Magazine article Drug Topics

Expert Offers Tips on How to Estimate Value of Store

Magazine article Drug Topics

Expert Offers Tips on How to Estimate Value of Store

Article excerpt

Calculating the value of your pharmacy is not as simple as checking your balance sheet. That might tell you the net worth, technically, but it would be hard to find a business owner who would not want to sell the business for more than that, according to Steve Hegg, senior v.p. of Business Resource Services, a consulting firm in Seattle.

Ralph Antolino Jr. of Antolino & Associates, a consulting firm in Columbus, Ohio, agreed that "a business is a difficult thing to value. Beauty is in the eye of the beholder." He pointed out, however, that buyers often see opportunities the seller does not see. "We've seen independents get offers that are way above the old school formulas," he said. "That ought to be a sign that you may have something more valuable than you realize."

In the long run, according to Hegg, many owners recognize only three ways of determining the value of their business (and, by extension, their life's work): They can find out by selling it, wherein the purchase price becomes the selfdefined value. They can find out by spending $10,000 or so to get an appraisal. And then, Hegg said, there's "the final way a lot of people get to find out what their business is worth. They die. Then somebody will come in and help them figure out what their business is worth."

During a workshop at the National Association of Chain Drug Stores Conference for Regional Chains in Miami Beach in February, Hegg acknowledged that he does not recommend any of those methods. Instead, he said, the best way to arrive at an appropriate figure is to work with a qualified, disinterested third party in the field of valuation.

Clearly, he was addressing a hot topic, as the crowd of regional chain executives filled every seat and spilled out into the hallway outside the conference room.

According to a Business Resource Services report Hegg shared with the group, the most frequently used basis for determining the value of a closely held business, such as an independent or regional chain pharmacy, comes from the Internal Revenue Service's Revenue Ruling 59-60. Key factors include the history and nature of the business, the economics of the drugstore industry, the book value and financial condition of the business itself, earnings and dividend-paying capacities of the business, "goodwill and other intangibles," sales of stock, and the market price of actively traded stocks of public companies in the pharmacy industry. …

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