Understanding the Foundations of Pharmacy Financial Health

As independent pharmacy owners know, there is much more to having a successful pharmacy than simply handing out prescriptions and consulting with patients. Although the pharmacy’s ultimate purpose is to improve people’s lives, a pharmacy owner’s business purpose is to keep their doors open and continue to serve patients. To be a successful independent pharmacy owner, an owner must also be a good businessperson.

In pharmacy school, operations concepts—such as how to review profit and loss (P&L) statements, balance sheets, or cash flow statements for a small business—are not part of the curriculum. Pharmacy schools provide meticulous training to help pharmacists become trusted experts in patient care and medication dispensing, but are typically lacking in providing the business acumen they may need.

Pharmacist checking data on computer / Sergey - stock.adobe.com

The Prescription for Successful Business

What is the prescription for becoming a good businessperson and running a thriving independent pharmacy? Just as when building a house, a business must have a solid foundation. That foundation lies in finances.

Understanding the financial health of the pharmacy is increasingly important for owners, as the industry is expected to continue to face external pressures. These include reimbursement uncertainty, slimmer margins, and inflation, among others.

Take Time to Reflect and Review

As pharmacy owners close out the year, it is the perfect time to conduct a financial analysis, check on the foundation of their business, and make adjustments to set the pharmacy up for a lucrative year ahead.

READ MORE: Differentiate Your Pharmacy With Unique Product, Service Offerings

For years, RxOwnership has used comprehensive financial analyses to help independent pharmacy owners navigate a variety of ownership transactions, such as opening a new pharmacy, buying a pharmacy, or creating a succession plan. In today’s pharmacy landscape, RxOwnership is using that same financial consultative approach but going back to the basics to help independent pharmacy owners understand and improve their pharmacy’s financial health.

During a financial analysis, the RxOwnership team reviews buying habits, payer contracts, the patient mix, and whether the pharmacy is maximizing revenue opportunities. To better evaluate the foundation of the pharmacy’s business operations, we start with the following questions:

• What is your payroll expense as a percentage of revenue?
• How many times do you turn over your inventory in a year?
• How much money do you have tied up in receivables?
• Which ancillary services do you perform to expand your revenue?
• What is your gross profit percentage?

This exercise is not about memorizing economic concepts. Instead, it helps our team explain to business owners how to interpret these results, as well as understand what levers to adjust that will change the results.

For example: Do pharmacy owners know that payroll and inventory are typically the largest expenses on the P&L? They are also known as controllable costs and are indeed the most controllable expenses. Any changes to these expenses (positive or negative) will affect the pharmacy’s bottom line.

Getting Set for a Successful 2024

Following each comprehensive analysis, the RxOwnership team will compare the pharmacy’s performance against national benchmarks and offer recommendations to improve the pharmacy’s operating performance. These recommendations might include using inventory management tools, using reconciliation services to improve accounts receivables, or expanding clinical services to generate revenue beyond the dispensing.

Since launching this offering in 2021, RxOwnership has conducted more than 400 financial analyses of independent pharmacies across the country. Our research data show that owners who engaged with RxOwnership and implemented suggested changes were often better able to increase their profitability.

No matter your path, RxOwnership is the partner to help strengthen the health of your independent pharmacy, so you can elevate the role you play in people’s lives.

Chris Cella is the national vice president of RxOwnership at McKesson.