by Brad MacLiver, Authorship & Profile at Google
Tangible assets such as real estate and equipment are easier to value. Intangible assets such as the “goodwill” of a pharmacy have more latitude for interpretation when it comes to that value.
A company’s “goodwill” is the difference between the current fair value of the assets and the purchase price. The goodwill of a pharmacy will depend on the number of scripts filled, how long the pharmacy has been in the community, are sales growing or declining, and how long that pharmacy has been operated by the same owner. A store owner that is going to work for the buyer to help retain the pharmacy’s customers has more goodwill than one that is going to go on an extended furlough the day the transaction closes.
Goodwill is often used as part of a tax plan when selling a pharmacy. A portion of the goodwill can be allocated as “personal goodwill.” A business owner who has been an active member of the community, a volunteer in local charities, and has a great personal reputation creates personal goodwill. The proportion which the IRS allows to be allocated for personal goodwill depends on how long that business has been operated by the same the owner and the loyalty of the customers and suppliers due to the owner (the person) and not the business system, methods, etc.
Personal goodwill has been determined to be if the pharmacy’s customers would follow “the person” should the owner decide to sell the current drug store location and move to another pharmacy. A pharmacy owner’s business may thrive based on their personality and personal reputation. It is their unique personal characteristics that bring value to the business, thus it is considered personal goodwill.
Many people use simple accounting formulas, or multipliers, to determine the total value of their business, which includes goodwill. However these simple formulas might not provide an accurate overall picture. As an example if you take 2 stores with the same square footage, and selling the same number of scripts each week, but one is located in Manhattan, and the other is in a small rural community they will have vastly different valuations. A simple formula won’t emphasize the difference.
At this stage of the pharmacy industry roll-up, any pharmacy within an acquisition distance of a regional or national pharmacy has been approached by the chain about buying the independent drug store. Even if an owner is not ready for an exit strategy all pharmacy owners should keep an eye on the value of their business. PharmacyValuations.com provides a free and quick method to determine an estimated current value of a drug store. The web form can be found at: http://pharmacyvaluations.com/pharmacy-valuation
The pharmacy business valuation is free and there is no obligation to work with us. All information remains confidential. Many pharmacy owners use this free valuation as a tool to compare what a potential buyer may have offered.
When completing the web form and you click the Submit button the information comes directly to me. If you prefer to not use the Internet you can contact us and we can discuss the information. We are an easy company to work with, so don’t worry about being pressured. We have an excellent reputation in the pharmacy industry.