Changes in Valuations
The market-related accuracy of a valuation is greatly dependent on the experience of the persons doing the valuation. Determining the value of a pharmacy is often more art than science - asking price is not directly related to turnover. Instead it should be a function of the future income a buyer can expect to maintain. A realistic valuation of a pharmacy reflects sales, profit and the money available from gross profit for the owner's salary (or manager's in case of an absentee owner), required return on investment and to service any debts. The first two uses of this free cash flow are variable, the third is not. A prospective buyer needs to ensure that there is enough free cash flow available in the pharmacy to service all debts. This is especially important if the seller retains some percentage of the business or becomes the buyer's landlord.
There are several different methods used to determine the value of a pharmacy, using both historical data and projected values. These can be based on the balance sheet, the income statement, goodwill and/or cash flow discounting. Capitalization of future maintainable profits, and assets plus goodwill are other possible avenues. Which method is best to use depends on the purpose of the valuation and the developmental stage of the pharmacy. Most often, a combination of methods are used, to determine a price range. The precise value of the pharmacy is then placed near the top or the bottom of the range, depending on how it compares to the industry's best practices, a process called benchmarking. (This is why even small improvements in weak aspects of the pharmacy can have an immediate influence on the value).
There are many factors influencing the value of a pharmacy including script volume, past performance, existing debt, market share, government regulations, cuts in reimbursements, and changes in (regional) economic conditions. Obviously, a meticulous valuation requires in-depth knowledge of all aspects of the pharmacy industry and its regulations. Aventine Group's experts have this experience, which makes the difference between blindly applying valuation methodologies and accurate interpretation of the results. A standard business broker might apply generic accounting formulas or use "multiples" to place a value on a pharmacy. This value can create false expectations because it does not take free cash flow into consideration, nor is matched by current market conditions. As these conditions change, so will the value of pharmacies affected by these changes. At Aventine Group, we have a national database on pharmacies, which we use to track market changes and predict new trends.
We offer free valuations for both retail pharmacies and specialty pharmacies, to give you a quick ballpark value. Count on the industry expertise of Aventine Group when you need a certified business valuation to sell the pharmacy, to obtain finance or for legal matters.
Retail Pharmacy Business Valuation
This is a quick analysis of the pharmacy's value for a standard retail pharmacy. The current market value price range is calculated from basic information provided by a pharmacy owner along with comparisons of national data, competitive studies, and local situations.
Specialty Pharmacy Business Valuation
This is a quick analysis of the pharmacy's value for specialty pharmacies. When a pharmacy has a higher percentage of sales in disease management, compounding, infusion, long term care, or other specialty areas, the calculation process is slightly different than a standard retail pharmacy valuation.
Detailed Analysis Business Valuation
This Pharmacy Business Valuation is much more detailed than the free quick analysis valuations. Both lenders and buyers require a valuation based on a comprehensive analysis of the pharmacy's tax returns, financial statements, etc. This valuation is necessary when financing, buying, or selling a pharmacy. It can also be used for divorces, estate planning, asset protection, partner buy-outs, and other legal matters.