The $15.5bn pharmacy and chemist industry in Australia is growing, as retail pharmacies continue to act as the primary distribution point for prescription and scheduled over-the-counter medicines. If you are considering drug retailing or pharmacy retailing, there are business structuring options available to you to start your own pharmacy business including a partnership and a sole trader.
Pharmacy Business Structures
In response to increasing competition in the pharmaceutical industry, many businesses are implementing new business models to compete. Many pharmacies operate as a partnership business model. You may wish to choose a partnership business structure for your chemist business as this will allow you to pool resources and knowledge with like minded individuals. However, this will also make you reliant upon these partners for your business to grow and prosper. Partnerships can also function to offer additional services based on the strengths of the partners, including community health services, and preventative care.
Partnerships are a business structure in which two or more people agree to run and take responsibility for the business. Consequently, if you know another chemist who is in a similar position to you or even a chain of chemists in this position, this could give you a significant advantage over other business structures available to you. Furthermore, each partner can get a 50% discount on capital gains tax, and administration is substantially cheaper as there is no need to file ASIC returns. Also, any losses from your chemist business can be deducted against other income of a partner, thereby providing considerable flexibility than in other business structures. Australia’s biggest player in this space is My Chemist Retail Group, trading under Chemist Warehouse and My Chemist. My Chemist Retail Group is composed of various partnerships and alliances between individual pharmacists, illustrating the success of this business model.
The primary concern with a partnership business structure is that you will be responsible for all agreements made by other partners during regular business. As such, you will need to be sure that any partner you choose is someone you can trust completely. Moreover, partnerships can be challenging and costly to wind up, so you will need to be certain that this is a long-term option before you enter into a partnership agreement for your chemist business.
Operating a Sole Trader Chemist
Intensifying competition in the pharmaceutical industry has adversely affected pharmacy profitability. Many chemists now function as discount pharmacies and traditional full-service stores. Many business owners wish to choose a sole trader business structure. This structure is best for those looking to create a local chemist that builds a reputation with the community over time.
When you operate as a sole trader, you will have complete ownership of your business and total control over the way in which it is run. The cost for full control, however, comes in the form of unlimited liability. Unlimited liability means that you will personally be liable for any debts incurred by your chemist business, as Australian law does not distinguish between you the person and your business.
According to the Department of Health, roughly 40% of applications for new pharmacies were rejected in the three years to 2012. Restrictions remain as there are high barriers to entry due to the high level of regulation. If you are looking to start you own chemist business or expand your already existing chemist business, a business structure should be carefully considered. Our business structuring lawyers have experience in setting up new pharmacies as well as selling existing pharmacies.
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