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

Supplement Accounting Financials with Pharmacy System Data and Reach Your Goals

Many of you have worked at large chain pharmacies. At these organizations managers provide daily and weekly reports such as tech hours used, number of new patients, revenue per prescription, gross profit per prescription, Rx filled per hour and more.

But in the independent pharmacy business we rarely find an owner who uses any data to supplement their monthly financials. The chains use all of this data for a reason. These data points are the key performance indicators directly impacting the monthly financials. Below are some other examples not mentioned above:

·         Prescriptions filled for week

·         Gross Margin for week

·         Current Inventory

·         Slow Movers on shelf (inventory been on shelf over 100 days)

·         Anything purchased over $1,000 that day

·         Pharmacist hours used

·         Number of compounds filled for week

·         Brand vs Generic percentage

·         Top payer report by Rx filled and by revenue – include gross profit

·         Top drug report by Rx filled and by revenue – include gross profit

We would like to challenge you to make goals for the month or quarter and then track data points to give you a regular indication if you are moving towards those goals.
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The Importance of Systems and Process in a Community Pharmacy

Pharmacy Owners never seem to have enough time. They work the bench, pay bills, manage inventory, pay bills, make deliveries, make sales calls, etc. The ultra successful owners, however, do none of these jobs they only oversee them. Essentially they work on their business rather than in their business.

These “ultra” successful owners can do this because they have systems in place for every little task or responsibility that has to occur in the pharmacy. Whether this is data entry, filling up vials or accounting practices. Having systems allows them to let go of the responsibility, assign to someone else and easily train that individual on how to do the role or task.

Now this is not easy, it takes focus, time and will make you uncomfortable. But mastering this will allow you the pharmacy owner to have the freedom you hoped to have when you got into business for yourself. Plus it will be the biggest driver of growth your business has ever had as it will allow you time to grow the business.

Give it a try, trust that creating systems for everything is one of, if not the most important, roles a business owner can have.
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The Importance of Med Sync for Independent Pharmacies

This article maybe a little late to the game but as consultants and accountants to the independent pharmacy industry we view the operations of many more pharmacies than the average person and have noticed the focus of medication synchronization has dropped off. It was the “popular” subject at every tradeshow and at nearly every pharmacy for several years but now we do not hear it as much.   We are also not seeing the % of patients on med sync rising year on year as much as we once did.

Medication Synchronization should be a continued focus in almost every independent pharmacy. The reason why, it is the only process that impacts the 3 most important levers in a pharmacy, revenue, inventory/cost of goods sold and payroll. Med Sync increases revenue because the patients on Med Sync are more likely to get all their refills on time, it allows you to practice a true just in time inventory, whereby you order inventory when the patient needs improving your cash position and it reduces payroll in several ways (reduces number of inbound calls, reduces number of check outs/deliveries and reduces amount of separate fills you have to data entry, count, bag, etc.).

With lowering reimbursement pharmacies have to be more efficient and the process that makes the largest impact on efficiency is med sync. So, if you have 30% of your patient base on med sync we encourage you to strive for 60% and if you are starting or buying a pharmacy make med sync one of the priorities when you take over!
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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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