Please HELP/ ADVICE on how to interpret the Pharmacy Sale business advert

[maldives]

hi! I'm in my late 20s & plan to buy a pharmacy. I am still learning about pharmacy business etc. Can anybody help me on interpreting the pharmacy business sales advert?

Lets take the following as an example.

Turnover £400,000 at Gross Profit of 29%. Dispensing 3,000 NHS Items per month on standard trading hours. Lock-up premises offered on Freehold basis at Open Market Value. Best offers invited on £235,000 for the goodwill, fixtures, fittings and trade equipment, plus stock in trade at valuation.

1) A friend of mine told me usually the asking price is 1.5 x the turnover value.
So does it mean that to buy the the business above, I need £600k?

2) What does the last bit of the advert mean for '£235,000 for the goodwill, fixtures, fittings and trade equipment, plus stock in trade at valuation. '

Does it mean that the £600k + £235k as SAV?

3) Sometimes a business would mention selling as leasehold / freehold. What are the differences between them?

4) I know that most of the bank will only loan up to 80% of the business. Hence I need to prepare 20% of the rest as deposit. Apart from the 20% deposit, how much money would you recommend me to prepare to have it as cash flow at the initiation point of starting the business?

I lookforward for all your kind reply to help me to prepare myself to own my pharmacy

[Shwampa]

tI seems that the seller is asking for the best offer on the property (freehold) at market value (depends on location and size) plus the £235,000 for the goodwill (customers he created) and equipments plus the cost of the stock he still holds.

As you see a lot of unknowns to get an idea about how much it'll cost.

[Pharmaton]

Hi,
Goodwill of 1.5x turnover seems very high, especially for a low turnover business (<500K). In your example the asking price is 235K the only additional charge would be for stock (30-40K?) and premises (freehold). To lease you will pay a monthly rent. Gross profit is 116k annually, you need to ask for details of operating costs (staff, elec, etc) to deduce your net profit, effectively your wage. Don't forget to include rent if leasehold. These businesses are much cheaper as multiples would not be interested in them as they would be unlikely to produce much profit under management. Be prepared to make an offer & discount dead stock, so you should need about 55K to cover a 20% deposit on this leasehold business.

Mike

[LeftArm]

In your example they appear to have used a 2x Gross profit for the goodwill although that may be a coincidence.
You will need to see the accounts to back up the figures stated. The turnover may be averaged over three years of decline. If your example is real I would have thought 29% gross a bit high I'm pretty sure the margin on NHS is not that high? (Anyone know?)
Looking at my average script item ingredient cost value it varies greatly from store to store. Some, where there is MDS business on weekly scripts, the average is as low as £5 but averages out at about £8. This would equate to about 28% of turnover generated from OTC sales. Again this seems high. The old 80/20 rule seems to be being squeezed toward 15/85 or even 10/90 these days. You need to find out the NHS OTC split.
You may have to put up enough money initially to cover a months scripts as the PPA (NHSBSA) pay in arrears. The major suppliers used to offer financial help for startup pharmacies so may be worth talking to.