Pharmacy Valuations

Pharmacy Valuations

What about price?

We have never had an educated seller reject an offer we made on their store because the price was too low. This is validated by the many intermediaries, accountants, brokers, wholesalers, lawyers and other representatives of pharmacy owners who call us. In fact, Colony is actively building a reputation in the pharmacy community for paying “top dollar” for stores.

One reason for this is that we are ranked as the most creditworthy of borrowers. As such, our offer will be in the highest possible bracket for your pharmacy, based on its risks and opportunities. This assures you not only of a fair price, but a relatively generous one.

In terms of valuation, there are innumerable metrics that are used to value a business. In coming up with a valuation, they key determination is to reach an entire deal package that works for the seller and works for the buyer. There are many factors beyond price that a seller should consider. These include if the seller wants to keep working (we allow the seller to keep working, full or part-time); if the seller cares if their store is closed and if their staff will be fired (we never do these things); what the buyer will do to the store after they buy it (we keep the stores operating as you have).

From the buyer’s perspective, we are looking for well-run stores with:

  • a loyal staff and patients;
  • a good reputation in the community;
  • no DEA, board of pharmacy or third-party contract issues;
  • established competition;
  • a fair valuation;
  • no over-dependency on a small number of script writers;
  • no over-dependency on an owner-operator;
  • a stable lease;
  • a store that will not require us to expend great resources on operations; and
  • a store with sustainable margins

We may still buy your store if it has one or more of these issues, but it will impact valuation.

Running The Numbers

In valuing the pharmacy, we need to be true to the business. This means that our offer must be based on guaranteeing employment to all staff, keeping the location, and adjusting for the true value of labor that the owner provides to the business. For example, if an owner is working 80 hours a week but paying themselves wages for only 40 hours a week, that is not a discount that a new buyer will enjoy after the transaction.

Adjusting For Seller Tax Strategies

We understand that business owners use a number of techniques to lower their taxes, and adjust for this accordingly. We recognize all money that sellers draw from their businesses, in all their creative forms.

How We Calculate Valuation

The key metric that we look at is how much money the business will cost to buy and how much money we think we can make if we buy it while operating it as the seller has.

Small Business Valuation Calculators

Some people try to use small business valuation calculators or “rules of thumb” they have heard to  determine what their stores are worth. They also rely on what they heard their friends sold their stores for. We have found that these methods often inflate the value of a business in some areas and diminish them in others. They are also understood in different ways by different people. As such, we need to look at the whole business, its opportunities and risks, to come to a comprehensive and valid valuation.

How We Negotiate

We want all sellers to know our approach from the start. We avoid the back-and-forth, lowballing and highballing, offer and counteroffer strategies that diminish trust and confidence in the purchasing process. As such, once we have all information, we make our offer for the store and that will be our offer. The seller is welcome to accept it or reject it, or ask us to clarify certain points, but we stand by our initial valuations and don’t negotiate them. As a result, we are inclined to make our best offer first, there is no pressure on the seller to perform in our discussions, and the seller is assured from the start that they are not leaving money on the table. In all, the process is much less stressful for all parties.

For more information, see our blog, including this post.

When To Sell Your Pharmacy

The decision to sell your business should be based mainly on how you want to spend your time going forward. Typically, we find that serious sellers have been thinking about selling for a year or more, although there are situations where an urgent sale is needed and we can accommodate these.

Sometimes we hear from owners who say, “I wasn’t thinking of selling my business, but I am always open to offers.” These pharmacy owners are usually not serious about selling – they are just curious about the marketplace.

Managing Life Transitions

One thing that we do to help with the transition is to welcome sellers to work in the store as much or as little as they want, from full-time to part-time, and allow them to set their own work schedule. This allows an intermediate step between working and retirement. Many sellers tell us they don’t want to retire, just that they don’t want to be business owners anymore. We accommodate this very well.

The Best Time To Sell

The best time to sell a business is when you are not forced to. The wrong time to sell a business is when you are under pressure from heath, economic, competitive, family or other reasons, although we accommodate these things very well. You should know that these factors don’t change price or the terms of the transaction, at least with us. What they change is the time that the seller has to acclimate themselves to a change in their lives.

Should You Accept A Pharmacy Offer?

We believe that the ultimate answer to this question is closely tied to the question of whether you should sell the pharmacy in the first place, which we have addressed above. We would encourage you to look at all factors in the offer – both monetary and non-monetary.

From a monetary perspective, we have written a whole section on valuation. However, from a purely economic standpoint, the monetary decision to sell should depend on whether you think the business will be worth more or less in the future. This, unfortunately, is impossible to predict. For example, in 2008, Yahoo rejected Microsoft’s offer of $45 billion dollars. In 2016, Yahoo was bought by Verizon for $4.8 billion in the “saddest” deal in tech history. Therefore, because this is impossible to predict, you should instead base your decision on what you want to do with your time going forward, and not on purely economic factors. There are plenty of rich but unhappy people, and your time on earth is limited.

We have seen pharmacies reject offers because they were not ready to sell for one reason or another. They will tell us that our offer is fair, but they are not ready for a personal life change. However, while the owner was waiting to plot their next move, something happened. A new competitor entered town, a major contract was lost, an important staff member left, a landlord didn’t renew a lease, a health issue arose, etc. These things resulted in diminished business value. At the same time, we lost interest because as time passed, we thought of more risks with the store and moved onto other opportunities. At the time we made the offer, momentum was high, but it diminished over time. So, the bottom line is if you are thinking of selling your pharmacy and get an offer that is fair, you should know that a better offer is unlikely to come in the future, at least from us.

From a non-monetary perspective, in deciding whether to accept an offer, it depends what is important to you. Will the store continue to operate? Will the name stay the same? Are all staff guaranteed employment? Will you be able to continue working? The answer to all of these questions with Colony is YES.