Five stock-related issues to consider when buying or selling a pharmacy

Because every pharmacy transaction is different, it is essential both parties agree on how stock will be treated and ensure that approach is accurately documented in the contract of sale.

Reaching clear agreement at the outset is critical.

Here are five stock-related issues to consider when negotiating a pharmacy sale/purchase agreement.

1. Get the stocktake right

Typically, the seller and buyer will agree a stocktake is to be conducted at the close of business on the last business day before completion. The sale contract should clearly address:

• the identity of the stocktaker
• the guidelines to be applied by the stocktaker
• any agreed variations to those guidelines, and
• responsibility for the stocktaker’s costs (which are often shared equally between the seller and the buyer).

2. Be clear about what stock is included

The stocktaker’s guidelines may exclude certain items from the sale – for example, stock that is within three months of its expiry date.

Buyers should consider whether they are comfortable with this approach, or whether they would prefer a longer exclusion period (such as six months).

Whatever position is agreed, it should be clearly documented in the contract of sale.

Sellers should also consider whether any stock nearing expiry is subject to a supplier credit policy.

If it is, an unfair outcome can arise where the stock is excluded from the stocktake (and therefore not paid for by the buyer), but the buyer is still able to claim a supplier credit for that stock.

The parties should also agree whether any other items are to be excluded from the stocktake, such as damaged, shop-soiled or faded stock.

In addition, they should consider whether consumables – such as pharmacy labels, folders, repeat forms and printer cartridges – are to be included in the stocktake and paid for by the buyer.

Reaching clear agreement on these items can help avoid disputes.

3. Account for stock that is not on site

Some pharmacies hold valuable stock that may not be on the premises at the time of stocktake – for example, CPAP (Continuous Positive Airway Pressure) machines on trial with patients.

These items should be specifically addressed in the sale contract, including how they are to be counted and paid for.

The stocktaker’s guidelines may exclude certain items from the sale – for example, stock that is within three months of its expiry date.

Buyers are typically required to pay an agreed amount for stock at completion.

4. Agree on how stock will be paid for

Buyers are typically required to pay an agreed amount for stock at completion.

Once the stocktaker’s final figures are available – often several days after completion (and sometimes up to seven days later) – an adjustment is usually made between the parties.

If the actual value of the stock is lower than the amount paid at completion, the seller will refund the shortfall to the buyer. If the stock value exceeds the amount paid at completion, the buyer may be required to pay the difference.

Buyers will sometimes seek to cap the amount payable for stock due to cash flow pressures as they take over the business.

These issues should be expressly addressed in the contract of sale. Sellers, on the other hand, will often require the buyer to pay for all stock present at the premises at completion.

Sellers should consider whether any stock nearing expiry is subject to a supplier credit policy.

5. Confirm who owns the stock

Not all stock in a pharmacy necessarily belongs to the seller.

Some items may be supplied on consignment or owned by third parties (such as a naturopath or herbalist).

In these cases, the position should be discussed with the buyer and clearly reflected in the contract of sale. Identifying this early helps ensure that:

• the buyer is not paying for stock they will not own, and
• responsibility for any third-party arrangements is clearly allocated.

Final word

Stock is more than a balance sheet item – it’s a key risk area in any pharmacy transaction. Clearly defining how stock is to be treated in the contract of sale can help minimise disputes and support a smoother transition for both parties.