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What is a Pharmacy Evaluation?

December 7, 2020

own a pharmacy
A pharmacy’s sale value is determined by what a potential buyer or buyers are willing to pay for it. Still, an independent pharmacy needs to conduct a valuation to determine its market price. Beyond that, pharmacy evaluations happen for a variety of reasons; some of them include:
  • Retirement planning
  • Career changes
  • Dissolving partnerships
  • Understanding your business growth potential and more
  • Preparing to go to market

Let’s now take a closer look into understanding what goes into evaluating a pharmacy.

Determining the precise value of a pharmacy entails a comprehensive examination of a multitude of factors, both tangible and intangible, that collectively contribute to its financial worth. The process is akin to assembling a puzzle with numerous intricate pieces, each playing a crucial role in defining the overall picture of the pharmacy's value. The pharmacy's accounting records serve as a treasure trove of information, offering a detailed map of its financial landscape. Scrutinizing these records entails meticulously examining the income statements, balance sheets, and cash flow statements. These documents provide a panoramic view of the pharmacy's revenue streams, expenditures, assets, liabilities, and cash inflows and outflows over time.
Tangible Assets
Tangible assets, the palpable components of a pharmacy, extend beyond mere physical items and delve into the realm of operational assets. These assets can be felt, touched, and visually assessed, encompassing a spectrum of elements that include real estate or property, furniture, fixtures, equipment, accounts, stock and inventory, accounts receivables, and more. The valuation of tangible assets is often relatively straightforward due to their quantifiable nature. However, it's important to recognize that these assets are not stagnant; they can depreciate or appreciate over time, exerting a dynamic influence on the pharmacy's valuation. Complementing tangible assets are the intangible elements that lend a unique character to the pharmacy's value. Intangible assets are more elusive and intricate to assess, as they pertain to elements that cannot be physically touched or measured with precision. Yet, they hold substantial importance in the valuation equation. A pharmacy's intangible assets encompass a spectrum of aspects such as goodwill, customer lists, brand reputation, customer loyalty, proprietary processes, and intellectual property. These elements often have a significant impact on a pharmacy's success and competitive advantage, even though their valuation may require a more nuanced approach.
Intangible Assets
Valuing intangible assets can indeed be intricate, as they lack the concrete metrics often associated with tangible assets. Goodwill, for instance, represents the intangible benefit that arises from favorable reputation, customer loyalty, and an established clientele. Customer lists and brand recognition also play pivotal roles in shaping a pharmacy's value. However, attempting to attach an exact monetary value to these intangibles is a complex endeavor, involving a combination of financial analysis, market trends, and professional judgment.
Liabilities
Liabilities, on the other hand, stand as a pivotal counterbalance to the valuation equation. Just as assets contribute to the pharmacy's worth, liabilities detract from it. Liabilities encompass financial obligations, pending debts, ongoing leases, and contractual commitments. These obligations can significantly impact the pharmacy's net value, thereby necessitating a meticulous assessment to paint an accurate financial portrait. The culmination of these various components results in the pharmacy's final value, representing not only its monetary worth but also its strategic standing within the market and its potential for growth.

It is essential to know that every business is different.

Multiple formulas exist to provide a reasonable idea of the pharmacy value. While that is correct and often an ideal practice, one must know that there is no single formula that can have all the answers and also that every business is unique in its own way. However, by exploring the business’s unique characteristics from a different perspective and any external factors, a pharmacy business consultant can conclude on its value with reasonable certainty.

Why choose EVCOR as your pharmacy valuation services provider?

We have a long tradition of pharmacy evaluation, value preservation and enhancement, and transactional advisory services. At EVCOR, we are the experts in carrying out such valuations, a prerequisite for most sales.
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