Understanding the importance of pharmacy financials through the pandemic
Now more than ever, keeping your pharmacy’s financial statements and records up to date is critical for your business’ success. As access to coronavirus relief continues to become available, having updated financial documents on hand will likely be the key to your pharmacy’s business continuity and financial recovery plan.
More than likely, you probably got into pharmacy to help patients, not work through financial spreadsheets. However, you can’t ignore the finances that keep your store in business. All pharmacy owners must have a basic understanding of how to maintain the economic health of their pharmacy practice as well as how to improve its financial performance. Preparing and reviewing your financial statements regularly can help you understand how your store is performing today so that you can make necessary adjustments to maximize profitability.
The three financial statements necessary to know the financial health and outlook of your business are: the income statement (often referred to as the profit and loss statement), the balance sheet, and the cash flow statement. Not only do these documents help pinpoint areas of improvement and opportunity in your business, but they are necessary when taking out a loan or selling your business.
Here’s what you need to know about these key financial documents:
What is it? The income statement can also be referred to as the profit and loss statement, or even simply as P&L. Whatever the name, this document provides a look at your pharmacy’s revenues and expenses over time in order to show your net earnings. Positive net earnings are a profit while negative net earnings are a loss.
How can you use this document? Reviewing your income statements will allow you to see how your business is trending financially. It is best to keep these financial documents readily available to assist you in making good business decisions.
What is it? The balance sheet provides a snapshot of your assets and liabilities – and therefore your pharmacy’s net worth – at a single point in time.
How can you use this document? If your pharmacy is healthy, your assets will demonstrate that you’ll be able to pay your bills and invest in providing excellent service for your patients. On the other hand, if you have more liabilities than assets, these could be markers for potential cash flow challenges or other speed bumps. It’s essentially a sign that you will have a hard time keeping your head above water.
What is it? The cash flow statement summarizes what your finances are for day-to-day operations. In other words, it captures what pays the bills.
How can you use this document? The cash flow statement shows where your store’s money is coming from and where it’s going. From the outside looking in, the cash flow statement will show lenders whether your pharmacy is a good investment or not. It allows lenders to determine whether you have enough cash on hand to operate the business while paying your debts.
Best practice tip: Pharmacy owners should complete a full financial checkup at least once a quarter. Additionally, we recommend checking key indicators on income statements and balance sheets for early warning signs every month.
While keeping financial records up to date may be your last priority during the ongoing global health crisis, having updated financials on hand may help you in securing loans and grant money to tide you over until the crisis passes.
If you are considering selling your pharmacy, you cannot do so without updated financial statements. This is even more relevant during the current COVID-19 pandemic. Any potential buyer will require at least three years of financial statements including year–to–date financial information. Additionally, buyers will want to ensure the year-to-date performance is just as strong or better than previous years. Lenders will also require recent financial statements when considering acquisition financing for the pharmacy.
Now that you’ve got the basics down for a better understanding of how your pharmacy is performing financially, it’s time to make informed, strategic decisions. Partner with experts who truly understand the industry and can help you make the best decisions for your pharmacy. McKesson’s RxOwnership® program offers various tools and resources for buying, selling or starting a pharmacy via RxOwnership.com and a team of expert regional ownership advisors. Our team can help you conduct financial reviews of your pharmacy so that you can plan for your pharmacy’s success.