Start a pharmacy by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your pharmacy. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a pharmacy?
You will need to lease or buy a storefront, hire staff, purchase a variety of computers for POS and prescriptions, and invest in your initial pharmaceuticals order. For a typical neighborhood pharmacy, expect to need $1 million to $2 million dollars for your first year. For your five-year business plan, a $10 million investment is required.
What are the ongoing expenses for a pharmacy?
Your largest expense is maintaining your prescription medication supply. You must always have enough on hand to meet monthly demand while ensuring that no medicine expires before it is dispensed. Salaries and payroll will come in a distant second.
Who is the target market?
In a neighborhood pharmacy, your customers come from every age and demographic. While some prescriptions may have a higher profit margin than others, your commitment is to the health of your community, not your bottom line.
How does a pharmacy make money?
Profit is gained by purchasing medications for as low a price as possible, as co-pays and insurance reimbursements are fixed and cannot be altered by your practices. Knowledge of generics and name brand medicines is useful. The most profit is found in the name brands, but government regulations often dictate that generics must be issued.
How much can you charge customers?
There is a little wiggle room for pricing your prescriptions, but those costs are largely determined by the pharmaceutical and insurance companies. Customers will pay anywhere from a couple dollars for a common medicine to thousands for rare drugs to treat chronic illnesses. You will need to constantly monitor the competition to stay relevant in your neighborhood.
How much profit can a pharmacy make?
Once you are reimbursed by the insurance companies, drug stores typically see a profit of 10-30% on most prescription medications. Should your location be doing steady business, it is possible for the business owner to see an income of $300,000 per year.
How can you make your business more profitable?
The relationship that dictates your profit margin is the one you create with your pharmaceutical supplier. Large chain stores buy in bulk and are able to negotiate a lower wholesale price. As a small pharmacy, you will need a talented negotiator willing to so some entertaining for the business in order to get the best deal from a variety of vendors.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your pharmacy is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
Here you can find information on FDA regulations regarding the licensing of pharmaceutical distributors.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a pharmacy. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A pharmacy is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a pharmacy.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your pharmacy will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a pharmacy
Your marketing program will be two-fold. For your convenience store section, you will want to take out inserts in the local newspaper, use direct mail campaigns, and place ads on radio and TV. Attend community events that promote good health such as road races, family festivals, and neighborhood programs to become a familiar face. A more professional approach must be taken to become a recognized member of the medical community. Visit doctor offices, hospitals, clinics, and urgent care facilities to spread the word.
How to keep customers coming back
Convenience and low prices will draw your first customers in the door. More drug stores are offering drive-thru windows for easy and fast pick-up of prescription. Common prescriptions can be offered at very low prices for your first six months to generate foot traffic. Your customers will keep coming back with no problems are encountered with their insurance, they receive good medical advice, and experience positive customer service each time they visit.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Pharmacy In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
The right entrepreneur seeking to open their own pharmacy will have a deep commitment to supporting the health of their neighbors. The owner may or may not have a Doctorate of Pharmacy and will have a good understanding of how insurance companies and Medicare reimburse pharmacies. They will have a good background in business management.
What happens during a typical day at a pharmacy?
- Receiving and filling prescriptions according to FDA regulations for a wide variety of patients with many different medical conditions
- Inventory medications and place orders to maintain stock
- Stock products in the over-the-counter displays in an easy to use and attractive manner
- Provide medical advice to concerned customers such they are able to use their medications safely and effectively
- Work with doctors offices to refill prescriptions or obtain a different script that is supported by an insurance plan
- Submit scripts to insurance companies for reimbursement
- Hire clerks and staff to maintain the front of the store
- Hire trained technicians able to support the required PharmD behind the counter
- Maintain the physical store
- Balance your books, issue payroll, work with a variety of vendors
What are some skills and experiences that will help you build a successful pharmacy?
Every successful pharmacy will have an individual who:
- Has a Doctor of Pharmacy
- Has extensive knowledge of insurance company procedures for reimbursement of prescription medicines
- Has garnered full comprehension of FDA regulations regarding controlled substances and how to issue prescriptions
- Is trained in business management skills regarding inventory, ordering, and accounts receivable/payable
- Understands payroll procedures
- Can hire qualified pharmacy technicians to support the PharmD
- Is able to explain dosage, use, side effects, and dangers of all medications to every customer with compassion and understanding
What is the growth potential for a pharmacy?
Customers often come to rely on their local pharmacist as a source of reliable information that they value beyond the price of their prescription. By providing superior service, more people will return to your store if only to purchase OTC cough medicines. When you develop an attractive store that surpasses your clients' expectations, you may be able to expand into multiple locations.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a pharmacy?
Not only do you need to get the word out to the local community that you opened the doors, doctors offices must be made aware that you exist. Before opening you ought to attend medical conventions, seminars, and social mixers hosted by pharmaceutical companies. Make sure to pass out plenty of business cards, rent a table, and work the room. Many doctors recommend a particular pharmacy if their patient is unfamiliar with the neighborhood.
How and when to build a team
If you are not a Doctor of Pharmacy, it is wise to hire yours before you start building your location. The PharmD will have the knowledge and contacts to expand your presence in the local medical community. Store management, clerks and technicians can be hired up to one month before opening for training and stocking of the store.