Controlling your Pharmacy’s Finances is Controlling Your Future
Some people have a knack for being able to read a profit and loss statements and balance sheets, and many find it hard to digest all the data to understand what it means for their business. Sometimes it is just easier to just look at your bank account.
Your financial statements tell you what you need to know about your business and it is critical that you understand them to drive your business strategy, guiding you from financial management to financial security.
IPC has the expertise and qualified partners to ensure that you can gain the financial clarity you need for your business. We provide you with access to an advisor who has knowledge of the unique challenges independent pharmacy owners face and how they show up in your P&L and balance sheet. Our advisors and partners can review your financial statements and provide the guidance you need to evaluate the data giving you the freedom to make accurate strategic decisions.
What could this look like in a pharmacy today?
We have been following a pharmacy owner Pat to explore ways to implement purchasing and growth strategies and now how to use financials as a tool. Pat works with a local CPA and is the only pharmacy among that CPA’s clients. Pat reviews the quarterly statements and the annual tax return. Pat’s CPA talks about reducing accounts receivable (AR) to improve cash flow and points out the trend of increasing cost of goods sold but really doesn’t have clear guidance on how to tackle either, leaving Pat wondering. Pat checks the pharmacy’s bank account to make sure there is enough to pay payroll and the wholesaler bill, but beyond that there isn’t much of a true strategy.
Pharmacy Financial Evaluation: Understanding What Matters
To improve cash flow, you need to bring in profitable revenue which increases gross profit which leads to cash when managed properly. Understanding key metrics on a monthly basis will give you the financial clarity you need to move into financial management and then to financial security.
Here are some terms that are important to know and understand:
- Gross Profit: The amount of profit after subtracting the cost of goods sold from your revenue.
- Days of Cash on Hand: Measures how many days of cash you have available to pay your current expenses with no additional income.
- Operating Expense Ratio: What percentage of your revenue is allocated to your operating expenses, such as payroll, rent/mortgage and insurance.
- Revenue Distribution: Reveals where the money is coming from – dispensing, OTC, immunizations or other services.
With IPC’s guidance, you can begin to see these metrics as tools rather than obstacles. Our goal is to help you use your financial data to identify strengths and weaknesses within your operation.
Take Control of Your Business Using your Pharmacy Financial Statements
Once you understand how metrics can affect your profitability, growth potential and operational efficiency, you can take the specific next step to begin to review your financial statements on a monthly basis. Reviewing your Profit and Loss Statement (P&L), Balance Sheet and Statement of Cash Flows will have the information you need to then make the right decisions on which levers to pull and push to improve your business.
With your focus on the financial stability of your store during these monthly reviews you can then take control of achieving your goals for:
- Cost of Goods Reduction
- Operating Expense Reduction
- Growing Your Business through Pharmacy Model Expansion and Patient Acquisition
- Managing Cash Flow through Controlling Inventory and Accounts Receivable (AR)
Armed with a new understanding of the importance of financial statements and what the critical metrics are, Pat pulls out last month’s P&L and does a few simple calculations. Pat notices the pharmacy has a low Days of Cash on Hand. Pat also notices the pharmacy’s inventory turns do not meet the benchmark and the store is overly reliant on dispensing for revenue.
If that were the case in your pharmacy, what metrics would you look to next to begin to diagnose the issue?
Financial Security: Building a Future for Independent Community Pharmacies
At IPC, we believe managing your pharmacy’s finances is fundamental to taking control of your business with the goal of financial security. A business that controls costs, has more predictable revenue and profit and operates efficiently is setup to survive today and building a future and a legacy you can be proud of.
As a starting point we can guide you through a financial evaluation which will lead to managing your finances to get to the financial security you desire.
Armed with financial clarity you can set goals leading you to financial security. We do this by setting goals that are:
Measurable: Help you track your progress and give you a clear picture of your pharmacy’s financial health and the impact of your efforts. Examples include:
- Increase OTC and immunization revenue and profit by 15% within the year.
- Reduce inventory carrying costs by 10% through better inventory management.
- Improve gross profit margins by 3% by leveraging purchasing power.
Controllable: Identify the levers which influence your financial outcomes. Focus on what you can control and empowered to take charge of your future. Examples include:
- Optimizing your purchasing strategy to take advantage of group purchasing power.
- Streamline workflows to reduce labor waste and improve efficiency.
- Expand services to attract new patients and increase revenue.
Predictable: Grounded in data and realistic expectations to be prepared for anything that comes your way.
- Forecasting cash flow to ensure you always have enough working capital
- Setting achievable revenue targets based on past performance
Growth-Oriented: IPC helps you set growth-oriented goals that align with your long-term visions. By focusing on growth, you’ll not only secure your pharmacy’s future, but also strengthen your role as a trusted healthcare provider in your community.
- Expand into new service lines (i.e. immunizations, point-of-care testing, remote patient monitoring)
- Increased patient loyalty through personalized care and medication adherence programs
- Reinvest savings into staff training, technology and marketing
Through an initial financial evaluation, Pat realized that financial management isn’t only about cutting costs, but rather it’s about making strategic decisions that manage costs and expenses while also driving growth. Once Pat knew how much revenue was being generated and where the pharmacy could save money, Pat was able to explore new opportunities and set specific and measurable goals. With a minimal investment Pat’s pharmacy was able to administer an additional 700 immunizations in their first year generating an additional $16,000 in profit without needing to add additional staff. Pat also leveraged the four IPC purchasing strategies to reduce COGS immediately impacting the bottom line. The third area of focus was inventory and Pat reduced inventory by 12% freeing up that cash to improve cash flow and reducing the stress of the next wholesaler bill and payroll. Pat was even able to take a well-deserved family vacation knowing that the store was on more sound financial footing.
Why IPC is the partner you need to Understand your Financial Health and Build Financial Freedom.
We understand the challenges you face because IPC is led by pharmacy owners just like you with an amazing group of people looking to help you thrive as you grow your pharmacy. IPC provides the tools, resources, and support you need to build and implement a financial strategy that is targeted on your financial security.
We know owning a pharmacy is hard and it is critical that you have the right partner. Take the first step to understand how IPC can deliver the right solutions to your store and your community giving you the Freedom to Pharm.
Your Next Steps
At IPC, we are committed to empowering our member stores through defined strategies in key areas of your business.
Team Empowerment
You can’t do it alone and yet you’re not sure how to get your team fully engaged. Sometimes they’re excited and committed and other times they are just going through the motions. Leadership and management are skills just like any other and it’s time to shed your self-doubt.
If your team were fully engaged, leaving you with time to work “on” your business and not “in” your business, where would you focus?
Purchasing Power
Does this sound familiar? Your wholesaler rep keeps telling you to be more compliant. And you need to buy the lowest price to make sure it is less than what you’re reimbursed. And you’re shopping your wholesaler and secondaries everyday hunting for the best price.
What if you could do all three with less stress and reduce your costs?
Operational Efficiency
If you are still operating the way you did ten years ago or even two years ago, then it might be time to rethink things. Pharmacy is changing faster than ever and you need to adapt. Whether it is leveraging technology or altering a process, change can be a critical step to improving your pharmacy.
What if you could implement changes that your staff supports?
Operational Efficiency
If you are still operating the way you did ten years ago or even two years ago, then it might be time to rethink things. Pharmacy is changing faster than ever and you need to adapt. Whether it is leveraging technology or altering a process, change can be a critical step to improving your pharmacy.
What if you could implement changes that your staff supports?
