• LATEST PHARMACY NEWS AND EDITORIAL

    LATEST PHARMACY NEWS AND EDITORIAL

Our latest thoughts and inspirations on buying a pharmacy, starting a pharmacy, and ongoing pharmacy operations

Where did my pharmacy’s cash go?

One of the struggles of every entrepreneur is understanding the difference between profits and cash. Articles on this subject are within every entrepreneur and business blog and pharmacy is no different.

Good news is, within pharmacy cash drain is typically in two areas, payroll and inventory. Yes, we know, we know DIR Fees, lowered reimbursement etc. That is what we hear but unfortunately there is little you can do to control these. So what can we control? We find 98% of the time payroll and/or inventory has inflated. The reason for this, inventory and payroll make up 85-90% of a pharmacies expenditures. Let’s look at each a little closer.

Inventory

We see two primary cash drains within inventory. First, having too much on your shelf. To simplify this let’s say in a month you make a profit of $20,000 but order $30,000 in excess inventory. In this scenario you did not make $20,000 you were $10,000 cash flow negative. Second, is purchasing incorrectly, we see so many owners not using secondary’s, allowing their perpetual inventory to auto order without reviewing if a cheaper alternative exists and over purchasing from secondary’s impacting rebates and brand pricing. In our opinion every owner should make inventory one of his or her priorities daily.

Payroll

Labor makes up at least 10% of your expenses. No other expense is over 1% in most pharmacies and as such can be a primary source of cash deficits. In a traditional pharmacy the target payroll is 10% of sales. For a pharmacy with sales of $3 million a 1% excess is a $30,000 cash drain, 2% is $60,000 and were not even including taxes or other benefits like 401k match. It is easy to overlook excess labor costs as on a 2 week payroll basis it is only a small amount but over the course of a year it will take your cash!
Continue reading
0 Comments

What are the key pharmacy accounting and financial metrics?

It is easy to be distracted from the core procedures and processes that drive our businesses. Distractions occur every day, from customer issues, new opportunities, to personal obligations. So how do we stay focused? One way is to track and measure key metrics that impact your business, but what are these? We believe in 3 core areas to focus, below we outline these along with metrics to follow. Hopefully this helps you manage your business without surprises!

1.       Revenue

·         Script Count – compare 2 week periods

·         Sales Revenue – compare in 4 week periods

·         Revenue/script – review monthly

·         Total Patients – compare in 4 week periods

·         Lost Patients – review monthly

·         Transferred Patients – review weekly

·         Revenue per payer – review monthly

2.       Cost of Goods Sold/Inventory

·         Gross Margin Dollars – review monthly

·         Gross Margin % - review monthly

·         Gross Profit/Script – review monthly

·         Deposits vs Purchases – these are real dollars spent – review monthly

·         Slow Mover Report (inventory not used for 100 days) – review monthly

·         Total Inventory – review monthly

·         Margin per payer – review monthly

3.       Payroll

·         Labor dollars per script – compare every 2 weeks

·         Labor dollars as a % of sales – compare every 2 weeks

·         Overtime – review amount every 2 weeks
Continue reading
0 Comments

What is the Purpose of Due Diligence when Buying a Pharmacy?

Due diligence from a buyers perspective three main objectives. Below outlines each:

1.       Determine if the business you are exploring the purchase of is what you expected. In other words is there a reason not to buy the pharmacy? Objectives include, finding out is the pharmacy revenue accurate, are script counts correct, are control substance %’s acceptable, etc. You should strive to verify all operational and financial information.

2.       Pharmacy Transition – Once you know the business is what you expected, then you want to gather information that will assist you in transitioning the business after acquisition. Some objectives of this diligence include, what is current wholesale agreement, what health benefits are provided, what staff is staying or not staying, what marketing is done.

3.       Legal – you should have your attorney gather and review information to ensure legally you can buy the pharmacy and that also the pharmacy does not have a legal concern that would cause you to not purchase. Examples include, assisted living contracts, PBM contracts, lease, UCC checks, etc.
Continue reading
0 Comments

Thoughts on Notifying the Staff when Buying a Pharmacy

You have done all your due diligence, you have built your business plan, you have signed the purchase agreement, and you are ready to assume ownership of the pharmacy. Now comes a very important step in the process. How do you inform the staff of the sale?

The best way to inform the staff is to have a meeting the evening before or the morning of the transition date. If the owner has not already informed the staff he should be the one to do so at the meeting. He should let them know that he has appreciated their help throughout the years and wanted to be sure to sell the store to someone who could carry on what he has built. By passing up chain store offers the store can continue to operate. He can tell them that that he understands things won’t be exactly the same but he has taken great care to be sure the store is in good hands. Then he should introduce you.

The first thing you should do is thank the owner for the opportunity and let him know you will do everything you can to take care of his “baby”. Let the staff know that pharmacy is a relationship business and there is no way the owner could have been successful without a great staff. And there is no way you will be successful without the great relationships that the staff has with the patients. That is why it is important that everyone will be given an opportunity to continue in their roles. Emphasize, you need great relationships to be successful not only with the patients but also with you.

However it is also important that you do not box yourself in with false promises. Everyone wants you to say “Don’t worry nothing will change” for no one likes change except a wet baby. You want to be reassuring but you must be honest. It is better to say “I won’t stand here today and say that nothing will change because I want our relationship to be built on honesty and I simply cannot make that promise”. Let them know change may or may not come after you spend the next few weeks learning the business and what and who makes it successful. Tell them you want to meet with each of them individually over the next few days and you will ask them what they like about their jobs and what things would they change if they were the owner. Say “I may or may not agree with you but I promise you I will always listen”.

Finally, reassure them that they are an important part of the business and you need their trust and their help. Try to answer broad questions but stay away from individual issues such as what will me schedule be, are you offering the same benefits, etc. Let them know you will address those issues when you meet with them individually.
Continue reading
0 Comments

Think Bigger when Starting a Pharmacy

I am asked a lot, what is the difference between very successful pharmacy businesses and those that are just okay. My answer is always the owner thinks bigger. Your typical pharmacy is primarily retail and will do traditional marketing, provide the typical services, rely on great service and market to 2 or 3 mile radius. All these are important but the great pharmacies will go big and do things that are uncomfortable. Examples include:

·         Looking at the target market not just as a 2 mile radius but as a 10 or 20 or even 50 mile radius.

·         Seeing the customer as not only the patient walking in the door but also as the prescriber, hospital, facility, pharmaceutical reps, other businesses in the community, etc.

·         Not being afraid to seek out multiple lines of business, compounding, long term care, retail and specialty.

·         Owning multiple pharmacy locations not just in the local area but maybe hours away or even a full state or two away.

·         Creating programs specifically designed for a doctor’s office, hospital or other partner.

·         Focusing on one or two disease states to drive business from a large community of patients.

·         Having a call center to attract and solicit new patients.
Continue reading
0 Comments

Signup For Our Mailing List