If you Google “pharmacy valuation methods,” you’ll probably find several formulas. Some include sales projections, direct assessments, percentage of sales plus inventory, net income approach, return on investment, and more. Each method will give you a different value and can vary greatly from one formula to the next. We have sold hundreds of pharmacies, and the selling price is typically derived from only two or three different methods and will usually depend on whether the buyer is an independent buyer or a chain.
Please keep in mind that EVERY pharmacy is different, which means there is no exact “formula” that will determine your selling price. Timing is also a critical piece that is an “unknown,” and it can significantly impact the value a buyer is willing to pay (supply vs. demand). So, please understand that your value might be today can change year to year or, in some cases, month to month.
We will explain how each method applies to your pharmacy and what can increase or decrease the value.
Our experienced pharmacist experts can provide a complimentary valuation by reviewing reports from your pharmacy.
The 3 Most Common Valuation Methods to Determine the Selling Price:
A Multiple of the Normalized Net Profit. The multiple can vary depending on the type of pharmacy, the profitability, demand, and time sensitivity. For a standard retail pharmacy, the most common multiple we see is 3, with a range of 2.5 to sometimes 4. LTCs, Specialty, and Compounding pharmacies are typically higher than a 3 times multiple with a range of up to 10 in some instances. Banks play a role in the market multiple when they value a business to determine how much they can loan.
Price per Prescription ($’s per annualized prescription). A chain often uses this calculation, but independent buyers have also used it. The determination of the dollar amount per prescription that a chain is willing to offer is based on several factors, with location and the amount of competition carrying the most weight.
Direct Assessment Method. When the cash flow of a pharmacy is neutral or negative, valuing the pharmacy using a multiple of the normalized net profit is not an option. In this instance, a buyer will determine the pharmacy's value from a time savings and building cost perspective. The greatest value these pharmacies have to offer to a buyer is that they are already operational, have third-party contacts in place, and the pharmacy already has the fixtures, furniture, and equipment (FFE) in place.
Factors That Impact Valuations:
Pharmacy Type. Each pharmacy discipline has its advantages and challenges. Traditional retail pharmacies will be valued differently than compounding or LTC pharmacies.
Buyer Type. What type of buyer will bring the top dollar? What are the advantages and disadvantages of each?
Business Mix. Do you do compounding? Special packaging prescriptions? Controlled prescriptions?
Patient Base. Does a large portion of your patients speak a language other than English?
Competition. Where is your nearest competitor located?
Location. Is your pharmacy in a rural or urban area? On a major street?
Script Volume. When a buyer is interested in purchasing your files, this is usually the most significant factor influencing their offer.
Total Sales. Sometimes, a pharmacy may not be profitable, but the sales volume is high enough to be attractive to a buyer.
Delivery. Delivery service can impact valuation positively or negatively depending on the delivery radius, number of deliveries, and other factors.
Visit our Valuations page or Contact Us to learn more!