Using a Budget to Build a Better Pharmacy Business

Understanding the financial side of the business is an important part of owning a pharmacy, as such having knowledge of cash flow, liquidity, and profit can ensure that a pharmacy owner has a clear view of their operations.

During the 2020 Pharmacy Development Services (PDS) Super Conference, held February 27-29 in Orlando, Florida, Dan Benamoz, RPh, founder and executive chairman of PDS, and financial expert Andy Tanner explained to attendees how they can expand their financial knowledge during the session “Improving Cash Flow by Managing Your Budget.”

“One of the things that I’ve noticed over the years was that I’ve never met anybody that did a budget and stuck to the plan who had cash flow problems,” Benamoz said during the session.

According to Tanner, cash flow problems are often a symptom of another issue within the business. Therefore, the ability to understand a financial statement and how a business operates is an important part of being a pharmacy owner.

“Your ability to behave how you want your business to look like, what your customers deserve is a huge deal,” Tanner said.

Tanner continued by explaining that budgets are more than what a pharmacy buys, sells, and what the expenses are.

“Our ability to make decisions based on data is key in the coming years,” Tanner said.

Benamoz also gave the 3 reports that make a financial statement:

• A balance sheet, or a “snapshot of a single moment in time.” This report contains assets (the materials that make up the pharmacy), liabilities (what a pharmacy owes), and equity (what a pharmacy owns).
• Sales, which can help a pharmacy owner determine gross profit. Sales minus the cost of goods sold will give gross profit and expenses subtracted from gross profit will yield net income.
• Cash flow, which includes the operational cash, such as expenses, income, investments, and financial cash flow.

To Tanner, every pharmacy owner should strive to “build a business that an investor would want to buy.” These reports can help show a pharmacy owner and an outside investor how the business is creating value and bringing in cash. He also added that profit and cash are not the same. Profit is the “theory of what might be,” and cash is what is “in the bank.”

“Understanding your cash that’s coming from operations, understanding your cash that comes in and out of from your investments, and understanding cash you use with debt and finance are the 3 places that you’re going to have cash coming in and out,” Tanner said.

Benamoz continued by explaining that being busy is not always the same method as being profitable. A pharmacy owner could look at filling prescriptions as a concrete goal, but Benamoz suggests that they may meet the same profitability by simply decreasing expenses.

Managing expenses, Tanner explained, is about decision-making when it comes to data, not simply a hunch. He mentions that pharmacy owners should ask themselves 3 questions when determining expenses: do you still need it, can you get it somewhere else for less, and is this a want or a need?

Furthermore, pharmacy owners can use their previous year’s profit and loss statement to begin creating their budget for the new year.

Tanner concluded that when pharmacy owners understand their financial statements and make financially intelligent decisions with that knowledge, they hold the key to changing their business.

References

1. Benamoz D, Tanner A. Improving Cash Flow By Managing Your Budget. Presented at PDS 2020 Super Conference. February 28, 2020. Orlando, Florida.