When it comes to effective cash flow management, pharmacies face some unique challenges. From managing inventory to navigating reimbursement structures to handling operational costs to complying with regulations, there are several factors that make it harder to gain control of your cash flow. That’s why, in this blog, we’ll talk about nine strategies to improve cash flow at your pharmacy. These will help you increase pharmacy profit, remain competitive, and make smart business decisions.
Strategies to improve cash flow in your pharmacy
1. Improve inventory management
Managing inventory levels is key to effective cash flow management. If you overstock on pharmacy items, you end up paying extra for storage costs. And if sales patterns aren’t quite as expected, you run the risk of stock expiring.
Instead, pay attention to stock movement and sales data to forecast how much inventory you’ll need. During seasonal shifts, for instance, there tends to be a spike in colds and allergies, so it makes sense to stock up on OTC cold medication and antihistamines beforehand. You can also implement minimum and maximum stock levels so that you neither run out of medications nor end up with too much surplus. An inventory management software can come in handy here for monthly cash flow analysis, inventory visibility, and timely restocking alerts.
2. Monitor cash flow regularly
Often, pharmacies become aware of cash flow problems only after they are already in the red. This can be easily avoided by regularly monitoring cash flow with the help of accounting software so that you can identify problems early on and take proactive decisions to fix them. We’d also recommend partnering with an accountant who can help you dive deeper into your cash flow patterns and spot areas for improvement.
3. Focus on high-margin products
Like with any product, not all medication options are created alike in terms of the margins you get on them. We recommend analysing your current product line, identifying which items give you the best profit margins, and seeing where you can swap out certain OTC medications with their higher-margin counterparts.
Of course, the highest priority is always ensuring your patients have access to the medication they need. If swapping out your products isn’t the best option, consider offering extra services along with the medicines you sell. For instance, you could offer general health consultations, allergy tests, blood tests, or home delivery of medication as paid services.
4. Cut back on unnecessary expenses
As with any business, it’s important to understand the operational costs of running your pharmacy and identify ways to manage cash flow. Chances are, there’s at least one cost you’re currently incurring that you could cut back on. For instance, you can negotiate with suppliers to give you a better deal on office utilities or opt for more energy-efficient lighting and fixtures. For office supplies, you can purchase in bulk for a lower price or explore digital alternatives to printing.
And that’s not all. Take a look at any subscriptions you have and evaluate whether they provide you with enough value to justify the cost. You should also review your insurance policy and look for more competitive quotes if possible. Moreover, remember to keep reevaluating your expenses so that you’re never spending more than you need to.
5. Outsource non-core tasks
Outsourcing is one of the most effective strategies to improve cash flow. Tasks like bookkeeping, payroll, and IT support lend themselves easily to outsourcing and thus free up your pharmacy team’s valuable time for core functions like attending to customers. Outsourcing also gives you access to dedicated expertise at a much lower price than if you were to hire in-house staff. Remember to do your due diligence and choose a reliable, highly-rated partner before outsourcing your pharmacy accounting functions.
6. Streamline payroll processes
Running payroll accurately and on time is key to ensuring employee satisfaction and keeping your cash flow up to date. You can easily run payroll with the help of dedicated software that automatically calculates all deductions, bonuses, taxes, and other extras when issuing payroll slips. The best payroll software is updated with the latest UK employment laws so that you’re always compliant with your cash flow management process. This is also a task you could look to outsource to a reputable supplier.
7. Maximise tax deductions
Did you know that there are several tax deductions you might be eligible for as a pharmacy? Salaries and benefits, business equipment, rent and utilities, and marketing costs are all items you can claim deductions for, allowing you to cut down your expenses and optimise cash flow. Your accountant can help you identify and claim all relevant expenses before your next tax return.
8. Review pricing strategies
As with any business, it’s vital to periodically review your pharmacy’s pricing strategies so that you increase pharmacy profit while continuing to serve your customers. There are several strategies you can opt for, including cost-plus pricing, loss leader pricing, competitive pricing (for frequently bought items), value-based pricing (for bundled products), and premium pricing (for high-margin items). When choosing a pricing strategy, be sure to keep an eye on customer preferences and market patterns so that you make an informed decision.
9. Incorporate efficient billing practices
Smart billing practices can have a positive impact on cash forecasting and budgeting by avoiding errors, making the payment process easier for customers, and reducing unnecessary delays. As far as possible, use an electronic billing process with invoices that clearly lay out the payment terms and conditions. Offer your customers a range of payment options (credit card, PayPal, direct debit, etc), and be sure to follow up on any overdue payments to reduce delays promptly.
Final words
An optimised cash flow is key to ensuring the financial health of your pharmacy. By incorporating these cash flow strategies and tailoring them to your specific needs, you can gain significant control over your finances. At 3E’S Accountants, we have decades of experience helping pharmacists with tracking cash flow and would be glad to do the same for you. Reach out today to book a consultation.
