Using Multiples with Wyoming Pharmacy Business Valuations

By Brad MacLiver
Authorship and profile at Google


If you have purchased a residence, you should be familiar with real estate appraisals. With a WY pharmacy business there are times an appraisal of both the real estate the business itself is needed. The pharmacy business appraisal, which does not include the real estate, is more commonly called a Pharmacy Business Valuation.

Pharmacy Business Valuations in Wyoming are part of the due diligence that will be conducted when there is a possible acquisition of the pharmacy business, or pharmacy financing is needed. Wyoming Pharmacy Business Valuations place a reasonable market value on the drug store various factors have been examined.  These factors include, but aren't limited to: assets, financial statements, tax returns, goodwill, customer lists, licensing, competitive advantages, regulatory concerns, management team, inventories, and industry comparisons.

There are many acceptable methods for valuing a retail drug store business. Each of these methods has its own perspective and the business owner should have a clear understanding of the method they are using.

One of these methods is to use “multipliers”, which involves someone taking the net profit, gross sales, or some other figure from financial statements and then multiplying that number by 3, 5, 8, or however many times is necessary. However, when using simple methods such as multipliers you need to understand a few points:

1. Financial statements are typically prepared to justify the lowest possible taxes.

2. Stated profits are not usually the actual cash flow of the company.

3. Due to tax reasons company assets probably have a different value than what is on the books.

Understanding the above points, you can understand that a simple Wyoming pharmacy valuation based on multiples may not reflect the true market value of the drug store.

When financing is involved simple multiplier 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.

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.

Due to the aging population sales are increasing as the older generations are purchasing more prescriptions. However at the same time, government and insurance reimbursements have been drastically reduced causing a major decline in nets profits for the pharmacy industry in Wyoming. Lower profits means it is harder for the business to service debt. That in turn means it is harder to obtain funding, and when there is funding it will be in lower amounts. Someone who is not a pharmacy specialist and used a gross sales multiplier would be way off in their calculation compared to other WY pharmacy valuations. 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 it is necessary to have a pharmacy business valuation completed, it is strongly advised to pay more for a specialist that can provide a banker realistic and current information. Don’t try and save a few bucks by cutting corners, and then end up wasting time, money, and possibly even ruin a chance of obtaining funding that either the Wyoming pharmacy business owner, or pharmacy buyer was seeking.

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