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.”
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.
How to Open a Pharmacy: Your Step-by-Step Guide
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. Create a Pharmacy Business Plan
A business plan, or loan package, sums up the business’ purpose, financial data, and goals. A business plan helps potential owners understand their future business as more than just an idea. Taking a close look at profit projections, marketing strategies, and the overall purpose of the pharmacy encourages owners to become even more knowledgeable about opening a pharmacy. A business plan is especially necessary for receiving approval for loans.
3. 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 Proprietorship
- Limited Liability Company (LLC)
- Corporation (“S” or “C”)
- General partnership
4. Obtain a Business Bank Account & Startup Capital
Mark BonDurant 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. (See Other resources below for pharmacy-friendly banks we recommend!)
- It typically costs $400,000 – 500,000 to open your own pharmacy
- The average monthly operating expenses for a pharmacy total to 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 the word spreads about your pharmacy and your client base expands.
5. Apply for Pharmacy Licenses, Certifications, and Contracts
The required licenses vary across states. Find your state’s application and renewal requirements from this list. These may be time sensitive actions, and failing to complete them in time may cost your pharmacy valuable time and money, or even delay your store’s timeline. Here are the licensure basics:
- State permit
- Drug Enforcement Administration (DEA) registration
- Association of Boards of Pharmacy/National Council for Prescription Drug Programs (NABP/NCPDP) number
- National Provider Identifier (NPI) number
- Employer Identification Number (EIN)
Certificate of Insurance
First, pharmacies need a Certificate of Insurance (COI) in order to form practice agreements with pharmacy benefit managers (PBMs) and third-party payers. This will cover you during any malpractice claims. Of course, no pharmacy owner wants to consider potential lawsuits, but insuring your business in case of a liability suit is always a wise investment.
Private Health Plans
These are the policies offered by commercial insurance companies, and they can be purchased by a group or an individual. Typically, these can be negotiated with the help of a PSAO, or Pharmacy Services Administration Organization.
Public Health Plans
Medicare and Medicaid, both government-sponsored, are public health plans overseen by Centers for Medicare and Medicaid Services (CMS). These may also be negotiated by a PSAO.
A Pharmacy Services Administration Organization can be a great asset to an independent pharmacy. They are typically offered through wholesalers and purchasing groups. By joining a PSAO, a pharmacy can rely on them for third-party reconciliation, access to exclusive services, and protection from aggressive PBM action.
6. Select Pharmacy Location
Choosing the location when starting a pharmacy is one of the most pivotal steps of the ownership journey. You want your pharmacy to be an asset to your community, not another retailer taking up space.
You may assume that staying far away from chain pharmacies is the best choice, but not so, according to this article by Lester Nathan. Actually, independent pharmacies typically find success in being within close proximity of their chain competitors. “Your sales will increase because the chain stores bring in people who are mainly there to find something to aid their maladies,” says Nathan. “These people will notice how different you are as long as you truly differentiate yourself.”
Retail Follows Rooftops
Of course, a populous area seems ideal for opening a new pharmacy. However, foot traffic does not always yield customers. Be sure to conduct the proper market research in the area you’re considering through any of these strategies:
- Contact other locally owned businesses to learn how successful they have been
- Map out where other pharmacies (chain and locally owned) have established themselves
- Consult resources like libraries, Chambers of Commerce, and online sources like Epodunk to learn more about the local population and marketplace. Eric Cushey, owner and PIC of Curtis Pharmacy in Claysville, PA, recommends looking for an area with a large, aging demographic. “More seniors means more scripts, as well as more need of the services independents offer,” says Cushey.
The type of setting you place your business in is just as important as the location when you open a pharmacy. There are four common types of settings for an independent building:
Being housed within a hospital or clinic is a great convenience for patients that guarantees you will have customers coming directly from their prescribers to you. Also, a closer proximity to physicians and providers closes the communication gap and helps your mutual patients’ outcomes. However, depending on the practice you open your pharmacy in, you may need to have an understanding of any policies or protocols implemented by the practice. Furthermore, implementing change and new practices may need to be approved by the practice, which could take a long time.
Pharmacies focused on front-end sales may benefit from providing their services within a shopping center. The neighboring retailers may draw more customers in, and if you are leasing the space, you may not be responsible for major repairs. When examining a shopping center as a potential location, consider the “anchor stores” already within the structure. Will these anchor stores mutually benefit your pharmacy? (For example, if veterinary medicine is one of your core services, finding a shopping center that contains a veterinarian clinic will be advantageous for both practices.)
If you lease a space for your property, though, you are pouring money into a property that is not yours, and issues like parking availability, signage, and neighboring tenants will be out of your control.
Joining forces with a grocery store offers a great convenience to busy patients. Supermarket pharmacies may provide more OTC options for customers, and for patients with diet-related questions, the pharmacist can easily make recommendations of items located within the store. Michael Matovich, a pharmacist and third-generation owner of Columbus IGA Plus, operates Stillwater Family Pharmacy within his family’s grocery store. “The community really looks to us for advice,” Matovich says. “The days when our local clinic is closed, those are some of our busiest days because our patients come to us for knowledge.”
While this setting may ensure financial stability, more supermarkets are being purchased or closing down as online retailers are on the rise. Be aware of this possibility when venturing into this location.
The freestanding location embodies everything about being an independent pharmacy: you call all the shots. Plus, you are investing in a property that could increase in value over time. However, when the time comes for repairs, expansion, and any other decision related to the property, you are the one calling the shots (and paying the bills).
7. Hire and Train Employees
Just because you’re “independent” doesn’t mean you should go at it alone! Contact mentors and colleagues who know how to start a pharmacy and ask for advice. There are also consultants who guide hundreds of pharmacies through ownership, such as Independent Rx Consulting, and they ensure you will not miss a single step of the ownership journey.
The basic pharmacy staff consists of a pharmacist, a pharmacy technician, and a clerk. Some pharmacies may operate with a condensed staff where team members perform dual roles (a technician may handle a clerk’s duties, for example.) This varies in order to meet the pharmacy’s unique demands, and sometimes more creative roles are introduced into the team as the practice expands and evolves. These creative roles may also fulfill multiple roles to ensure they have the most impact within the pharmacy, such as a nutritionist who also manages the front-end inventory while performing clerk duties.
8. Purchase Technology and Inventory
Choosing the right tools for your pharmacy is just as critical as the staff members you decide to hire. Every independent pharmacy needs:
- An IVR system to answer phone calls and save your staff time in the pharmacy
- Security items such as alarms and cameras, which may require adjusting any existing cabling within the pharmacy
- The right pharmacy software management software to create a smooth workflow
- Plan for available space behind the counter for potential growth (automation robots, unit dose packaging systems, more work areas, etc.)
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