There are several advantages to buying an existing pharmacy, such as the availability of the sales history for prescriptions, OTC, and other items leveraging the existing infrastructure and patient base, including inheriting the potential goodwill and reputation of the business.
But don’t fall in love with the business before you do your due diligence. What do the numbers say about the pharmacy – and is it worthwhile to invest your time, dollars, and energy into it? There are a variety of financial statements/reports you’ll want to use in evaluating the financial health of the business – including the balance sheet.
The balance sheet looks at a specific point in time, documenting what resources are available and how they were financed for the pharmacy:
The balance sheet provides significant insight into the independent pharmacy’s fiscal health. What are the different sections of a balance sheet? A balance sheet has three sections: assets, liabilities, and equity:
Assets are anything owned by the business that could be converted into cash or “liquidated”. Assets are typically thought of as positives on the balance sheet (though there are such things as “contra assets”) and are divided into current and noncurrent or “fixed” assets.
Liabilities are what a company owes, are obligated to pay, and are an inverse of the assets. These are tallied against the balance sheet. Liabilities are also current or noncurrent.
The owner’s (or if more than one, then the owners’) equity is what remains when you subtract liabilities from assets. In summary, owner’s equity is anything belonging to the business owners after any liabilities are accounted for.
In addition to the balance sheet, there are other financial statements/documents that are important in assessing the viability of any business you may want to purchase:
But there is more to consider than the balance sheet or other financial statements. You’ll also want to consider the following:
Use all the resources at hand, including the balance sheet, to make an informed and practical decision you can be confident in.