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    6 Replies Latest reply on Nov 9, 2011 10:25 PM by riantindustrial

    How do you know what a pharmacy is worth??

    pappurx Newbie
      I have a opportunity to buy and exsisting pharmacy. I need advice in knowing what a pharmacy is worth? How is the value of pharmacy calculated???
        • Re: How do you know what a pharmacy is worth??
          SME_ally Adventurer
          it is calculated in the same way you'd value a typical business...by the free cash flow it generates. So you have to really understand the assets, outstanding short/long term debts, life-time value of its customers, etc. Then you can do a 5 year projection of the free cash flow based on current market conditions. Discount those cash flow streams back to current year based on your required rate of return.
          • Re: How do you know what a pharmacy is worth??
            LUCKIEST Guide
            What a pharmacy is worth??

            You need both an accountant and a lawyer

            Good luck
            <!--Session data-->
            • Re: How do you know what a pharmacy is worth??
              RobClayton Wayfarer
              Another simplier way is to research other pharmacies that have been sold in recent years or find public companies (these are valued by their stock price) and try to determine the multiple of price of their current or time of sale EBITDA (earnings before interest, taxes, depreciation and amortization). Example, (keeping the numbers very simple) a public pharmacy trades for $10 per share and has 1 million shares outstanding. Thus, its value is roughly $10 million. It also has debt of $1,000,000 - thus, it real equity value is $9 million. If this firm made $900,000 in EBITDA last year, its multiple is a factor of 10.

              Look at the company you are buying - if its EBITDA is say $100,000 - then with a factor of 10, the business is worth $1 million.

              Make sure that you just don't only use one company to find a multipule - find as many as you can - then adjust each one based on factors that don't match the business you are buying and you could simply average them for an average price.

              This builds your foundation to start the price negotiation - menaing the price that you should not go over - so start low and work the deal that is right for you.

              Business Junkie .org
              www.BusinessJunkie.org
              • Re: How do you know what a pharmacy is worth??
                Teaspiller Wayfarer
                SME and Rob are both correct. SME is probably a bit more realistic in terms of your particular situation. That being said, you should never assume that the books are completely accurate and in order. You should consider bringing in a CPA and/or tax attorney to take a look at the business. They'll be able to look at the books and determine the actual value of the business, as well as advise you on the terms of the sale.

                If you'd like, we've got a list of verified tax accountants (CPAs and IRS Enrolled Agents) and tax attorneys on our site at http://www.teaspiller.com/tax-experts. They'll be able to help you throughout the entire process, or simply answer a few questions for you...whatever you need.

                -Stephen
                www.teaspiller.com
                • Re: How do you know what a pharmacy is worth??
                  Bridge Navigator
                  I would suggest this article that addresses some of the issues iin valuing a small business:

                  What's Your Business Really Worth?

                  Best of luck,

                  Greg
                  • Re: How do you know what a pharmacy is worth??
                    riantindustrial Adventurer

                    What I consider is how you sell if you get it. Online sale? Make sure it is legal before you do it. Good luck to you