Wondering where I can for more info on this. I only had 1 business class in undergrad, macroecon and needless to say came nowhere close to covering this topic, so I come here.

I will be graduation pharmacy school soon and have been working with a pharmacist who owns a closed door long term care pharmacy who supplies pharmacy services to long term care facilities. These facilities can be full skilled nursing homes, assisted living facilities for then mentally handicapped or even correctional facilities.

I have several questions.

Should I look for private investors or do business loans? Why one over the other?

If I did get investors how in world to I begin to start dividing the equity of the company?

I would pay myself a salary around $120k/yr (avg salary of retail pharmacist), so would me having a salary from the business affect the equity sharing?

I would need in the 400-600k range, should I look to find one investor for all of it or split it up?

A potential investor has a friend that owns 12 nursing homes, this could potentially be 75-80% of the business for the the first couple years if I got these accounts. How would that affect equity sharing?

I'm a total business noob, but the pharmacist I am working with has taught me a TON and will def use her as a consultant once I get the funds to start up, but getting to that point seems pretty difficult.

Thanks for any answers.

How much have you invested? What are you bringing to the table exactly? not sure I understand your business from your post. The pharmacist you work with owns a company, and you have a potential investor that has potential clients...what do you bring?

Also, good luck finding an investor for 600k when you want 120k in your pocket per year from year 1. Not the way starting a business works...Basically the investor is taking all the risk and you have a guaranteed salary...

I'm assuming the potential investor needs a pharmacist, but I agree the details are a little vague.

I assumed you were going to have money invested in the company, also (even if it's 10%). Then yes you could pay yourself a salary and take 10% of net income and distribute the other 90% to the investors. If you have no stake in the company, I think it would be harder to attract investors (unless those 12 nursing homes are real juicy).

Just elaborate a little more on your stake and business plan and then we can help a little more.

I haven't invested anything as of yet. Anything I do invest will have to come in the form of business loans if I decide to start when I graduate. (I will graduate May 2012).

One of my questions was how should equity be adjusted if I were to take a salary like that. $120k/yr pharmacists are a dime a dozen at any 40hr/wk retail pharmacy, but as any business owner knows owners put in MUCH more time that 40hr/wk.

In my mind I should have a larger stake in the company than whatever % of the orginal investment I make. Pharmacies are not things that non-pharmacists own. It would be tough for a general entrepreneur to just open a pharmacy. You would need a pharmacy license for the actual pharmacy itself, a DEA license and a pharmacist that is licensed to practice in whatever state the pharmacy is located. Being a non-pharmacist owner and having employee only pharmacists (~2 pharmacists in this type of pharmacy) would prove very difficult if both pharmacists decide to leave for whatever reason. That means you have to shut down any and all dispensing immediatly. A licensed pharmacist must be on premisis at all times during business hours.

So me committing myself as an owner should gain some equity over top of the financial interests I have. My question is how does one go about valuing that equity. I know I'll get better advice from other pharmacy owners, but I was just seeing if there was anything I could learn from 2p2.

I understand your logic, but business/accounting wise it does not make sense. By giving you extra equity a corresponding asset must be created because assets=liabilites+equity.

I do agree you should talk to pharmacists about this.

In bold.

You are looking at this wrong. You still have not explained what you are bringing to the table, other than you will be a newly certified pharmacist.

I dont even really understand the business. You stated you have a pharmacist that is mentoring you (i guess), and she sells to old folks homes etc. What are you bringing to the table other than your certification? What experience do you have (likely close to none).

Personally, I was looking for businesses to invest in, and this would be an insta pass with the lack of information you have provided.

Define your business better, and you will most likely get better answers. But your theory of YOU should get more equity than your financial investment is terrible logic. If you invest 0, have close to zero relative experience, and cannot define your business, good luck having someone hand you 600K.

Also, what a previous poster said, when people give capital to a start up, salaries will more than likely have to be deffered until the business cash flow can sustain them. Or you may, if your lucky get a minimal salary to start, but nowhere near 120K.

Define what you are going to do, how you are going to make money, and what you are bringing to the table, and you will get better answers.

Ex: If someone holds a patent for something incredible, and it cannot be replicated and only HE can produce it (not likely in real life, just an example), and all he needs is money for production and marketing, then that person will most likely end up with a larger stake than his financial investment. DUCY? Your case does not sound like this.

Thanks to all for you replying. Starting to see what investors will be looking for and what demands may need to be met for this to happen. Paying back the initial start up before taking on a salary seems tough, but until I start putting numbers on cash flow I won't know if this will work. I may not be able to start this business straight out of school but that is why I am starting this process now. I need to figure out what needs to be done to build a business plan and start talking to others currently in the field about cash flow estimates based on the number of patients they serve.

Say I decide to take zero salary until the start up is paid back. I have no clue how long this would take right now. Obv it's something I would need to figure out, but what type of terms will the avg investor be looking for? A flat __% on original investment? A __% of annual net income over so many years?

Any other ways to structure investment deals besides pay back the start up then split equity?

I think you are misunderstanding some key points.

The startup funds do not necessarily have to be paid back before you take a salary, the venture just needs to be making money. The salary has to come from cash flow from the business and not from the investment money.

Different investors would be looking for different things. It would depend on the structure of the agreement. You could structure it as a pure equity position, a loan, or a combination of both. You could give the investor a large equity stake with the option to repurchase at a later date at FMV.

You still have not defined your business though or what you are bringing to the table....

lol... i'm trying to understand. not sure what a business definition is supposed to say, but let me try again.

I'm going to use a skilled nursing home (a nursing home that requires licensed nurses) as an example but many different types of facilities can be substituted. The majority of nursing homes have a team of physicians that care for all of their patients. When these physicians write Rx orders they must be given the medication. Since there are very few, if any, nursing homes that have an in house pharmacy they must hire a pharmacy to fill all of their medication orders. There are pharmacies that specialize in providing these services.

These pharmacies use special packaging (not amber vials like most retail pharmacies) that help the nurses keep track of which meds should be given at what time and help to decrease medication administration errors. There are hundreds of different packaging systems that can be used.

One thing about LTC facilities is that most of them are currently serviced by one of 3 large national chains that provide these services, but one call to the facility director and they will start telling you all about how they hate their current pharmacy (ie one of the big guys). Any sliver of customer service and these facilities will be willing to switch. Now it does make it tough to keep business if you suck at the business, but being better than the national chains is not that hard since they only offer 2-3 packaging options at most and any special requests are often denied. My pharmacy would focus on giving the facilities the packaging and customer service they desire.

As for the terms of the investment, sorry I misunderstood. I have NO intentions of paying myself out of the original investment. The pharmacy I am working at has gross monthly incomes of $600-700k with an avg of ~800 patients per month and she has been in business for 5 years. Of course the bulk of this income goes to pay for the drugs but she has plenty of other overhead as well.

She pays 2 pharmacists ~120k/yr each and has 13 other full time employees. She rents her building and has 3 company delivery vehicles. She is currently about to purchase better LTC pharmacy software suite that will cost ~$20k. She currently keeps her drug inventory around $60-$70k for the current number of patients she serves.

She said this is her 5th year and this year for the first time she and her investor will split the company profits according to their agreement. She had $400k in start up and it looks like she structured the deal to pay back $100k/yr for 4 years (no clue if interest was included).

Hope that gives a better idea of the business model. If not then I don't guess I can answer the question you are asking.

As far as what do I bring to the table? I guess just the willingness to build a business. Why should I work a regular pharmacist job for a private investor when I can go to a retail chain like walgreens and not have to deal with all the headaches that come along with starting a business?

Like Plee11 said. Why can't the investors take 100% of the business and pay you, or some other random unexperienced out of school pharmacist, $120k a year. If you can explain that you know why you are so valuable to the business and need to get free money.

because no pharmacist in the world will take $120k/yr to work in a startup pharmacy when they can go to a retail chain, walmart/wags, and make the same + 40-50k/yr in benefits and not have to deal with all the headaches of starting from scratch. For example, to start a new LTC account with 100 beds will take ~100-200 hours just to get profiles set up in the computer system.

i know i haven't done a very good job at explaining why a pharmacist, me in particular, should have an equity stake in the company, but its tough to explain. like i mentioned earlier, non-pharmacists simply don't own pharmacies outright and there is a reason for this. I'm sure there are a bunch of investors that are part owners of a pharmacy, but there's always the pharmacist that is a owner too. Not saying it's impossible for a non-pharmacist to do it but they're gonna a one hell of a time getting it done.

I realize i'll need to do a better job when the time comes but it would be MUCH easier if I could walk you into a LTC pharmacy and simply show you why a pharmacist is needed and why a person who has never worked in the industry would have a very low success rate.

pharmacists in walmart make 120k a year?!

He also seems to be saying he may be bringing some customer base
with him.

This part may add value.

OP, decide, do you want to make a paycheck, or a payroll?

Your paramount interest as listed in this thread is the $120K salary you want. You have decided, even without a day as a professional, you are entitled to that figure. There's nothing wrong with it either, your schooling and accreditation should allow that.

Yet in business no one is entitled to anything that they haven't invested in. Investment in this regard is $$$$$ or contacts. From what you have posted you have no money and your contacts are someone elses.

Maybe build your practice, build your contacts, then go into business for yourself.

Probably more depending on geography.

OP, by my calculations you'll be a 3rd year pharmacy student this year. Does your school not have elective classes that deal with business ownership like this? Where do you go to pharmacy school?

Edit: A couple of reasons why you need a pharmacist owner to make this a go.

1) In some states pharmacies must be owned by pharmacists (e.g. North Dakota)
2) Pharmacies must have a managing pharmacist registered with the state board of pharmacy. If you're a one-pharmacist operation this can be a problem if your pharmacist quits. You can't register relief pharmacists as managers for obvious reasons. This would mean that the business would have to stop all operations and essentially cease to exist. If you're gonna be big enough to have two or more full time pharmacists this isn't as much of a concern.

OP clarify the business model.

You are buying drugs wholesale, and distributing them tto old folks homes etc. right?

Do you have clients ready to go? Where are your clients comign from? What are you going to offer more/different then other companies already doing this (your mentors company).

If the 120K is not coming from the startup money, where is it coming from?

Do you have a business plan? Have you made a cashflow statement for year 1?

He's dispensing prescriptions just like any pharmacy but instead of doing it for people who walk into a store he's doing it for people who are in nursing homes. The prescriptions go to the patients, not the nursing homes. And i think the patients pay him, not the nursing home.

They'll be packaging the Rxs in special bubble (or other, i'm not an expert) containers that help the nurses/patients take the drugs properly. You can see how this is a needed service when Mrs. Johnson takes 17 pills a day, 8 with breakfast, 3 with lunch, 2 with dinner, and 5 at bedtime. And she has dementia. And there are 80 patients just like her in the nursing home. And there are 4 nursing homes in town.

Obviously you can see how this is a potential gold mine. He gets to dispense Mrs. Johnson 12 Rxs a month every month and maybe even charge extra for the special packaging. You're typical pharmacy isn't able to really compete because they aren't set up for the special packaging and delivery.

Yes. Walgreens, CVS, Kroger are all in the 110-130 range right now depending on location and if they are short in that particular district or not. Pharmacists salaries have almost tripled in 10 years. My pharmacy manager at my retail store will make over $150k this year if she hits all of her bonuses.

Well they aren't mine, that's what I was wondering about. If an investor brought in some of the patients at start up what affect should that have on the equity split.

I'm not entitled to the $120k/yr figure, but that is what the market currently thinks I'm worth the day I graduate. The only reason I thought this was how it worked is b/c the LTC pharmacist told me she pays herself $120k/yr. Now maybe she's only started that recently and she didn't pay herself that in the beginning, but that is why I started this thread. I want to understand how starting a business with an investor works. Obv I have a lot to learn but I don't want to wait until the day I start looking for an investor to start learning this stuff.

Thx a ton for helping explain this. Yes I am entering my 3rd year now. I start rotations in January. I will def be looking for any that focus on business operations. I know there is one that is offered by a large retail independent, but it is 3 hrs from where I live and I have 2 small children at home, so not sure that one will work.

I have not made a cashflow statement, but from everything I have gathered in this thread that should be my number 1 priority.

I don't have any customers as of yet. The LTC pharmacist opened her pharmacy without a single customer. Its a catch 22 b/c before you can license a pharmacy the state board of pharmacy has to come in and inspect the pharmacy, and i is hard to walk into the nursing home directors office and say I want to fill your prescriptions but I dont have a pharmacy yet.

This is why I would be interested in bringing in an investor who has a potentially large pt population from day one.

I would not try to enter a market that already has an independent long term care pharmacy in place. Unless the market was so big I could get business without taking it from the other independent. The majority of all rxs are supplied by 3 large national chains and it doesn't take much to get these accounts to switch. All these nursing homes want is a pharmacy that will help them do exactly what they want. The large chains are great at dispensing massive numbers of rxs but they do it in a cookie cutter fashion. There is no customization or choice to the nursing home in the way the meds are packaged or delivered. So independents who are willing to do the extras will get the business. And they nursing directors love being able to call and speak to the business owner and not a customer service rep. Remember the director chooses the pharmacy to use and the patients insurance pays the bills. So it cost the nursing home nothing to switch to me.

Again thx for the help explaing. Gotta get back to work.

Btw thanks to everyone for the hard questions. It has helped me think about what I need to get together when the time comes.

I like the idea, and I am of the opinion that with the aging population, there is a huge market in Geriatric care/support. However OP, love the fact that you have an entrepreneurial spirit, but if the investor is bringing in the initial clients, and putting up all the money there is not much equity going your way.

If all you are doing is providing the pharmacist title/degree, I would personally want to give you your salary, and then a small cut of the net. Like 10-20% depending on the circumstances. Of course you not taking the salary from the get go, and putting in lots of hours to build it up will play in your favor for the equity split, however it will be nowhere near a 50/50 split.

Good luck, and keep learning, it is the best way to go.

thx for the advice. I had no clue what % equity to expect and I fully understand that risking that much money should have a large potential return. Hopefully I can put together a business plan that will make me and someone else a nice return.

your school doesn't have a class on this type of thing???????

we have a management class but it was a joke to any with serious thoughts about opening a pharmacy