How to Start a Pharmacy: Legal Requirements

These are the critical aspects you should evaluate when launching your pharmacy:

1. Location — Choose a location with high visibility and accessibility, such as near medical offices, hospitals, or a busy retail area.
2. Licenses — Get a pharmacy license from your state’s Board of Pharmacy. This typically requires meeting specific educational and professional requirements and passing an exam.
3. DEA registration — Register with the Drug Enforcement Administration (DEA) to dispense controlled substances.
4. Facilities — Set up appropriate facilities for storing medications, including secure areas for controlled substances, refrigeration for temperature-sensitive drugs, and proper shelving for inventory.
5. Suppliers — Establish relationships with reliable pharmaceutical suppliers and wholesalers to ensure a consistent supply of medications and health products.
6. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
7. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
8. Services — Decide on the range of services you will offer, such as prescription dispensing, medication therapy management, immunizations, health screenings, and consultations. Consider offering specialized services like compounding, home delivery, or medication synchronization to attract a wider range of clients.
9. Partnerships — Partner with local healthcare providers, such as doctors, clinics, and hospitals, to offer joint promotions and cross-promote services.
10. Online presence — Create a professional website with detailed information about your services, store location, and contact information. Also, get listed on Google Business and Yelp and encourage positive reviews.

You May Also Wonder:

Can a pharmacy be profitable?

Yes, pharmacies can be profitable. More importantly, though, a pharmacy serves the community in a valuable way, which can be much more rewarding than profit.

How can I become a pharmacist?

A Doctor of Pharmacy (PharmD) degree program requires at least two years of specific undergraduate college study followed by four academic years (or three calendar years) of professional pharmacy study. You can find continuing education opportunities on the National Community Pharmacists Association website. 

How to create a pharmacy app?

To create a pharmacy app, you’ll need to outline the desired features and functionality, work with app developers or development tools, ensure regulatory compliance, integrate secure payment options, and conduct thorough testing to ensure a smooth user experience.

What type of pharmacy makes the most money?

Specialty pharmacies that focus on high-cost medications or niche therapeutic areas often have the potential to generate higher profits. However, the profitability of a pharmacy can also depend on factors like location, target market, and services offered.

How can I differentiate my pharmacy from competitors in the market?

Differentiate your pharmacy by focusing on personalized customer service, offering additional services like medication therapy management or health consultations, providing convenient online prescription refills and delivery options, and emphasizing a strong commitment to patient education and wellness programs.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a pharmacy has pros and cons to consider before deciding if it’s right for you.

Pharmacy industry trends

Industry size and growth

• Industry size and past growth – The US pharmacies and drug stores industry is worth $351.6 billion in 2022 after expanding nearly 28% in the last decade.((https://www.ibisworld.com/industry-statistics/market-size/pharmacies-drug-stores-united-states/))
• Growth forecast – The US pharmacies and drug stores industry is projected to grow 4.6% in 2022. 
• Number of businesses – In 2022, 28,813 pharmacies and drug stores businesses are operating in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/pharmacies-drug-stores-united-states/))
• Number of people employed – In 2022, the US pharmacies and drug stores industry employs 744,869 people.((https://img.ibisworld.com/industry-statistics/employment/pharmacies-drug-stores-united-states/))

Trends and challenges

Trends in the pharmacy industry include:

• Mail order prescriptions are declining due to the availability of 90-day prescriptions from drug stores, driving more people to retail outlets.
• More pharmacies are adding mini-clinics to their stores, which is an additional cost and revenue opportunity for pharmacy owners.

Challenges in the pharmacy industry include:

• People are increasingly opting for the lower prices of generic drugs, which decreases revenue and profit for pharmacies.
• The market is becoming more and more saturated with pharmacies, creating intense competition.

Demand hotspots

• Most popular states – The most popular states for pharmacists are Maine, New Hampshire, and California.((https://www.zippia.com/pharmacist-jobs/best-states/))
• Least popular states – The least popular states for pharmacists are South Dakota, Arkansas, and Wyoming.

What kind of people work in pharmacies?

• Gender – 56.8% of pharmacists are female, while 43.2% are male.((https://www.zippia.com/pharmacist-jobs/demographics/))
• Average level of education – The average pharmacist has a bachelor’s degree.
• Average age – The average pharmacist in the US is 42 years old.

How much does it cost to start a pharmacy business?

Startup costs for a pharmacy range from $200,000 for a small community pharmacy to $700,000 or more for a larger pharmacy. The largest cost is the inventory of drugs and other items.

You’ll need a handful of items to successfully launch your pharmacy business, including: 

• Dosage measures and measure racks
• Material safety data sheets
• Compounding equipment
• Personal protective equipment
• Tablet bottles and cartons
• Refrigerator

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$150 - $200	$175
Business licenses and permits	$100 - $300	$200
Insurance	$100 - $300	$200
Business cards and brochures	$200 - $300	$250
Website setup	$1,000 - $3,000	$2,000
Space rental	$3,000 - $5,000	$4,000
Space preparation	$10,000 - $20,000	$15,000
Full inventory	$100,000 - $500,000	$300,000
Operating budget	$50,000 - $100,000	$75,000
Labor budget	$40,000 - $80,000	$60,000
Total	$204,550 - $709,100	$456,825

How much can you earn from a pharmacy business?

Prices for pharmacy items vary greatly. Some drugs cost hundreds of dollars, and pharmacy convenience prices also vary. These calculations will assume that the average customer in your pharmacy will spend $50 (some of which will be paid by insurance companies). Your profit margin after rent, overhead, cost of goods, and labor should be about 20%.

In your first year or two, you might have 20 customers a day, bringing in $365,000 in annual revenue. This would mean $73,000 in profit, assuming that 20% margin. As you build a strong reputation, you might have 50 customers a day. With annual revenue of $912,000, you’d make a fantastic profit of nearly $183,000.

What barriers to entry are there?

There are a few barriers to entry for a pharmacy. Your biggest challenges will be:

• Required education and licensing 
• Getting credentialed by insurance companies
• Funding the high startup costs

Step 2: Hone Your Idea

Now that you know what’s involved in starting a pharmacy, it’s a good idea to hone your concept in preparation to enter a competitive market.

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research pharmacies in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a small independent pharmacy, a pharmacy with a clinic, or a pharmacy with a delivery service. 

This could jumpstart your word-of-mouth marketing and attract clients right away.

What? Determine your products

In addition to prescription medications you can offer a host of other items from over-the-counter drugs, to snacks, to cosmetics, and much more.

How much should you charge for pharmacy items?

Prices vary greatly based on items. Check the prices other pharmacies charge to make sure you’re competitive. After all costs, you should aim for a profit margin of about 20%.Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be extremely broad. You should spread out your marketing to include sites like TikTok, Instagram, and Facebook.

Where? Choose your pharmacy location

The location of your pharmacy is an important factor in attracting customers and ensuring your business’s success. Look for a spot in a busy commercial district or near a medical center or hospital.

Consider accessibility and convenience, ensuring that the location is easily reachable by public transportation and has ample parking.

By strategically choosing the right location, you can establish a profitable and successful pharmacy that provides essential healthcare services to customers and stands out in the competitive healthcare industry. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Pharmacy Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “pharmacy” or “drugstore”, boosts SEO
• Name should allow for expansion, for ex: “Vitality Pharmacy” over “Mental Health Meds”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Pharmacy Business Plan

Here are the key components of a business plan:

• Executive Summary: A concise overview of the pharmacy business plan, summarizing key elements and objectives.
• Business Overview: Detailed information about the pharmacy, including its mission, vision, location, and legal structure.
• Product and Services: Outline of the pharmaceutical and healthcare services offered, including any additional products or specialized services.
• Market Analysis: Examination of the local and broader market, identifying target demographics, trends, and potential opportunities for the pharmacy.
• Competitive Analysis: Evaluation of competitors in the area, highlighting strengths, weaknesses, and strategies to differentiate the pharmacy.
• Sales and Marketing: Strategies for promoting the pharmacy’s products and services, attracting customers, and building a loyal clientele.
• Management Team: Introduction of key personnel involved in the pharmacy, emphasizing their skills and roles.
• Operations Plan: Details on day-to-day activities, workflow, and logistics of running the pharmacy efficiently.
• Financial Plan: Comprehensive financial projections, including income statements, balance sheets, and cash flow forecasts for the pharmacy.
• Appendix: Supplementary materials such as resumes, licenses, permits, or any additional documentation supporting the business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to pharmacies. If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your pharmacy will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a pharmacy business.

Step 8: Apply for Pharmacy Business Licenses and Permits

Starting a pharmacy business requires obtaining a number of licenses and permits from local, state, and federal governments.

In addition to being a licensed pharmacist in your state, you’ll also need a pharmacy license. Check with your state for licensing requirements. You’ll also need the following:

• Association of Boards of Pharmacy/National Council for Prescription Drug Programs (NABP/NCPDP) number
• Drug Enforcement Agency (DEA) number and controlled substance registration
• National Provider Identifier (NPI) number

You’ll also be subject to state prescription drug monitoring programs. Failure to comply with licensing requirements and regulations can result in severe disciplinary actions. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your pharmacy business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.

Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as DATASCAN, EnterpriseRX, or Liberty, to manage your tasks, records, refills, billing, and payments.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

• Community Engagement: Actively participate in local events, health fairs, and sponsor community programs to build trust and awareness within your target market.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Educational Workshops: Host workshops on health-related topics, offering valuable information to customers and positioning your pharmacy as a knowledgeable and trustworthy resource.
• Loyalty Programs: Implement a customer loyalty program with discounts, rewards, or exclusive deals to encourage repeat business and foster customer loyalty.
• Collaborate with Healthcare Providers: Establish partnerships with local doctors, clinics, and hospitals to receive referrals and create a seamless healthcare experience for patients.
• Online Presence Optimization: Optimize your online presence through review platforms, ensuring positive customer reviews and responding promptly to any feedback or concerns.
• Health Screenings: Offer free or discounted health screenings in your pharmacy to attract foot traffic and demonstrate your commitment to community well-being.
• Personalized Marketing: Utilize customer data to personalize marketing efforts, such as targeted promotions or reminders for prescription refills, enhancing customer engagement.
• Branded Merchandise: Create branded merchandise like reusable bags or promotional items to increase brand visibility and encourage word-of-mouth marketing.
• Social Media Engagement: Leverage social media platforms to share health tips, promotions, and engage with the community, creating a dynamic online presence.
• Collaborate with Local Businesses: Partner with local businesses to cross-promote products or services, expanding your reach and attracting new customers from complementary industries.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your pharmacy meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your pharmacy business could be: 

• A neighborhood pharmacy for all your prescription needs
• More than medication – convenience, savings, and a warm welcome  
• Prescription medications, medical equipment, and supplies

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a pharmacy business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in pharmacies for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in pharmacies. You’ll probably generate new customers or find companies with which you could establish a partnership.

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a pharmacy business include:

• Pharmacy Clerks – make sales, customer services
• Pharmacy Technicians – assisting with filling prescriptions
• General Manager – scheduling, ordering, accounting
• Marketing Lead – SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Run a Pharmacy – Start Making Money!

Owning a pharmacy can be very fulfilling. You’re helping your community and meeting a critical need for countless locals and families. Pharmacies are also a growing industry, which means this is a lucrative opportunity as well. If you have a passion for prescriptions, and for serving others, starting a pharmacy could be a brilliant entrepreneurial decision. 

You’ve now added business knowledge to your resume, so it’s time to get to work and launch your successful pharmacy!