Pharmacy Inventory and Transactions: A Critical Factor for Buyers and Sellers
Pre-sale inventory management, script vs. OTC inventory, accurate dating and pricing
Inventory…a pivotal role in pharmacy transactions, with deep influences both buyers and sellers.
From determining the purchase price to defining the post-sale operational state, inventory management can significantly impact the success and smoothness of a sale.
For independent pharmacies in particular, properly managing, valuing, and presenting inventory is a key part of closing a deal both from a financial and operational perspective.
“Inventory is always an issue with respect to both the seller and the buyer in any situation like this... you've got multiple classes of inventory... and each of them needs to be properly understood and valued.” - Ollin B. Sykes, CPA, CMA, CITP
In this article, we’re doing a deeper dive on inventory and your valuation. We’ll share insights into:
Types of Inventory to Consider
Valuation Nuances and Challenges
Timing and Process of Inventory Counts
Happy reading!
Types of Inventory to Consider
As you may know, a typical pharmacy setting will have three categories of of inventory:
Script Inventory
OTC (Over-the-Counter) Inventory
Back Room Inventory
Let's break down each type in more detail:
Script Inventory
Script inventory includes prescription medications (the core revenue-driving inventory in most pharmacies).
These items often carry the highest dollar value and require the most attention during valuation .
Due to regulations, storage needs, and expiration concerns, this category of inventory demands strict oversight.
“It’s very important if I’m a buyer that I understand what the dating is for all items on the shelf. If something is near dated, meaning it expires in the next two weeks, I probably don’t want to pay for that.”
Tip: Sellers should be proactive by reviewing and returning outdated or slow-moving products to wholesalers in advance.
OTC (Over-the-Counter) Inventory
These are your non-prescription products (pain relievers, supplements, first-aid supplies, etc.).
While often less valuable than script inventory, OTC items can still add meaningful value depending on turnover and relevance.
For example: If you have OTC inventory with higher turns, the value of that inventory increases.
OTC value is highly variable, and buyers are advised to scrutinize sales data.
Sellers, on the other hand, should consider trimming their OTC inventory prior to closing, especially if certain products are stagnating.
Back Room Inventory
Often underestimated, this area of inventory includes gifts, seasonal decorations, greeting cards, and other general merchandise.
While these products can add character to a pharmacy and generate ancillary revenue, they typically hold limited value during a sale, especially if they haven’t moved in prior months.
Timing and Process of Inventory Counts
Typically, inventory counting is scheduled the night before the official closing date. This ensures a precise and mutually agreed-upon valuation.
During this time, whether you are the buyer or the seller, it’s important that you collaborate.
Buyers and sellers, or their representatives, participate in the inventory count to ensure accuracy.
Some third-party firms like InventoryIQ.net may be involved in transactions, however, it's common for smaller deals to rely solely on the direct parties.
“The buyer and the seller and/or their representatives are fully engaged and agree on the counts of everything… It’s a collaborative process.”
Valuation Nuances and Challenges
Now that we’ve covered the types of inventory to consider and the timing and process, let’s break down some of the nuance and challenges you might want to be on the lookout for each area of inventory:
Script Inventory: It’s More Complex Than You Think
What makes script inventory valuation complex is that buyers must understand dating, storage requirements, and pricing accuracy.
A few complicating factors include:
Perpetual Inventory Systems: Tied to your dispensing software, these systems can sometimes misalign with physical inventory if not reconciled regularly.
Variable Pricing: Pharmacies often purchase from multiple wholesalers, each offering different pricing. This variability can cause inconsistencies in cost data.
Storage Conditions: Refrigerated or controlled substances may require different handling and valuation criteria.
One key component to any valuation is accuracy and transparency. This is vital.
Both the buyer and seller should review pricing and valuation data before and during the count.
Ideally, all cost information should be clearly documented, and inventory sourced from secondary vendors (outside main wholesalers) should be identified to prevent value distortions.
OTC Inventory: A Mixed Bag of Opportunity and Risk
Unlike script medications, OTC inventory is far more variable in performance and desirability.
For example: Some pharmacies rely heavily on OTC revenue, while others treat it as a minor supplement.
“I once knew a pharmacy that had 600 square feet and only two point-of-sale registers and a row of Aspirin and Tylenol. That was it.”
One important metric to watch is: Turnover
Turnover in many cases will tell you the value of that item.
For example: If a product hasn’t sold in over a year, it likely won’t command much, if any, value during a transaction.
So if you’re a seller, these “dead stock” items will often become negotiation points, and buyers will push for significant discounts or removal altogether.
Another action-item to consider if you are a seller is to pre-emptively remove outdated or irrelevant OTC items to strengthen their negotiating position.
On the other hand, if you’re a buyer, you should scrutinize sales data and evaluate turnover rates.
The Forgotten Back Room: Hidden Items, Hidden Issues
The back room often contains seasonal items, surplus stock, and niche merchandise.
Though these items might have once held value, their resale prospects are often limited.
Two items to remember with back room inventory:
Clearance Doesn't Mean Value
If items have already been marked down and still didn’t sell, they’re unlikely to appeal to a buyer.
Seasonal relevance matters
This seems pretty straightforward, but a box of Halloween merchandise has little value in April.
Ultimately, the market demand, not shelf presence, dictates value.
If you’re a seller you should conduct a pre-sale sweep to assess what’s truly worth counting.
On the other hand, if you’re a buyer, you should be cautious about paying for non-core, low-demand items.
Key Takeaways: Coordination is Crucial
Inventory management is not just a logistical task in pharmacy transactions, it’s a strategic process that directly influences the deal's fairness and outcome.
Whether it's reviewing expiration dates, clarifying valuation methods, or facilitating the physical count, buyers and sellers must communicate early and often.
Preparing for the inventory count as a collaborative effort helps ensure clarity, avoid surprises, and pave the way for a smoother transition.
Remember: The goal isn’t just to count inventory, it’s to build trust and ensure both sides walk away from the table with confidence.
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