In the second part following from last month, Umesh Modi looks at the factors to consider when buying a pharmacy …..

There are many factors to consider, namely

 

• financial
• staffing
• regulatory compliance
• due diligence

Financing

If you are borrowing it is a good idea to have your loan offer from a bank in writing at the earliest stage. It is better to deal with a bank manager who is specialised in healthcare. Lenders often produce a bewildering amount of documentation for their own valuation, full of legal jargon which needs to be correctly interpreted and understood. It is vital that the key terms, in particular financial and security, are evaluated carefully and scrutinised to ensure that your business can meet the required performance standards.

 

The lender/bank’s requirement will always cover business plan, profit projections and cash flow projections.

 

The effects of tax implications of either purchase of shares or goodwill should also be reflected in these projections. The lender will wish to see viability of the business before they approve the loan.

 

Employees

Under the Transfer of Undertakings Protection of Employment – (TUPE) regulations, the buyer automatically inherits all the employees under the same terms and conditions. It concerns all part-time workers and employed family members, as well, unless they resign prior to the sale of the business.

 

NHS England Consent and /Premises Registrations

If you are buying the shares of the company, a change of ownership application will not be normally necessary. However, the fitness-to-practice forms application is mandatory.

If you are buying the pharmacy business by way of asset purchase, an application to NHS England for change of ownership will need to be made as soon as possible. Fitness-to-practice forms must be submitted promptly. It is important to note that completion of the purchase can be made conditional upon the success of this.

 

New ownership will need to be registered with the General Pharmaceutical Council and for Income Tax, VAT and PAYE registrations with HMRC.

 

 

 

 

 

 

Due Diligence

One of the first stages involved in either a share purchase or an asset purchase is the formal pre–contract investigation called due diligence.

 

Due diligence is an information gathering process carried out by the buyer’s solicitors and accountants in order to build as complete a picture as possible about the company/business and find out about any major issues before the purchase is concluded.

 

Matters that must be addressed in the due diligence process, inter alia, are the following: –

 

• Obtain last 3 years full and signed accounts and up-to-date management accounts.
• Obtain the latest business tax computations (with capital allowances computations).
• Obtain PPD statements for last 3 years to get a true picture of the prescription volume and income.
• Obtain the last 3 years OTC sales figures and wholesale sales figures (if any).
• Obtain last 12 months’ VAT returns copies and workings.
• Consider risks and links with local businesses (competing Pharmacies, GP surgeries, Care and Nursing Homes, etc.).
• Consider if there are other pharmacy relocations into GP surgeries.
• In case of purchase of company, all warranties and indemnities have to be checked to protect one’s interests.

 

This list is not exhaustive and a thorough legal and financial due diligence is imperative.

 

Final stages

Share purchase: After the share purchase agreement is signed off, title of shares transferred and duly registered, new appointments and resignations of directors filed, bank accounts signatories changed, other access and filing codes handed over, that is pharmacy business taken over. Post-completion claims and other matters will fall in place so that final completion accounts are prepared/agreed and settled between both the buyer and the seller within a few months after the completion.

 

Asset purchase: A fresh and new bank account has to be opened. After the asset purchase agreement is signed off, contracts titles transferred, pharmacy business transferred, ensuring that no liabilities potential or otherwise remain, matters will fall in place so that a final accruals and prepayments schedule can be agreed and settled on the date of completion.

 

This article does not constitute legal and/or financial advice and is for guidance only. Specific professional advice should be taken before acting on matters mentioned here. Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or by email on umesh.modi@silverlevene.co.uk