Pharmacy valuation: how the number is built
Updated: 5 days ago
Ask five people what a pharmacy is worth and you will get a rule of thumb from each of them - a multiple of this, a percentage of that. Rules of thumb are how sellers get disappointed and buyers overpay. A valuation that survives a lender's credit committee and a buyer's due diligence is built, from documents, and every part of it can be pointed at.
What are the five numbers a valuation is built from?
1. Adjusted profit. Not the profit in the accounts - the profit a new owner would actually make. Add back the owner's drawings and put in a market salary for the pharmacist hours the owner works. Add back one-off costs. Take out income that will not repeat. Do this for the last three years and look at the direction of travel. This number is the base of everything else.
2. The NHS income and its trend. Item numbers, month by month, from the NHS statements - not from memory. Items rising for three years support a stronger valuation than the same items falling, because the buyer is buying the next three years, not the last three. Then the services: which are claimed, how consistently, and whether the pharmacy is set up to claim more.
3. The premises. A long lease at a rent the profit can carry, assignable to a buyer without a premium, is what a lender wants to see. A freehold changes the conversation entirely, and is usually valued separately from the business. A short lease is not a detail; it is a discount.
4. The team. A pharmacy that runs without the owner in it every day is worth more than one that stops when the owner is on holiday. A settled pharmacist and a trained team transfer with the business and carry the income with them.
5. The risks a buyer can see. Competition opening nearby. A GP surgery closing or moving. A landlord with plans. Regulatory history. An overstated services claim. Every one of these is a reason a buyer gives for a lower number, and every one is easier to answer before the pharmacy goes to market than during the negotiation.
What pushes the number up
Rising items. Services income that is claimed every month. A long lease. A settled team. Clean accounts that reconcile to the NHS statements. A premises that does not need spending on. More than one buyer who wants it. And an information pack that answers the questions before they are asked - a buyer who is not waiting for documents is a buyer who is not talking themselves down.
What pushes it down
Falling items. Income that depends on one thing - one care home, one surgery, one service - that could stop. A short or awkward lease. Staff who will leave. Accounts that need explaining. An inspection report with standards not met. A sale that has already been to market once and not completed. And time: a sale that drags loses value in the buyer's mind every month it is not done.
Why "defensible" is the word that matters
A valuation is not a wish; it is an argument you will have to win three times - with the buyer, with the buyer's lender, and with the buyer's accountant. Each of them will take the number apart. If every part of it points at a document - this year's accounts, that month's statement, this lease, that contract - the argument is won before it starts. If any part of it points at "what the broker said", that part will be knocked off.
The right way to arrive at the number is therefore the slow way: gather the documents, normalise the accounts, chart the items, read the lease, meet the team, list the risks, and only then say what it is worth and why. A valuation done that way is also the information pack, which is why it makes the sale faster rather than slower.
Distressed pharmacies are still valued
A pharmacy in financial difficulty is not worth nothing, and it is not worth what a buyer says it is worth in the last week. It is worth what its contract, its items, its premises and its team are worth to the buyer who wants them - which, run properly and early, is often a great deal more than the first offer on the table. Run late, under pressure, with the wrong sequence, it is worth whatever is left. The difference is order and time, which is the subject of A distressed pharmacy: what to do in the first fortnight.
This is general information from work on pharmacy sales, not financial advice, and it gives no figures on purpose: every pharmacy is its own number. A formal valuation for tax, a court or a lender is a separately instructed piece of work. If you want yours built rather than guessed, tell us what you are trying to do.
Rajkamal Singh Bhatti MPharm is a practising pharmacist (GPhC registration 2230365) and a former Superintendent Pharmacist of a national group of 120 branches, which he took through insolvency and sale. He founded RSB Consulting.
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