It’s a question on the lips of any pharmacy owner, so how do you find what your business is really worth? Natalie Sirianni explains
For any pharmacy owner, a key question to understand is the million-dollar question – ‘What’s my pharmacy worth?’
Whether you are looking to sell your pharmacy, or wanting to hold onto it, it is always important to know what your business is worth. And as I mentioned in my last article, if you’re not thinking of selling, then you’re choosing to reinvest in your business. A wise person would want to know how much they are reinvesting!
When assessing a business’ value, there are number of factors that need to be taken into account including:
- Financial performance – income and profit
- Size – turnover and shop
- Capitalisation rate
- Developments in the area
- Level of owner involvement
- And many more…
Ultimately what drives value is the expected future performance of the pharmacy, which will repay debt and create wealth (however measured) for the owner.
All about capitalisation
To keep it simple, buyers assess pharmacy value using the capitalisation of future maintainable earnings methodology. This method assesses the future maintainable earnings for the business and divides it by a capitalisation rate for the pharmacy.
The future maintainable earnings are estimated based upon recent financial results for the pharmacy adjusted to determine the likely results for a fully managed business. It is also assumed that the past is a fair reflection of expected future income from the pharmacy.
Capitalisation rates in pharmacy generally range from about 14% for highly sought-after metropolitan pharmacies to around 20% for more isolated pharmacies with less buyer demand. The capitalisation rate will vary depending on the strengths, desirability and risks associated with the business, as well as general pharmacy market and economic conditions and should be based on capitalisation rates for comparable sales of pharmacies – that is pharmacies that have been sold with similar characteristics to yours. So, there is a lot to consider!
When choosing to sell your pharmacy, it is important to work with a pharmacy expert to ensure the business is priced correctly when you take it to market. That will help you achieve the best result in your business sale.
It is also important to note that in times like this, where the pharmacy business sales market is very strong, it is possible to achieve a premium on your pharmacy business sale. Therefore, it’s important that you get expert advice so that don’t sell the business short!
If you would like to discuss the pharmacy market in your area, or would like a free Market Assessment of your pharmacy, contact Natalie on 0406 919 860. I look forward to discussing with you further!