Using Multiples in Pharmacy Business Valuations
Many people are using a multiples method of valuing pharmacies. Pharmacy business valuations are needed for pharmacy financing, or when purchasing a drug store. During the valuation process a number of variables should be reviewed. Assets, financial statements, tax returns, industry comparisons, inventories, regulatory concerns, competitive advantages, licensing, customer lists, goodwill, and other factors play a part in the value of the business.
Simple Pharmacy Valuation Method
Multiples is a very simple method used to value all of the variables involved in a pharmacy business. The method: you take the net profit, gross sales, or a different figure from financial statements, then multiply that number by 3, 5, or whatever number someone chooses. However, when using a simple method such as multiples, you need to keep in mind that a simple pharmacy valuation based on multiples may not reflect the true market value of the drug store.
When seeking a business loan, simple multipling methods will not be acceptable. Banks and finance companies will require a third-party unbiased pharmacy valuation completed using advanced calculations, knowledge of the industry, and sound financial reasoning.
Due to insurance reimbursements being reduced, many pharmacy owners are seeing a major decline in their net profits. Lower profits mean it is harder for the business to service debt. That in turn means it is harder to obtain funding. When funding is obtained, it will be in lower amounts or come with higher interest rates.
Someone determining the worth of a pharmacy by any multiplier method, could be way off in their calculation. This should be compared to a pharmacy valuation completed by specialist who is consistently working in the industry. A banker that sees valuations that are not within realistic industry comparisons is not going to fund the deal and fees paid for the business valuation will have been wasted.
When a company specializes in a specific industry, that company will be able to offer a more precise and credible valuation. Specialists usually have more industry data than someone who does not normally value businesses in that industry. The results of not having the proper industry data will result in a more ambiguous valuation.
An example of a specialist is PharmacyValuations.com who only values businesses in the pharmacy industry. When it is necessary that a pharmacy business valuation be performed, it is strongly recommended to contact a specialist who can provide a knowledgeable industry based calculation.
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