How to Start a Pharmacy

Many neighborhood pharmacies also feature a convenience store that stocks health and beauty aids, food, greeting cards, and processes images. However pharmacies are also found inside hospitals, urgent care facilities, and as part of big-box chain stores.

Ready to turn your business idea into a reality? We recommend forming an LLC as it is the most affordable way to protect your personal assets. You can do this yourself or with our trusted partner for a small fee.

Northwest ($29 + State Fees)

DIY: How to Start an LLC

Start a pharmacy by following these 10 steps:

Plan your Pharmacy
Form your Pharmacy into a Legal Entity
Register your Pharmacy for Taxes
Open a Business Bank Account & Credit Card
Set up Accounting for your Pharmacy
Get the Necessary Permits & Licenses for your Pharmacy
Get Pharmacy Insurance
Define your Pharmacy Brand
Create your Pharmacy Website
Set up your Business Phone System

We have put together this simple guide to starting your pharmacy. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

What will you name your business?
What are the startup and ongoing costs?
Who is your target market?
How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Pharmacy Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

Your state’s business records
Federal and state trademark records
Social media platforms
Web domain availability

It’s very important to secure your domain name before someone else does.

What are the costs involved in opening a pharmacy?

You will need to lease or buy a storefront, hire staff, purchase a variety of computers for POS and prescriptions, and invest in your initial pharmaceuticals order. For a typical neighborhood pharmacy, expect to need $1 million to $2 million dollars for your first year. For your five-year business plan, a $10 million investment is required.

What are the ongoing expenses for a pharmacy?

Your largest expense is maintaining your prescription medication supply. You must always have enough on hand to meet monthly demand while ensuring that no medicine expires before it is dispensed. Salaries and payroll will come in a distant second.

Who is the target market?

In a neighborhood pharmacy, your customers come from every age and demographic. While some prescriptions may have a higher profit margin than others, your commitment is to the health of your community, not your bottom line.

How does a pharmacy make money?

Profit is gained by purchasing medications for as low a price as possible, as co-pays and insurance reimbursements are fixed and cannot be altered by your practices. Knowledge of generics and name brand medicines is useful. The most profit is found in the name brands, but government regulations often dictate that generics must be issued.

How much can you charge customers?

There is a little wiggle room for pricing your prescriptions, but those costs are largely determined by the pharmaceutical and insurance companies. Customers will pay anywhere from a couple dollars for a common medicine to thousands for rare drugs to treat chronic illnesses. You will need to constantly monitor the competition to stay relevant in your neighborhood.

How much profit can a pharmacy make?

Once you are reimbursed by the insurance companies, drug stores typically see a profit of 10-30% on most prescription medications. Should your location be doing steady business, it is possible for the business owner to see an income of $300,000 per year.

How can you make your business more profitable?

The relationship that dictates your profit margin is the one you create with your pharmaceutical supplier. Large chain stores buy in bulk and are able to negotiate a lower wholesale price. As a small pharmacy, you will need a talented negotiator willing to so some entertaining for the business in order to get the best deal from a variety of vendors.

Want a more guided approach? Access TRUiC’s free Small Business Startup Guide – a step-by-step course for turning your business idea into reality. Get started today!

STEP 2: Form a legal entity

One crucial aspect that cannot be overlooked when starting your pharmacy is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your pharmacy were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

More than 84% of our readers opt to collaborate with a professional LLC formation service to kickstart their venture. We’ve negotiated a tailored discount for our readers, bringing the total down to just $29.

FORM YOUR LLC

Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It’s really easy and free!

You can acquire your EIN through the IRS website. If you would like to learn more about EINs, read our article, What is an EIN?

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

Separates your personal assets from your company’s assets, which is necessary for personal asset protection.
Makes accounting and tax filing easier.

Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.

Get a business credit card

Getting a business credit card helps you:

Separate personal and business expenses by putting your business’ expenses all in one place.
Build your company’s credit history, which can be useful to raise money later on.

Recommended: Apply for an easy approval business credit card from BILL and build your business credit quickly.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

Federal Business Licensing Requirements

Here you can find information on FDA regulations regarding the licensing of pharmaceutical distributors.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a pharmacy. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

Certificate of Occupancy

A pharmacy is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a pharmacy.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your pharmacy will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers’ Compensation Coverage.

Find out what types of insurance your Pharmacy needs and how much it will cost you by reading our guide Business Insurance for Pharmacy.

STEP 8: Define your brand

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.

How to promote & market a pharmacy

Your marketing program will be two-fold. For your convenience store section, you will want to take out inserts in the local newspaper, use direct mail campaigns, and place ads on radio and TV. Attend community events that promote good health such as road races, family festivals, and neighborhood programs to become a familiar face. A more professional approach must be taken to become a recognized member of the medical community. Visit doctor offices, hospitals, clinics, and urgent care facilities to spread the word.

How to keep customers coming back

Convenience and low prices will draw your first customers in the door. More drug stores are offering drive-thru windows for easy and fast pick-up of prescription. Common prescriptions can be offered at very low prices for your first six months to generate foot traffic. Your customers will keep coming back with no problems are encountered with their insurance, they receive good medical advice, and experience positive customer service each time they visit.

STEP 9: Create your business website

After defining your brand and creating your logo the next step is to create a website for your business.

While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.

Here are the main reasons why you shouldn’t delay building your website:

All legitimate businesses have websites – full stop. The size or industry of your business does not matter when it comes to getting your business online.
Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.

Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.

Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.

STEP 10: Set up your business phone system

Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.

There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2024 to find the best phone service for your small business.

Recommended Business Phone Service: Phone.com

Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it’s fair pricing.

Is this Business Right For You?

The right entrepreneur seeking to open their own pharmacy will have a deep commitment to supporting the health of their neighbors. The owner may or may not have a Doctorate of Pharmacy and will have a good understanding of how insurance companies and Medicare reimburse pharmacies. They will have a good background in business management.

Want to know if you are cut out to be an entrepreneur?

Take our Entrepreneurship Quiz to find out!

Entrepreneurship Quiz

What happens during a typical day at a pharmacy?

Receiving and filling prescriptions according to FDA regulations for a wide variety of patients with many different medical conditions
Inventory medications and place orders to maintain stock
Stock products in the over-the-counter displays in an easy to use and attractive manner
Provide medical advice to concerned customers such they are able to use their medications safely and effectively
Work with doctors offices to refill prescriptions or obtain a different script that is supported by an insurance plan
Submit scripts to insurance companies for reimbursement
Hire clerks and staff to maintain the front of the store
Hire trained technicians able to support the required PharmD behind the counter
Maintain the physical store
Balance your books, issue payroll, work with a variety of vendors

What are some skills and experiences that will help you build a successful pharmacy?

Every successful pharmacy will have an individual who:

Has a Doctor of Pharmacy
Has extensive knowledge of insurance company procedures for reimbursement of prescription medicines
Has garnered full comprehension of FDA regulations regarding controlled substances and how to issue prescriptions
Is trained in business management skills regarding inventory, ordering, and accounts receivable/payable
Understands payroll procedures
Can hire qualified pharmacy technicians to support the PharmD
Is able to explain dosage, use, side effects, and dangers of all medications to every customer with compassion and understanding

What is the growth potential for a pharmacy?

Customers often come to rely on their local pharmacist as a source of reliable information that they value beyond the price of their prescription. By providing superior service, more people will return to your store if only to purchase OTC cough medicines. When you develop an attractive store that surpasses your clients’ expectations, you may be able to expand into multiple locations.

Take the Next Step

Find a business mentor

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

Learn from other business owners

Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.

Resources to Help Women in Business

There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:

Funding
Events
Guides
Support

If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.

What are some insider tips for jump starting a pharmacy?

Not only do you need to get the word out to the local community that you opened the doors, doctors offices must be made aware that you exist. Before opening you ought to attend medical conventions, seminars, and social mixers hosted by pharmaceutical companies. Make sure to pass out plenty of business cards, rent a table, and work the room. Many doctors recommend a particular pharmacy if their patient is unfamiliar with the neighborhood.

How and when to build a team

If you are not a Doctor of Pharmacy, it is wise to hire yours before you start building your location. The PharmD will have the knowledge and contacts to expand your presence in the local medical community. Store management, clerks and technicians can be hired up to one month before opening for training and stocking of the store.