5 Mistakes That Cost Pharmacy Owners Hundreds of Thousands
I’m the Pharmacy Guy, and I’ve been in pharmacy a long time — since my Boots days — buying, building and selling businesses. I’ve learned a lot. I’ve also lost a lot of money making mistakes, and I’d rather you didn’t repeat them. We make these mistakes for three reasons: we don’t think critically enough, we don’t have a mentor, or we think we know it all. Here are the five that can cost a pharmacy owner hundreds of thousands of pounds — and how to avoid every one.
The five mistakes at a glance
- Overpaying: no valuation, plus emotion and bidding wars.
- Misreading NHS payments: arrears, the 90-day lag, and a low average item value.
- TUPE staff liabilities: you inherit the staff — you can’t just dismiss them.
- Skipping due diligence: stock valuation, hidden clauses, process, and fees.
- The 90-day cash-flow gap: you dispense now and get paid a quarter later.
This is the written companion to my video on the same topic — recorded, as it happens, with my son Hassan along for the ride. If you’d rather hear it straight from me, watch it here, then read on for the detail.
Mistake 1: Overpaying for the pharmacy
The single most expensive mistake, and it nearly always starts the same way: you don’t know how to value a pharmacy. Once you can’t put a defensible number on the business, two things rush in to fill the gap — emotion and competition.
Emotion. I had a colleague eyeing a pharmacy I’d value at around £200,000–£300,000. He was willing to pay £700,000–£800,000 — because it was local to him and he simply wanted it. That’s not a business decision, that’s feeling, and feeling is expensive.
Bidding wars. You offer, they offer, you offer again, and you get caught up. I once walked into a bidding game on a trip to France — balls hidden, paddles up — and overpaid purely because I got swept along. The same psychology empties bank accounts in pharmacy deals every week. Decide your ceiling in advance and do not go past it. If someone else wants to overpay, let them.
The fix is to value the business properly on its earnings — typically an EBITDA multiple — and to do real due diligence on what you’re actually buying. I’ve seen a buyer purchase a pharmacy only to find the seller had quietly set up an internet pharmacy and walked off with the patient base. Get the valuation wrong and you can lose £100,000 before you’ve dispensed a single item.
Emotion and bidding wars only work on a buyer who hasn’t done the maths. Value the business, fix your maximum, and be willing to walk away. The deal you don’t do can save you more than the one you do.
Mistake 2: Not understanding how the NHS pays you
The NHS pays in arrears, and new owners routinely underestimate what that means for cash. Broadly: you submit your prescriptions in January, receive an advance in February, and get the remainder in March. So you’re running roughly 90 days behind on payment. People will tell you “but they pay 100%, it’s fine” — and when you’re buying your first pharmacy, it is not that simple.
It gets worse if you haven’t checked the pharmacy’s average item value — the average payment per item — because that figure is calculated on historic data and can be far lower than you assume. A friend recently bought a shop in the south with an average item value of about £4. For 10,000 items he was paid something like £40,000 — against £80,000 of stock. Devastating, and entirely down to not understanding the contract and not doing the due diligence.
Mistake 3: TUPE — taking on staff you can’t simply dismiss
When you buy a pharmacy you take on liabilities, and that includes the staff. I’ve heard brokers and middlemen reassure buyers: “don’t worry about the staff, you can give them notice, you can rework their contracts.” That is, to put it politely, rubbish.
Under TUPE, you generally inherit the existing team and their rights. You cannot just dismiss someone, and you cannot play clever tricks with their contracts to engineer them out. Try it and you’ll end up at an employment tribunal losing thousands — I know, because I once thought I was clever enough to manage it on bad advice, and I wasn’t. I warned a friend about exactly this; he’s in a tribunal now. It’s often the people you work with, not the deal itself, that land you in a mess. Understand the legislation before you sign.
Mistake 4: Skipping proper due diligence
So much of the damage comes from not understanding how the whole process actually works: what the fitness-to-practise checks involve, how long a change of ownership takes, and — the one that bites hardest — how stock is valued and what the contract quietly permits.
When I bought one of my pharmacies — an ex-multiple site — I was told that the night before completion, stock had been moved in from a different branch. There was apparently a clause allowing it, and I hadn’t read the contract closely enough. I got landed with a £60,000 bill for stock I was never going to use. On top of that, I was charged £20,000 in solicitor fees — which is ridiculous. A straightforward pharmacy purchase can often be done for around £8,000 or less. Read every clause, and get a clear, fixed quote up front.
| The mistake | What it can cost | The fix |
|---|---|---|
| Overpaying | £100k+ on a single deal | Value on EBITDA, set a ceiling, kill the emotion. |
| NHS payments | Cash shortfall vs stock (e.g. £40k paid, £80k stock) | Check average item value; model the arrears. |
| TUPE staff | Tribunal awards & costs, thousands+ | Accept inherited staff; take employment advice. |
| Due diligence | £60k unwanted stock; £20k inflated fees | Read every clause; fixed-fee solicitor (~£8k). |
| 90-day gap | Cash-flow crunch that can sink a good business | Hold working capital; plan a quarter ahead. |
Mistake 5: Underestimating the 90-day cash-flow rule
This one compounds all the others. Because of the way the NHS pays, you will not see your money for around 90 days — and that creates real, ongoing cash-flow pressure in the day-to-day running of the business. A profitable pharmacy on paper can still hit a wall if it doesn’t hold enough working capital to bridge the gap. Plan a quarter ahead, keep a buffer, and never assume that “the NHS pays 100%” means the money is there when you need it.
Get these five right
None of these mistakes is exotic. They’re the ordinary, avoidable ones that catch first-time buyers every single time — and each can cost six figures. Value the business properly, understand how and when the NHS pays, respect the staff liabilities you inherit, do thorough due diligence on stock and contracts, and plan for the 90-day gap. Get these right and there’s a strong chance you’ll keep your money — and be able to grow a chain rather than firefight one shop.
How I can help
If you want to go deeper — how to value a pharmacy on an EBITDA multiple, how the NHS contract really works, and how to buy, run and sell a pharmacy without the costly errors — that’s exactly what I teach. There’s the free overview on YouTube, TikTok and Instagram, and a step-by-step series for serious buyers.
Here’s the short version on TikTok — give it a watch and a follow:
@pharmacyguy5 The 5 mistakes that catch first-time pharmacy buyers every single time — and every one is avoidable.
If you’re weighing up a purchase, want a second opinion on a deal, or need help with stock, staff or the contract, get in touch.
Frequently asked questions
What is the most expensive mistake when buying a pharmacy?
Overpaying. It usually happens because the buyer doesn’t know how to value a pharmacy, then lets emotion or a bidding war take over. A pharmacy realistically worth £200,000–£300,000 can attract offers of £700,000–£800,000 purely because it’s local to someone or they got caught up competing. Value the business properly — on its earnings, typically an EBITDA multiple — set a ceiling, and don’t go past it.
Why does it matter that the NHS pays pharmacies in arrears?
Because you dispense now and get paid much later. Broadly, prescriptions submitted in one month are advanced the next and settled the month after — so you can be around 90 days behind on cash. New owners who don’t plan for that gap, or who haven’t checked the pharmacy’s average item value, can be badly caught out: one buyer with a low ~£4 average item value was paid roughly £40,000 against £80,000 of stock for 10,000 items.
Can you dismiss staff after buying a pharmacy?
No — not freely. When you buy a pharmacy you generally take on the existing staff and their rights under TUPE. Brokers who tell you that you can simply give notice or rework contracts to remove people are wrong. Try it and you can end up at an employment tribunal facing thousands of pounds in awards and costs. Treat staff liabilities as a real, inherited part of the deal and take proper employment advice.
What due diligence should you do before buying a pharmacy?
Understand the full process and liabilities before you sign: how the pharmacy is actually run, the NHS contract and average item value, the change-of-ownership and fitness-to-practise checks and how long they take, and — critically — how stock is valued and what the contract allows. Buyers have been landed with tens of thousands in unwanted stock and inflated solicitor fees, and have lost patients to a seller who set up a rival online pharmacy. Read every clause.
How much should solicitor fees be when buying a pharmacy?
Far less than many first-time buyers are charged. Some are billed around £20,000 in solicitor fees, which is excessive — a straightforward pharmacy purchase can often be handled for around £8,000 or less. Get a clear, fixed quote up front and don’t assume a high fee reflects necessary work.
Comments
Made one of these mistakes yourself, or weighing up a deal and want me to sense-check it? Leave a comment below — I read them all.