• 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

Owen BonDurant, President: Owen is 2nd generation (his Dad is part owner in a 9 store pharmacy chain) in the pharmacy business and has worked in independent pharmacies since before he can remember. He has worked in almost every role a small pharmacy has to offer from cleaning the bathrooms, working as a pharmacy technician, marketing, starting and running a durable medical equipment company and managing employees. Owen graduated from Miami University of Ohio with a degree in marketing and a minor in management information systems (MIS). After graduating he briefly worked for Western and Southern Financial Group before deciding he wanted to return to the pharmacy industry where he started medical equipment business for a chain of 9 independent pharmacies. From there he moved to Chicago and started working for Experian QAS and for the last 7 years has been selling software to major retail organizations along with managing the Midwest sales team. Recently the itch to come back to the pharmacy industry, as it truly is all he knows, and Independent Rx Consulting was born.

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!
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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
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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.
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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.
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What should be in a Pharmacy Business Plan?

You probably read a lot about if you should even have a business plan or not. We think you should but not like those taught in academia. We have a plan for our businesses every year, they help us have a goal, understand how we are going to execute on that goal and what we need to reach the goal. So if you are starting or buying a pharmacy you should probably have a plan and here are our thoughts on what should be included:

1.       Goals: what are your 1, 2 and/or 5 year goals?

2.       New Customers: How are you going to gain new customers? In a pharmacy you always have to be gaining new customers as people move and pass away and at a minimum you have to replace them.

3.       Customer Retention: How are you going to retain customers? You can spend all this time gaining new customers but if you lose too many all that effort goes to waste.

4.       Products & Services: What products & services are you going to provide?

5.       Personnel: How many people do you need to operate your business and execute on numbers 1, 2, & 3 above?

6.       Tools, Technology & Equipment: What other tools, technology, and equipment do you need to reach our goals and execute your plan?

7.       Operations: how are you and your team going to deliver on the above? What process are good and which if improved will make the largest impact on your goals.
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