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Pharmacy Valuation

Published Tue, May 27 2008 8:44am by Frank Sirianni

When looking at pharmacy cap rates, does the owners wage get accounted for before before the calculation is made to derive the return on investment figure? (EBIT FIGURE)

Yes — the owner's wage needs to be accounted for before the calculation is made to determine the business value.

However, you should note:

the adjustment is to allow for hours worked by the owner as a pharmacist; and
if the pharmacy is "over staffed" (i.e. too many staff for the business size, trading hours, or annual sales), then you may need to consider what wages an average competent manager would need to achieve the business results as presented.

The objective is to determine the expected return a new owner could expect to achieve if the business is fully managed.