As a pharmacy owner, your number one priority is providing the best possible care to your patients.
Your second priority should be managing the health of your cash flow. Cash flow is the lifeblood of your pharmacy business. It will allow you to ensure you can afford to have sufficient stock on hand and invest appropriately into your business.
By improving your cash flow, you will always be able to cover your expenses, pay your employee’s wages and ensure that your patients have access to the medications they require.
1. Improve your inventory management
Inventory is usually one of the most significant expenses for a pharmacy, and you don't want to have too much cash tied up in your inventory. You need to manage your inventory for long-term cash flow stability actively. You can reduce your inventory spend by following these tips:
Tip #1: At the end of the day, before sending your order, determine the number of prescriptions you've dispensed that day and what the Cost of Goods Sold is.
Ideally, if you want to decrease your inventory spend, you should make sure your order for the next day is lower than the cost of goods sold that day. If it is higher, then you are increasing your inventory spend. Over the course of a few days, this can make a significant difference.
Tip #2: You also need to know your patient's buying habits. By knowing when refills are due and what quantity of medication is required, you can purchase the correct amount of inventory at the proper time.
Tip #3: Review your inventory levels frequently to see which items are sitting on your shelf for extended periods of time and which ones are moving too quickly. You want to increase your quantities of those selling fast and decrease the amounts of those that are not.
2. Expand your retail products to non-OTC items
Selling non-over-the-counter products like supplements, skincare products, and other sundries can help you boost your cash flow.
Most insurance plans usually do not cover these products and therefore require patients to make payments upfront. This will help reduce your accounts receivables and improve your overall cash flow.
3. Monitor your cash flow on a regular basis
To improve your cash flow, you need to have visibility on it to know when and how much money is coming in and out of your business.
You can review your cash flow statements on a monthly basis to determine if your pharmacy has sufficient cash to pay all of its expenses. If your cash flow is tight, you might want to consider reviewing it on a weekly or bi-weekly basis.
4. Time your payments properly
Timing your payments is essential to ensure that the health of your cash flow is maintained. Depending on your cash flow situation, you can try one of two techniques:
- Pay your suppliers early to maximize your early payment discounts. If your pharmacy has sufficient cash flow to pay off your invoices early, you should consider this option.
This can mean bringing in significant savings to your business in the long run, boosting your bottom line, and keeping a good relationship between you and your suppliers.
- Pay your suppliers as late as possible. There is usually an invoice due date and a date that the late fee occurs.
For example: if your invoice is due on the 1st, but the late fees arise after the 15th, this gives you a grace period of 14 days to pay the invoice without incurring any penalties.
If your pharmacy's cash flow is tight, then you want to try to pay your invoices as late as possible, but before the late fee occurs. This can make a significant difference in your cash flow, especially if you have other more pressing obligations to meet, such as payroll.
5. Follow up on your receivables
Often, it can take a while for insurance providers to reimburse your pharmacy for claims that have been submitted. It can also take a few days for the cash from credit card providers to hit your bank account. If your money is sitting in receivables for too long, it can lead to cash flow issues.
By monitoring your receivables weekly or monthly, you will be better able to follow up promptly on denied claims or late payments. You should also keep a close eye on Days Sales Outstanding to see just how quickly your receivables are converting into cash.
6. Cut back on unnecessary expenses
Having unnecessary expenses can be a hazard for the health of your pharmacy's cash flow.
As a pharmacy owner, you should review your P&L statement in close detail every six months to identify any expenses that you can cut back on. For example, pharmacies go through a great deal of ink and toner, and often you will continue to order through your existing supplier without giving it much thought.
Instead, you should continue to shop around to determine if other retailers may be able to provide you with the same goods at a lower price.
7. Outsource non-core tasks
Outsourcing all non-core tasks is another great way to help increase cash flow and reduce your pharmacy’s expenses. Tasks such as bookkeeping and human resources can be outsourced without compromising on quality. Plus, you will save a significant amount of money since you won't need to hire in-house staff and therefore won't have to pay for their deductions, benefits, and more.
When it comes to managing the health of your pharmacy, monitoring your cash flow situation should be one of your main priorities. Being aware of the cash that flows in and out of your business will go a long way towards ensuring you have sufficient resources to cover your expenses and manage the day-to-day costs associated with your pharmacy.
If you are seeking more ways to manage your cash flow or would like to minimize your expenses by taking advantage of outsourcing, Enkel is here to help. We can assist you with your bookkeeping and payroll needs and ensure that your pharmacy stays focused on providing the best possible patient care.