Cash is power, particularly in any pharmacy. With tight boundaries, DIR prices, generic sufficient rate payments, and the delay in getting third-party fees, it’s easy to see yourself faced with cash flow requirements.
Although numerous factors may offer to tight cash flow, the ensuing three red flags are glaring.
Common Accounting Fundamentals
Without a central accounting arrangement built with integrity, and business metrics used to analyze cash flow mostly have little to no cost. How can you decide what is creating feeble cash flow if you don’t know what the metrics are and how the figures settle on your financial declarations? If you don’t know where you are, then you cannot assume what the effects are that could affect your cash flow. If you are not sure in your accounting system and are facing cash flow difficulties, bringing those significant numbers into focus should be your first course of action.
Low Gross Margin
Once the accounting fundamentals are in place, it’s all about gross margin. How does your margin stack up against your rivals in the business and with national averages? Margins that are below the averages without a valid reason are vital subscribers to poor cash flow. Because the “cost of goods sold” is your most significant expense, how well you buy is a critical metric.
Boundaries are immediately compared with inventory; lower inventory administration can be a contributor. Obstacles with adjudication can result in the drugstore facing delays in receiving payments from third-party payers, or worse, billing below what third parties typically pay.
High Payroll and Benefits Expenses
Outside of the cost of goods sold, payroll and profits are your most essential investments. Pay consideration to your payment as a percent of revenue. Are you above or below average for your drugstore type? Above-average payroll and benefits will eat right into cash flow. Determine what the average salary is for your size and type of medicine and work from there.
Do you earn money on those extra hours on Saturday or Sunday? Are your physical operations maximizing your salary bills? Your drugstore rivals running lean payroll are feeding their bottom line and cash flow.
Those are three common red flags that point to poor cash flow. Surprisingly, another area of poor cash flow is growth. It seems odd, but constant improvement in a drugstore means a more significant cost of goods obtained. That needs more cash flow. The twist is that your wholesaler bills are regularly due before you collect from third parties.
This is an essential cash flow issue inside a drugstore. If you find yourself in this situation, you will want to assess your liabilities and debt load to find the right ways to help finance your growth. If any drugstore owner is not accurate, a pharmacy can grow into failure.
Catching a step back, drugstore purchasers need to know how to track and benchmark their cash flow. Affecting your accounting fundamentals are in place; the “current ratio” will be your go-to cash flow key performance indicator.
To Sum Up
You find that by dividing your current assets by your new responsibilities. Conventional analysis of your existing assets (mainly cash, receivables, and inventory) and current liabilities is critical. You want to strive to maintain a ratio above 2:1, and the higher that rate, the better your cash flow will be.
Any ratio below 2:1 is a good sign of difficulties in your drugstore.
Stay energetic with strong accounting fundamentals, and improve your knowledge of your drugstore purchasing, record, and payroll to turn these red flags into green flags.