Cash flow can be controlled. Here are 10 tips to help every independent pharmacy owner.
If there’s one thing that can keep independent pharmacy owners up at night, it’s cash flow. While profitability gets all the glory, cash flow is the unsung hero (or villain) of your business. Without steady cash flow, even the most profitable pharmacies can find themselves in trouble.
The good news? Managing cash flow doesn’t have to be a guessing game. With a few smart strategies, you can gain control over your finances, reduce stress, and set your pharmacy up for long-term success.
Let’s dive into actionable tips to improve your pharmacy’s cash flow—starting today.
1. Understand the Difference Between Profit and Cash Flow
Profit is what’s left over after all expenses, while cash flow is the actual movement of money in and out of your business. You can be profitable on paper but still struggle to pay your bills if cash isn’t flowing.
Key Action:
- Regularly review both your profit-and-loss statement and cash flow statement to get a complete picture of your financial health.
Actionable Tip: Set aside time monthly to analyze your cash flow trends and identify any recurring bottlenecks.
2. Prioritize Your Accounts Receivable
Late payments from insurance companies or other third-party payers can wreak havoc on your cash flow.
Strategies to Speed Up Receivables:
- Monitor for unpaid claims
- Know your state laws regarding timely payments
- Consider the impact your PSAO has on holding payments and your cash flow
Actionable Tip: Use pharmacy management software to track unpaid claims and automate reminders.
3. Optimize Inventory Management To Boost Cash Flow
Inventory is the largest drag on your pharmacy’s cash flow. Overstocking and mismanagement will tie up valuable cash. On the flip side, understocking can lead to pissed off patients.
How to Optimize Inventory:
- Use computer intelligence to help manage stock levels (think Datarthm)
- Conduct regular inventory audits to eliminate dead stock.
- Leverage RPh To RPh systems like PrimeRx Market or EzriRx to offload unmoving inventory
Actionable Tip: Consider moving to a just-in-time inventory for expensive brands or generics. Let patients know to request a 1-2 days before they need it or put them on a structured refill program (i.e. synch)
4. Manage Your Payables Wisely
Delaying payments to vendors can help conserve cash, but it’s a balancing act to avoid damaging relationships.
Best Practices for Payables:
- Take advantage of grace periods and pay attention to due dates and late fee dates.
- Ask for a better due date from any of your suppliers or vendors
- Maintain a schedule to prioritize essential payments like payroll and rent.
Actionable Tip: Leverage secondaries like RxCherry Pick, Real Value Products, EzriRx, Matrix Distributors, BluPax, or JamsRx for way better payment terms than your primary.
5. Diversify Your Revenue Streams
Relying too heavily on PBM reimbursements is a risky game. Adding new revenue streams can stabilize cash flow.
Revenue Ideas:
- Offer cash-based services like OTC testing for vitamins, hormones, and other health factors.
- Sell high-margin wellness products, supplements, or medical equipment.
- Partner with local businesses for corporate wellness programs.
Actionable Tip: Market these services aggressively to ensure patients know about them.
6. Keep an Eye on Operating Expenses For Better Cash Flow
Small leaks can sink a big ship, and the same goes for your expenses. Getting this under control is a fast way to boost your profits without paying consultants or investing in fancy software.
Where to Look for Savings:
- Utility bills: Switch to energy-efficient equipment or renegotiate contracts.
- Shop Around: Been with the same vial company for 10 years? It might be a good time to shop around for all of your regular consumables.
- Payroll: Optimize staff scheduling to match peak hours without overstaffing.
Actionable Tip: Review expenses quarterly and eliminate unnecessary or underperforming costs.
7. Build a Cash Reserve
Unexpected expenses or slow reimbursement cycles can strain your finances. A cash reserve acts as a safety net. Here’s a great way you can boost OTC sales so you can build your cash reserves faster.
How to Build It:
- Set aside a percentage of your monthly revenue.
- Use one-time windfalls (like tax refunds or supplier rebates) to grow the fund.
- Aim for 15-30 days of operating expenses in reserves.
Actionable Tip: Treat your reserve like a sacred account—use it only for true emergencies.
8. Consider Financing Options
Sometimes, a short-term loan or line of credit can help you bridge cash flow gaps.
Financing Tips:
- Explore pharmacy-specific financing options from lenders who understand your business.
- Use lines of credit for seasonal fluctuations rather than long-term expenses.
- Avoid high-interest loans or cash advances unless absolutely necessary.
Actionable Tip: Credit cards like Amex Plum can be a huge help with cash flow without incurring expensive interest from day 1.
9. Monitor KPIs for Cash Flow Health
Tracking key performance indicators (KPIs) gives you early warnings of cash flow issues.
The 3 KPIs are the most critical to watch:
- Inventory Turns: get to 24++
- Payroll Ratio: Get to below 13%
- Expense Ratio: Stay below 19%
Actionable Tip: Track monthly and get these to GREEN ASAP to boost your cash flow.
10. Work with an Expert
Managing cash flow is complex, and a professional can provide valuable insights and strategies.
What to Look for in an Advisor:
- Experience with independent pharmacies.
- Understand how to calculate pharmacy KPIs correctly.
- Knows more than just reporting, and can help you fix your KPIs.
Actionable Tip: Download our KPI tracker to calculate and track yourself.
Final Thoughts
Cash flow management isn’t glamorous, but it’s the lifeline of your pharmacy. By staying proactive, diversifying your revenue, and keeping a close eye on expenses, you can ensure your business stays healthy and resilient.
Start with one or two of these tips and build from there. Small, consistent actions can make a big difference—and let you sleep a little better at night knowing your finances are under control.
Need Some Help Getting Your Cash Flow Under Control?
At Pharmacy Badass University, we don’t just teach you cash flow strategies—we help you implement them. Our daily implementation calls with Coach Mike, world-class trainings, and team training resources make it easy to get your pharmacy on the right track and put more cash into your bank account.
Join Pharmacy Badass University today and learn powerful strategies to put to $10K/month in cash flow back into your business.
