I don’t know about you but when I was in school no one ever showed me how to review a P&L, Balance Sheet and Cash flow statement for a small business. I went to business school and they did outline what each statement was and what they generally should look like. But they never outlined how to use them to make decisions. And even if they did they most definitely did not outline how to use financials statements for a pharmacy. Plus financials tend to be sensitive information so we as owners never discuss them with other owners so are you reviewing them correctly?
So we thought we would provide some thoughts.
Income Statement (Profit & Loss)
- Revenue – we always want to see how is revenue trending over last month, quarter, 6 months, year. Is it going up, is it going down. What is causing this trend. Also how is revenue compared to the previous year’s revenue? Typically we also will see revenue up for 1 month then lower for 2 months. Is this trend continuing? Does this month align with our trends?
- Cost of Goods Sold (COGS) – again, how is it trending for past month, quarter, 6 months, year? How does it compare to the same month last year? How is the trend, is it consistent with last year or previous few months? What is causing the up or down trend? Did you buy too much, did your mix change?
- Expenses – the key expense we track is payroll. It makes up twice the cost versus all the rest of the expenses combined. How is this expense trending – up, down, the same? Were there 3 payrolls in that month or was someone on vacation causing double the payroll?
- Other General Expenses – We then review the rest, is any expense continuing to increase, can you reverse that?
- Debt Payment is not on the P&L but will be shown on the cash flow statement – don’t forget to add that into the overall picture.
- On the balance sheet we want to see how has inventory changed. Has it gone up or down?
- Second we look at Accounts Receivable, is it going up or down. These two factors are important as they directly impact how much cash we kept or did not keep.
- Then we look at Accounts Payable – has that increased or decreased? This impacts our cash so we need to know.
Now that we have done all this we have to do something about it. If payroll is up, why and what am I doing next week to correct? If sales are down compared to last year, am I not marketing, or is my marketing no longer effective? Don’t over think the financials, find key areas to track and then do something when you see something.
At IRx Consulting we are Accounting experts and offer a comprehensive Pharmacy Accounting and Management service with a suite of complimentary services including Data Dashboards, Payroll & Human Resources and Pharmacy Management consulting.