The Myth of Turnover Means Selling Price
December 10, 2012
It's interesting to note that
there is the misconception that if
a pharmacy's turnover is, say, $3
million, then that is the value of
the business.
Dismiss that thought
immediately.
Let's look at it from a lender's
perspective.
How do they look at valuing a
business?
Part of the valuation process is
the very important profitability of
the business and what the
"Return on Investment" (ROI) will
be. It's quite simple really.
Let's use an ROI at what
appears to be the average today
for metro pharmacies - 17%.
Keep in mind this is only part of
the valuation process.
Many other things come into
play.
Say, the pharmacy is turning
over $2,000,000 and after
addbacks/adjustments; the
business nets $300,000 per
annum.
Based on a 17% ROI you would
arrive at a ballpark figure of $1.76
million or thereabouts.
Ok, what if the business turns
over $3,000,000 and nets
$300,000? Same answer -
$1.76m.
Now here's a curly one.
What if the business turnover is
$3,000,000 and profit $700,000?
Aha, different ballgame.
Based on a 17% ROI we're now
looking at $4.12m. Problem? Yes.
Try convincing a buyer!!
As mentioned, there are many
other criteria lenders take into
consideration when valuing a
pharmacy.
This just gives you a little
insight into how it works.
This week’s
contributor is Greg
Aspeling, Sales
Manager, Raven’s
Pharmacy Sales.
The above article was sent to subscribers in Pharmacy Daily's issue from 10 Dec 12To see the full newsletter, see the embedded issue below or CLICK HERE to download Pharmacy Daily from 10 Dec 12
