Where did the money go?
May 17, 2010
WITH the current volatile trading
conditions, managing cashflow in the
pharmacy is vital because external
factors often restrict cash when it is
most needed.
Previously I highlighted the need
for timely and accurate reporting of
financial information. The most
important report is the cashflow
statement - it highlights where the
money went during a particular
period. You use information in the
profit and loss and balance sheet to
determine the cashflow and
therefore it should be run and
reviewed at the same time (i.e.
regularly). The process should be
automated to feed off other reports
to save time and ensure accuracy.
Many pharmacies over the last six
months in particular have found cash
tight at times. Assuming the
pharmacy is profitable, the five big
items restricting cash are:
· Too much stock not selling fast
enough;
· High tax commitments based on
prior year’s profit payable now while
trading conditions have flattened off.
· Suppliers reigning in trading terms
(say 60 days to 30 days);
· Repayment of principal off loans; &
· Proprietor drawings.
On several occasions I have worked
through the report with clients and
they often do not realise how much
they have drawn during a year.
You also need to use the report to
forecast what will happen to the
pharmacy with the announced price
cuts to the different formularies
including the effect on stock values,
invoices payable and flow on effect
from gross margin movements.
The cashflow statement and
forecasts are vital for pharmacies
carrying large trade or bank debt.
Banks will want to know you are on
top of the cashflow - and pharmacies
need to be nimble enough to react
quickly to internal and external forces
affecting cash, understand where it
is tied up and how to release it.
Norman Thurecht is an
expert in pharmacy
finances, having been
with JR Accountants’
Pharmacy Division
since 2003. More info
nthurecht@jr.com.au.
This week’s contributor is Norman
Thurecht from JR Pharmacy Services.
The above article was sent to subscribers in Pharmacy Daily's issue from 17 May 10To see the full newsletter, see the embedded issue below or CLICK HERE to download Pharmacy Daily from 17 May 10
