costs can fluctuate from as little as $250,000 to as much as $1,800,000. To give an average, expect start-up costs to range from about $400,000 – $600,000.
How do pharmacies make money?
A quick Google search will tell you that pharmacies make money by buying inventory for the lowest possible cost. As a forward thinking, soon-to-be owner, you know that differentiation and specialization are key to having a competitive edge over large, chain stores.
Your target market will determine which additional services or specialty products you choose to offer. See Market Research for more information on determining your customer base.
1. Consult Advisors & Mentors
As an entrepreneur, you are in business for yourself, not by yourself. It is important to talk to industry professionals and seek wisdom from those who have already started their own pharmacy.
Now is the time to consult (and possibly hire) the following professionals:
- Accountant / Financial Advisor
- Insurance Agent
- Legal Counsel
- Industry Mentors & Thought Leaders
- Established Pharmacy Owners
2. Research and Planning
If you fail to plan, you plan to fail. Is it still a cliché if it’s true?
Adequate research and a detailed plan are necessary to start your own business. Unfortunately, there is no crystal ball to tell you whether your investment will pay off. It is your responsibility to ensure that your pharmacy will be profitable and beneficial to your community.
Those dedicated enough to perform their due diligence look at several indicators of success.
In order to serve your customers, you have to know who they are and where to find them. Conducting market research uncovers several consumer insights including demographics, psychographics, traffic patterns, and more.
When looking at potential neighborhoods, consider the healthcare needs of the residents. Are you servicing an older community? Or perhaps one with an abundance of new families and children?
Differentiate your store by specializing in your community’s needs, whether it be geriatrics, pediatrics, pregnancy, sports health, active lifestyle, etc.
Remember, big chains already sell to everyone. How can you serve your community?
Market research will help you determine your best location options.
Below are a few questions to guide the direction of your research:
Are there other pharmacies around?
Is there a sufficient prescription base in this area?
Is this area heavily trafficked?
Does this specific location provide visibility and accessibility?
Is this location the appropriate size to both operate and grow?
Gathering enough historical data to make realistic financial projections will provide more clarity into your pharmacy’s expected financial future based on the specifics of your store’s location and customer base.
Revenues, expenses, and free cash flow projections are the first glimpse into your pharmacy’s financial health. If you do not have a solid background in accounting, we highly recommend consulting an accountant for these projections.
Starting your own pharmacy will cost on average $400,000 to $600,000. You must realistically determine how you will obtain that financial capital using one or a combination of the following options:
Keep in mind that it may take several months after opening your doors to begin generating profit. Liquidity is key in your first year of business to ensure you do not run into any cash flow problems.
3. Business Plan
All of the research you’ve gathered and the decisions you’ve made in Step 2 culminate into your business plan – a detailed, thoughtful document outlining the ways in which you will conduct your business. A business plan not only acts as your personal roadmap, but it signifies serious intentions for success to outside parties such as lenders, potential partners, and landlords.
Components of a Typical Business Plan:
The first page to be seen but the last page to be written, the Executive Summary serves as a one-page highlight of all major points detailed in the business plan. A good rule to follow is that if a potential partner or investor was reading your business plan, they should be able to read all information necessary to make a decision in the Executive Summary.
This section takes a high-level look at your future pharmacy. In this section, describe factors such as number of fills per day, clinical services offered, and front end products. This is also the section to discuss your target market.
Sales and marketing strategies describe the methods you will use to get messaging, products, and services delivered to your target market. Marketing strategy consists of components like penetration, distribution, and communication. Sales strategies consist of activities for prescriptions, clinical services, and front end products. Remember that as an independent pharmacist, you are often providing much more than just medications to your patients.
Your Operation and Management plans will detail how your business will run, both in terms of systematic processes and managerial structure. Include how your business will be structured as a legal entity and your plan for obtaining all necessary licenses.
This is the most important section of your business plan, and will require review by a financial advisor to ensure that it is GAAP compliant. In this section, include financial projections such as forecasted income and expenses, cash flow budget, and startup requirements. Identify trends when possible and provide an analysis of your findings.
Last, but not least, the Appendix is the appropriate place for supplemental or explanatory materials that support the content in the body of the business plan, but would interrupt the flow if placed in the body. In addition to financial calculations, charts, and graphs, the appendix is a great place to show how you reached certain conclusions. This can be interviews, case studies, or letters from others in the industry. If it is relevant and supports your main points, it belongs in the appendix.
Your business plan should include enough detail for readers to capture the entire scope of your business, but concise enough to read in one sitting. Refer to the U.S. Small Business Administration for more guidance in writing your business plan.
4. Form a Legal Entity
Choosing the type of business structure you want for your pharmacy depends on the amount of legal liability you desire, tax liability, and how much you are willing to spend on ongoing costs of formation and administration, according to Entrepreneur. There are four common types of companies you can classify your pharmacy as:
Sole Proprietorships are simple to form, but place all legal liability on the owner. Taxes are reported on the owner’s personal tax return.
Very similar to Sole Proprietorships, Partnerships place liability on the partners, and each partner’s share of profits is reflected on their personal income taxes.
Corporations separate liability and tax structures from the owner. S and C Corporations differ from one another in the way earnings are recorded and taxed. Corporations are required to hold annual meetings and record minutes.
A hybrid of the above entities, LLCs separate legal liability from the owner(s), but record taxes similar to Sole Proprietorships or Partnerships
Read this article from Incorporate for more detailed information about each type of entity and to help you determine the structure that is best suited for you to open a pharmacy.
5. Obtain a Business Bank Account & Startup Capital
Mark BonDurant of Independent Rx Consulting has coached dozens of independent pharmacies through this process, and he notes a few realities of the financial aspect of ownership:
- Pharmacies can be a large financial risk, so acquiring a loan from a bank may be difficult. (Click here to view PioneerRx approved financing partners.)
- It typically costs $400,000 – $500,000 to open your own pharmacy.
- The average monthly operating expenses for a pharmacy total around $30,000. As a new pharmacy establishes itself, it may not be able to fill enough volume to pay the operating costs each month. This requires patience as your client base expands.
6. Legal and Operational Requirements
Legal requirements will vary by state and by business structure, but the following are general guidelines to ensure smooth operations. For more information, visit Harbor Compliance Pharmacy Licensing or search requirements from your state’s Board of Pharmacy here.
State Board of Pharmacy Permit
Drug Enforcement Administration (DEA) Number
National Provider Identifier (NPI) Number
National Association of Boards of Pharmacy (NABP) Number
Employer Identification Number (EIN)
Before you begin operations, contact your federal, state, and local taxing authorities to set up the following accounts.
Federal Tax ID Number
State Tax ID Number
Payroll Tax Account
Property Tax Accounts
Sales Tax Accounts
Insurance protects your pharmacy from liability in the event of a lawsuit. It is also necessary in order to engage in most contracts and practice agreements. Contact your local insurance broker to create a policy that is best for your pharmacy.
Health Plan Agreements
Developing both public and private health plan agreements ensure that your pharmacy is competitive and accessible to the community. Consider joining a Professional Services Administration Organization to better negotiate the terms of these contracts.
7. Select and Design Store
Select the Location
Great amounts of research will go into selecting the perfect store location, whether you choose to rent, buy, or build. Visibility and accessibility of the store will be critical to ensure you get the most amount of traffic possible. You may consider setting up shop near a large chain pharmacy. This can be a good indicator because they have the money to spend on extensive research about optimal locations. Also, you may have the opportunity to attract some of their customers and show what unique services you have to offer.
Once you have made your decision, it is now the time to make the financial transaction and officially call the store your own. Make sure that you have all of the proper licenses and insurance required for owning or leasing property.
Design and Layout
Designing the inside of your store is almost as important as selecting the physical location. Depending on the location you choose, you may have a lot of input or you may have no freedom to make design changes.
Optimize Your Workflow
- Cut out any unnecessary steps in the workflow
- Make sure that your staff can work comfortably behind the counter, while patients can easily access the counter from the front door
- Keep in mind any additional services you may need space to incorporate, such as a drive-through window
- Create an easily navigable space and inviting atmosphere- you want your customers to feel at home
- Visit other pharmacies and take note of which front end products are grouped together, how people walk through the store (for aisle positioning), and the use of window and aisle displays
- The goal is to create a front end experience that is spacious enough to walk through, promotes impulse purchases, and welcomes patients to the pharmacy counter.
In line with the needs of your customers is a layout that is ADA compliant. You can take this to the next level by creating a universal design. This is a technique that creates a space that can be used to the greatest possible extent by the most diverse amount of people. All components are chosen to be the least restrictive option and reduce the need for any special modifications. Building your store with universal design in mind will give you the most beneficial space possible, and refrain from excluding any of your customers.
8. Hire and Train Employees
Write an employee manual that outlines both job descriptions and your pharmacy’s values, policies, and procedures. Because you are starting from scratch, you have the exciting privilege of creating your own company culture.
Of course you want to interview qualified candidates. Beyond those initial qualifications, look for employees who share your values and passion for independent pharmacy in your community. These individuals are responsible for your store’s success by engaging the community and turning them into loyal customers.
The size of your pharmacy will determine the number of individuals you hire. At the very minimum, you need to have a Licensed Pharmacist and Technician at your store. You may decide to hire more than one of each initially or in the future.
9. Purchase Inventory and Supplies
Starting your own pharmacy is just like buying your first home – once you buy it, you have to buy everything that goes inside.
When deciding on a wholesaler, think about their proximity to your store, delivery schedules, and billing cycles. If you join a PSAO, they typically provide guidance and contracting services to help you select a wholesaler that best fits your pharmacy’s needs.
Having the right tools and technology in your pharmacy allow you to out-innovate your competition, delight customers, and allocate time and resources efficiently. PioneerRx is the most installed pharmacy management software and ranks #1 in customer satisfaction. Let us show you our passion for saving and revitalizing independent pharmacy and explore our full list of pharmacy features.
Beyond your software, you may decide to invest in pharmacy IVR, robots and other automation, products, and services. Check out our Connected Vendors for a complete list of products that integrate with PioneerRx pharmacy software and vendors we recommend.
Every small business budget, no matter how limited, needs a line for marketing. Loyal customers are formed through trust, and how can customers trust you if they don’t know you exist?
Branding your pharmacy appropriately attracts customers and establishes your pharmacy within the community. Make sure that your branding is easily recognizable and cohesive across all platforms.
Paid advertising is important, but community engagement is crucial for starting an independent pharmacy. Get involved in your community and local government if you aren’t already. Network with both healthcare professionals and potential new patients. Support local businesses and your community so that your community will support you.
11. Soft Opening
After countless hours of planning and preparation – you are ready to open your doors!
Well, sort of.
About a month before your open date, conduct a soft opening for only a few customers. Inevitably, there will be hiccups when opening your pharmacy. Soft openings act as a grace period for staff to master their routines and to ensure that all processes are working smoothly. Soft openings allow you to tackle road bumps immediately with only a few patients, rather than delaying a lengthening line of customers.
This period of time allows you to focus on details and last minute tasks so that your grand opening is polished and successful.
12. Grand Opening
You did it! You are about to see all of the rewards from your hard work!
Opening your pharmacy’s doors for business is an exciting day for you and your staff. Make it an exciting day for your new customers, as well!
Host fun events for your entire community to see what your new business is all about. Invite your mayor and local media to a ribbon cutting ceremony. Serve treats catered by local restaurants and bakeries. Have performances by local bands and musical groups. Do anything that you can to attract your target market and show your community that you have arrived.
A first impression is a lasting impression, and this is your pharmacy’s first chance to spark lasting relationships within your community.
Looking to start the conversation about a new pharmacy?
Watch a free demo of PioneerRx in action!
Mistakes to Avoid
Failing to research
There is a reason why Research and Planning is the longest step in the process. It is so incredibly important because it is the foundation of successfully setting up your business. You won’t get to where you want to be if you don’t know where you’re going.
Failing to define target market
You will never be able to sell to everyone like the big chains do, so you need a different approach. You need to fully understand and meet the needs of your niche to grow your customer base.
Not having enough cash available
Liquidity is essential when starting your pharmacy because a financial routine has yet to be established. With high start-up costs and delayed profits, having cash in the bank allows you to pay your bills and operate comfortably. There is nothing you want less than your pharmacy to fail in its infancy because you did not budget properly (again, this is why planning is so important!).
Not allowing enough time
Planning! Can we say it enough?
Give yourself enough time to get everything ready far in advance. Inevitably, there will be a process that takes longer than expected, an office closed for holidays, or some other unforeseen event that pushes your to-do list back. Plan for these occurrences from the start so that you aren’t scrambling or delaying your open date.
Customers cannot fall in love with your pharmacy if they do not know who you are, where you are, and how you can help them. Make it easy for them.
Thinking you can do everything alone
A good business owner acknowledges that he/she does not know everything. There is an abundance of consultants and mentors with a wealth of knowledge. Take advantage of your resources and ask for help when you need it.