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Property Finance for a pharmacy

Published on 5th October 2020

Running a pharmacy as a high street chemist can be a particularly lucrative business, letting you use your professional skills whilst also providing a huge range of commercial opportunities.

TL:DR - When two existing pharmacy owners decided to come together for a joint venture, they found that the scale of the funding needed, along with the additional challenge that the banks saw their new venture as a start-up, despite both having extensive experience in the pharmacy sector, meant funding challenges they could not overcome alone. We went above and beyond to help, calling in a team of accountancy specialists and valuers to support their application, and succeeded in getting them a funding deal of £1,900,000 at 3.75% above base rate currently 0.5% with a term of 15 years.

Running a chain of pharmacies can be even more rewarding, letting you benefit from economies of scale.

But whether you are opening a new pharmacy or taking over an existing chemist shop, being able to capitalise your business at the lowest possible cost is key to success.

Acquiring an existing business or premises will need external funding tailored to your cash flow. At Rangewell, we understand the particular challenges you face because we work with pharmacists across the UK and help them find solutions to their funding needs.

We recently helped two partners acquire two existing chemist shops to add to their existing businesses - and had some challenges to overcome when we provided the funding. 

About finance for buying a chemist shop

The high street chemist shop should be a relatively safe business. As a mature retail sector, the profits of any given shop in a particular area should be relatively easy to calculate based on some simple demographic calculations. If an experienced chemist shop operator takes over an existing business, the prospects for both ongoing trade and the potential of the business for growth should be easily predictable.

However, the business is changing as competition from discount chains and the supermarket pharmacies increases.

Some lenders may be more wary of funding chemist shop businesses than they might once have been. Buying a chemist shop, like any other type of business purchase, will mean costs that reflect the turnover currently being delivered. 

Other factors, such as the location of the business and its potential for the future, may be taken into account. Whether the business is a leasehold or freehold will also influence your price - but although buying a business with a property may be more expensive in terms of the purchase price, it might actually be advantageous as the lending can be secured on the property rather than the business turnover. 

Remember - if you are a professional in the pharmacy sector, you may be eligible for lending at particularly attractive rates. 

We were approached by two pharmacists who both had small chains of shops in their own names but saw that the future was in scale - and decided to acquire a pair of additional shops as a joint venture.

“Working in the pharmacy business for a few years had shown us the problems as well as the opportunities, and with the way things are going, we were certain that scaling up was the best solution for both of us. With our existing supplier contacts, we could reduce our input costs, and we knew that as well as increased buying power we could leverage our experience. We had experienced staff we could put straight in.”

The partners had found two shops that were being sold by an owner ready for retirement. They were both in good positions and in locations which would complement their existing operations.

“Basically, we were buying shops which would fill up holes in our existing spreads. We would be reinforcing our existing operations, not taking customers away from them - but at the same time, they were close enough for us to easily manage from our existing sites for delivery and the like.

The challenge was the same as it always is - finding the right way to fund the acquisition.”

The two shops were profitable and in owned premises and the current owner was under no illusion about their value.

“He wanted £2million for the two shops. An independent valuer confirmed that the price was fair and, when we looked at the books, we had to agree. The businesses were profitable as they were, plus they had plenty of potential for the future. One was close to a large housing development that would mean plenty of extra customers walking past the door.”

The partners first thought was to approach their banks - but it was then that things started to become complicated. They were both successful business owners, but they had not worked as partners before and setting up a joint venture was complicated.

“Naturally, we had the support of our account and solicitor, but even with their professional skills, the application was looking complicated from the beginning. The bank wanted all kinds of documentation. It is understandable enough - we needed to fund £2million after all.”

It soon became apparent that the partners would need more support than their advisors could provide. The needs of the bank they wanted to work with were highly specific, and they turned to our experts at Rangewell for help.

As experts in business lending, we understood what the banks needed and began work on preparing a report which would provide the information required in the form that the banks would find the simplest to deal with for their purposes.

When large sums are involved, lenders have to be cautious. Even those who are prepared to fund may have a ceiling on the amount they can lend on a single project in the current climate. And those that will lend may require a high rate of interest.

Getting the deal you need for your business development plans and turning your ideas into profitable business realities requires expert support. 

Without in-depth knowledge of the lending industry, it can be extremely difficult to find lenders who can provide the most competitive rates for your particular business needs. At Rangewell, we have that knowledge. 

If you are ready to find better answers to your business funding needs, contact the Rangewell funding hotline on 020 3318 2613

Finding a solution

We looked at the deal that the partners were looking for and saw that their plans were sound

The asking price was £1million for each shop, which was a fair price for a practice with a combination of ample floor space and a turnover that was already excellent, with more than 5,500 prescriptions served each month. 

However, the way the business would be structured was causing problems. Both partners had existing businesses, with debts as well as assets, but their new venture was technically a new business.

Banks are often reluctant to provide funding for new business ventures - particularly at the current time - as there is no formal evidence that the business would be successful.

We, therefore, had the task of creating a detailed report that would demonstrate the viability of the business plan, along with the skills and experience of the partners.

We called in a team of specialist pharmacy accountants to support the application and assembled an application based around lending secured on the value of the property itself.

There were several problems to overcome, not least that the valuation of the properties was found to be rather optimistic.

We used our negotiating skills to reduce the price offered for the shops and found a new valuation which was closer to the amount required.

Then at the last minute, we found that Covid-19 had triggered a crisis of confidence in lenders, who were concerned that they were being asked to fund a business acquisition which had no clear prospect of being allowed to open. 

We found a lender who was hungry for business and able to make the required funds available when the first choice lender pulled out at the last minute.

The funding Rangewell arranged 

£1,900,000 at 3.75% above base rate currently 0.5% with a term of 15 years

Getting the right deal for your business plans 

Finding the most appropriate lender for your business acquisition plans project can be crucial to their success and profitability. That’s why it is important to speak to the Rangewell team without delay. At Rangewell, we work with all the lenders in the UK market and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for any individual need.

Our team is made up of sector specialists. Whatever your line of work and whatever pharmacy funding need, we have someone who understands the challenges you face - and the ways to answer them - at the most affordable rate.

Our term includes experts in property finance and our service is personal. It means you can talk to a property funding expert who understands the specific challenges of your sector to find a solution that is planned around your business needs.

We will discuss your plans and then call on our network of lenders, which includes virtually every name in the UK market to get the funds you need quickly.

And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too. Plus, in most cases, our services are absolutely free.

To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email [email protected].

Property finace costs less with help from Rangewell

  • Individual arrangements tailored to your circumstances
  • Adverse Credit - no problem
  • Repayments geared to your revenue stream - including interest roll-up
  • Understanding the funding challenges for your sector
  • Personal service

Talk to Rangewell – the business finance experts


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