Calculate Pharmacy Value

Step-by-Step Guide

Set Goals

Establish a Timeline

Identify Advisors

Organize your Finances

Calculate Pharmacy Value

Prepare For Transfer

Part 1: Determining your pharmacy's valuation.

Valuation is establishing the value or price of the pharmacy and is central to the financing and selling process. Determining the value of your pharmacy is a process in itself. Unlike determining the value of your stock portfolio, there isn’t a market that can quickly and reliably determine the value of your pharmacy.

To understand the valuation of your pharmacy, you need to understand the various valuation methods. Here are 10 of the most commonly used valuation models:

• Percent of historical sales
• Percent of historical sales, plus inventory
• Percent of historical return-on-investment (ROI)
• Percent of historical net income
• Multiple of the owner’s historical total compensation
• Percent of historical net or gross profit
• Itemization of assets
• Dollars (annual prescription) inventory
• Dollars (annual prescriptions)
• Direct assessment/comparison with other comparable sales

Clearly, many factors impact pharmacy valuation, including script volume, past performance, market share, existing debt, and more. Market factors can also be a critical element in valuation.

Performing a valuation calculation is a necessary step, but it is only a benchmark used to determine the approximate range of the value of the business. The true value of the business cannot be determined until potential buyers enter bids for the business. 

Click here to access the RxOwnership Interactive Valuation Tool.

Part 2: Documenting your pharmacy’s valuation.

You should work with your accountant or a financial specialist so that your financial statements truly reflect the value of your business.

For many pharmacies, relatively small adjustments can result in large benefits to the financial picture, such as moving excess inventory, retiring debt, cleaning up accounts receivables, and updating the brand and appearance of the pharmacy. These adjustments take time, so you will want to plan accordingly.

When you are ready to sell or seek financing, you will need to provide the lender, potential buyers, or partners with:

• A minimum of three years of historical financial and interim statements
• Detailed historical information on dispensing data, including the mix of business and inventory purchase data
• Financial projections