Pharmacy valuations.

Ownership rules narrow the buyer pool

Pharmacy ownership in Australia is regulated, and the rules differ between states and territories. In general terms, they restrict who may own a pharmacy and how many, which limits the pool of eligible buyers. That limit affects value, because the price a pharmacy can achieve depends on the people entitled to buy it and the finance available to them. Your lawyer should confirm the rules that apply to a particular ownership structure and transfer.

The valuation states the buyer it assumes. A pharmacy assessed as a purchase by a single owner-pharmacist working the dispensary looks different from one assessed as an addition to an existing group with pharmacist managers in place, because the wage base and the owner's role differ.

Dispensary and front-of-shop earn differently

Dispensary sales are driven by scripts, and much of that revenue is set by government pricing and funding arrangements rather than by the pharmacy. Front-of-shop sales, covering over-the-counter medicines, health products and general retail, are priced by the pharmacy and carry a different margin profile. Read the two lines separately, with their own cost of goods, before combining them into an earnings figure.

Dependence on government-funded dispensing is a feature of the industry. It gives the dispensary steady, largely non-discretionary demand, but it also exposes margin to changes in pricing and remuneration that the pharmacy does not control. The valuation describes that exposure in general terms rather than predicting policy. Ask what proportion of gross profit comes from dispensing and how it has moved.

Location and approval anchor the earnings

A pharmacy's approval to dispense is tied to its premises, and location rules govern where new pharmacies may open and where existing ones may move. The approval is central to the value of the business, and the constraints around relocation mean that the site and the lease carry more weight than in ordinary retail. Confirm the status of the approval and any conditions with your lawyer.

Examine the catchment: nearby prescribers, medical centres, aged care facilities, competing pharmacies and the foot traffic the site attracts. A pharmacy beside a busy medical centre depends on that centre remaining, so ask about the centre's lease and the practitioners in it. Script data by period shows whether volumes are stable, growing or drifting.

Stock, wages and the lease

Stock in a pharmacy is substantial and turns at different rates across the dispensary and the shop. A stocktake near the valuation date, aged where possible, shows what is saleable, what is slow and what is close to expiry. Working capital is the sum of stock, debtors including government claim receivables, and creditors, and the level a buyer needs to fund is part of the price discussion. Our working capital guide explains how that interacts with the operating value.

Wages are the largest controllable cost. Separate pharmacist hours from dispensary technician and retail hours, and check whether the owner's own hours are paid at a market rate. A pharmacy that relies on the owner working the dispensary unpaid has lower true earnings than the accounts suggest. Review the lease for term, options, rent reviews and any clause that restricts assignment, because a short remaining term at a site that cannot be relocated is a direct risk to the business.

What a buyer and a bank examine

Buyers, and the banks that lend to them, look at the same things a valuer does, but with an eye to serviceability. In general terms, a lender assesses a pharmacy purchase on the earnings it can maintain and the debt those earnings can service, and it usually wants the same records a valuer asks for. A buyer will want three years of accounts, script data, the stocktake, the wage roster, the lease, the approval and the supplier terms.

A valuation for sale purposes sets out maintainable earnings, the assets included and the working capital assumed, so that a price can be compared with it. The business sale valuation service is designed for that comparison. The valuation does not predict what a bank will lend or what a buyer will pay.

A partner's share is not a pro rata slice of the whole

Many pharmacies are owned in partnership, sometimes with a pharmacist who works in the business and an investor partner who does not. The whole business is valued on its maintainable earnings. A partner's share depends on the partnership agreement, the rights attached to the share, the working role and remuneration of each partner, and whether the departing partner's exit changes the earnings.

A minority share without control may be worth less than its percentage of the whole, and the agreement may set a formula that differs from market value. The shareholder exit valuation page describes how those matters are handled and what the agreement needs to show.

Records and the questions they answer

Tell us whether the matter concerns a sale, a shareholder exit or another purpose. The purpose determines the assumed buyer, whether the whole pharmacy or a partner's share is being valued, and the records we ask for first.

General business valuation guidance. Service suitability, specialist input and fee are assessed for the individual matter.