Five Tips To Improve Pharmacy Bookkeeping
As the owner of one or many pharmacies, you may have your share of struggles with bookkeeping. There are a surprising number of moving parts, so it’s not uncommon for bookkeeping to be backlogged and full of errors.
Bookkeeping is often a nagging task in the back of one's head, and when left undone for months at a time, one might not even know where to start to get one's books back on track.
You may have a part-time bookkeeper or be doing it yourself. Or perhaps have considered working with an online bookkeeping firm. Whichever route you’re taking, you’ll want to ensure you find someone who understands the ins and outs of bookkeeping for pharmacies.
We’ve gathered a list of tips to help you better understand your pharmacy’s bookkeeping needs and set up the right bookkeeping system to keep your books up-to-date.
1. Choose the right accounting tools & technology
Gone are the days of spreadsheets and manual bookkeeping. Many businesses are adopting modern cloud-based accounting software like QuickBooks Online and Xero for easy collaboration and integration with other accounting tools. These software have the general accounting functionalities needed by most pharmacies and are user-friendly (even for those without much accounting knowledge).
Regarding accounting tools, consider using an expense management tool like Receipt Bank. Receipt Bank allows you and others on your team to easily take pictures of your invoices and receipts while you’re on the go. Receipt Bank will then extract the key information on your receipts and create a transaction that you can export to your accounting software, reducing the need for manual data entry while storing images of your documents in the cloud.
Keeping receipts is important for all business owners, so it is best to have a paperless workflow in place to make sure all your receipts and documents are stored in the cloud and easily retrievable.
2. Think through your chart of accounts
In order for your bookkeeping to give you meaningful insight, it is important to spend the time upfront considering how you want to organize your financials. Your chart of accounts will allow you to measure and report on the right things on a monthly basis.
For a pharmacy, direct, non-management labour should be included in your cost of goods sold (COGS) accounts. Product costs should also be reflected in your COGS account. It is always a good idea to seek professional advice from an experienced bookkeeper or accountant before setting this up.
Tip #3: Record revenue accurately
Pharmacies often collect revenue from insurance billing after the prescription has been filled and delivered. It gets even more complicated when you receive the customer’s portion of the payment immediately. When should you record the revenue earned?
Pharmacies are required by the CRA to record revenue and expenses on an accrual basis. Therefore, it is important for you to capture your pharmacy’s revenue based on the transaction's date, not when the cash payment hits your bank account. Read more about strategies to improve cash flow for your pharmacy.
Capturing your revenues based on the transaction date also accurately reflects your business’s performance over a given period.
4. Leverage your supplier platform for bookkeeping data
Supplier portals, like McKesson’s PharmaClik, can be used to obtain key information like invoices and billing information that is necessary for the bookkeeping process. You can minimize errors and streamline your billing process by integrating your dispensary with your front-of-shop systems and syncing them to your accounting software. You should also make sure that you’re comfortable navigating these platforms and reviewing their different reporting options to meet your reporting needs.
5. Set up proper tracking for multiple locations
If you’re operating more than one pharmacy, understanding the performance of each location is essential. A consolidated view of your books will not be as useful.
Instead, leverage the class or location tracking functionality in your accounting software. This will give you a clear picture of the financials for each pharmacy location. That way, you can compare all your locations and find ways to improve each pharmacy.
Whether you’re doing your own bookkeeping or working with an online bookkeeping firm, these tips will help you better understand the ins and outs of your pharmacy’s bookkeeping and know what to expect from your bookkeeper.
Strategies to Improve Cash Flow for Your Pharmacy
By improving your cash flow, you will always be able to cover your expenses, pay your employee’s wages and ensure that your patients can access 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 (COGS) 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 on order 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 must also 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 and which 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 require patients to make payments upfront. This will help reduce your accounts receivables and improve your overall cash flow. Be sure to monitor the sales performance of these products, as purchasing them increases money owed to suppliers and thereby increases your accounts payable.
3. Monitor your cash flow regularly
To improve your cash flow, you need visibility into when and how much money is entering and leaving your business.
You can review your cash flow statements monthly 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 weekly or bi-weekly.
4. Time your payments properly
Timing your payments is essential to maintain the health of your cash flow. 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 save your business money in the long run, boost your bottom line, and maintain good relationships with 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 late fees arise after the 15th, you have a grace period of 14 days to pay the invoice without incurring any penalties.
If your pharmacy's cash flow is tight, you should try to pay your invoices as late as possible but before the late fee occurs. This can significantly affect 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 sits 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 how quickly your receivables convert into cash.
6. Cut back on unnecessary expenses
Having unnecessary expenses can harm the health of your pharmacy's cash flow.
As a pharmacy owner, you should closely review your P&L statement every six months to identify any expenses you can cut back on. For example, pharmacies use a great deal of ink and toner and often order through their current suppliers without giving the expense much thought.
Instead, you should continue to shop around to see if other retailers can 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 your pharmacy's financial health, 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 ensure 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 outsourcing, Enkel is here to help. We can assist you with your bookkeeping and payroll needs and ensure your pharmacy stays focused on providing the best possible patient care. For more information on how we can help your pharmacy, contact us today.
At Enkel, we have experience working with pharmacies across Canada and managing their bookkeeping and payroll functions. Contact us today to learn how we can help you get your pharmacy’s books done right!
