Positive cash flow is the key to running a successful pharmacy. Understanding your cash flow is key to knowing where your revenue is coming from and where it’s going. As a pharmacist, you may not have a financial background and the accounting jargon may be a little confusing until you learn how to review your financial statements. Learning to read financial statements will help you find opportunities to increase profitability and identify the gaps that could hurt your pharmacy. Once you know where to look for additional revenue sources and find hidden risks you will have better control over your financials.
Here is a breakdown of three core financial reports that will help you squeeze more cash out of your pharmacy business.
1. Understand your Profit & Loss Statements
Profit and Loss statements (also referred to as a P&L, income statement, or revenue statement) give you a snapshot of the net income of your business. That’s done by subtracting all of your expenses from the total revenue you bring in. The complexity of these statements varies by business. While a single pharmacy might have a straightforward and simple statement, an owner with multiple pharmacy locations may have an extremely complex statement. P&L statements can be generated to track income and expenses over any period of time. Most commonly, they are produced monthly, quarterly, and annually. A P&L statement allows you the opportunity to review your net income which is essential for making sound business decisions. You will also need a P&L statement if you plan to apply for a small business loan. Knowing these terms and understanding the insights they provide can help you operate a more profitable pharmacy. Read your P&L statement regularly for signs that you are on the right track or for warnings that you might need to make some adjustments. Compare and contrast your most recent statements with past statements for a better picture of your current standings and to help make informed decisions in the future.
2. Perform Trend Analysis
How much do you know about your sales trends right now? You probably wish you knew more about your sales and patients’ buying habits. The more you know, the more effectively you can manage your pharmacy. Performing sales trend analysis can give you valuable insight into the inner-workings of your pharmacy. Use your data to make informed decisions, like when to raise or lower prices on your products or to understand how your pharmacy has performed in a certain time frame. A correctly performed trend analysis gives you an idea about where to make necessary adjustments, so your whole business stays on track. Start with a year-to-year comparison of the last three years, using your end-of-year P&L statements and balance sheets. The year-over-year comparison will highlight if there are any areas of concern. Then start conducting a trend analysis on a quarter-by-quarter basis to fine-tune your financial forecast.
You can use trend analysis to help improve your business by:
- providing evidence to inform your decision-making
- identifying areas where your business is underperforming
- identifying areas where your business is performing well so you can duplicate the success
3. Budget Variance Report
How do you gauge the month to month health and budgets of your pharmacy? The answer is a Budget Variance Report. Variances are the difference between budgeted amounts and actual income or expenses. Use variance reports to make necessary changes in financial forecasts and monitor the performance of your pharmacy. Variance explanations might prompt an owner to put stronger financial controls in place or to reallocate resources. For example, some pharmacy owners might exceed budgeted amounts for marketing expenses because they feel the added spending will lead to a favorable variance in income.
By studying these financial reports, you’ll be able to understand the financial health of your pharmacy. When you understand the numbers, you’ll be able to adjust and create additional cash where it didn’t exist before. If finances aren’t your strong suite, then you’ll need to hire an accountant to analyze and explain the data to you. t’s worth putting in the time to understand or paying someone to help you understand.
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How can your pharmacy stand out? How can you make your place of business somewhere your employees want to come to every day? It’s time to connect the dots and help your independent pharmacy profits grow. It’s time you feel that work-life balance.
To help you get there, here are 3 things every successful pharmacy needs:
You’re a leader, but are you leading? Leadership requires a unique skill of inspiration and making your employees feel safe, secure, and confident about their jobs. Building a relationship of trust is the key. If your employees feel secure, they will want to work hard and go that extra mile to get things done. They won’t be afraid to ask questions and evolve -all while staying loyal to your pharmacy. Your employees are more than a group of people that works for you. You’re on the same team, working toward the same goals – and that requires mutual respect. You don’t want your team to come in and simply put in their time, counting down the hours until the weekend. Creating a culture through your brand will attract the right people and will encourage your employees to share the same dreams and goals. Building a motivated team is half the battle to the top.
The ability to stand out from the crowd is another crucial component of any successful pharmacy. There’s a reason why you started an independent business: you wanted to implement your own vision and bring innovative ideas to life — ideas that will satisfy the existing customer base, at the same time opening new revenue streams. Filling prescriptions is just one way to help patients fulfill their needs. Providing them with a great service and a motivational environment will build a trusting relationship, which in turn, will ensure customer retention. Your happy customers will soon turn into brand evangelists who will gladly promote your business because of how much it means to them.
Finally, making connections within your community is what makes a business skyrocket. You may not have put a lot of emphasis on networking when you were in pharmacy school or even working for a chain pharmacy. Owning an independent pharmacy is all about building strong connections: you don’t have to run through every bump in the road on your own. Getting together with like-minded individuals will help you gain a different perspective, as well as encourage you to create and implement new ideas.
Knowing that you’re not alone is a good feeling to have. Sharing mutual problems, giving and taking advice will help you strengthen your pharmacy’s strategy and vision. You’ll have the advantage of avoiding mistakes other pharmacy owners have already made. You’ll gain help in the areas that are most vulnerabile. Additionally, you’ll learn industry secrets early. In the pharmacy industry it’s not uncommon for a drug price to go up, or for certain insurance carriers to lose coverage of some drugs. By connecting with others in the same field, you can obtain this information first and use it to be proactive with your pharmacy business.
Your goal should be to stay ahead of the game, always. To live, breathe, and evolve, your pharmacy business you will need to lead, innovate and connect. It’s not just about filling prescriptions and counting profits. It’s about forming relationships with other industry leaders to help you learn and grow. It’s about being at the forefront of new ideas and the first in your community to dive into fresh opportunities.
Ultimately, it’s about creating an environment that your team wants to be a part of, where it can thrive and the desire to do the best type of work all the time just for your pharmacy exists. You may have already been in business for a few years, but your strategy doesn’t stop just because new business has officially started.
There you have it! These three tools will help you evolve your pharmacy to its fullest potential and keep you ready for the future.
Ready to take your business one step further?
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