Three Methods to Value a Pharmacy

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Three methods can be used to value a pharmacy. The appropriateness of the method used would be dependent upon the stage the pharmacy is in its development.
Three methods can be used to value a pharmacy. The appropriateness of the method used would be dependent upon the stage the pharmacy is in its development.

The methods, an explanation of how they work, and their uses are provided in Table 1.

The choice of methods depends on the ability to forecast revenue and expenses, andthe purpose of the valuation.

The capitalisation rate appropriate for a pharmacy reflects its desirability and:
  • Gross profit margin;
  • Rent terms and cost;
  • Pharmacy characteristics (inc. location, product mix, presentation, SWOT); and
  • Prevailing interest rates (overdraft) plus allowance for risk.
Capitalisation rates vary over time. Currently rates range between 18 per cent formetropolitan pharmacies with good growth and 25 per cent for rural pharmacies. Exceptionalbusinesses with unusually high growth outlooks may attract a lower capitalisation.

Visit Medici Capital to see currentcapitalisation rates for pharmacy.

It should be noted that the asking price is not related to turnover. Rather it's a functionof expected maintainable income to the buyer.

Table 1. Three methodologies for business valuation
METHODEXPLANATIONUSES
Discounted cash flowThe business value is the present value of the future cash flows from that business.Businesses with a finite life or varying annual cash flow.
Capitalisation of Future Maintainable ProfitsMaintainable Profits are estimated and capitalised using long-term market or industry discount rates.Businesses with a presumed "infinite life".
Assets plus GoodwillThe going concern value of assets plus goodwill for expected future income.Relatively new businesses or where future cash flows are uncertain.

Value assumes a willing buyer exists and there is sufficient time to market the businessproperly. Pharmacy brokers use practice4sale as an efficient marketing window for vendors.

Practice4Sale.com.au provides a listing and matching service for:
  • Pharmacies for sale or wanted;
  • Practice sites (property) for sale, lease and wanted (inc. GPs);
  • Partnerships; and
  • Jobs.



Do you need further assistance?

If you require further assistance, or would like to discuss what's required to sell your business, Contact Us or call Practice4Sale on 03 9853 7452.
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