14 Strategies To Improve Pharmacy Cash Flow

14 Strategies for Improving Pharmacy Cash Flow

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Cash Is King. Get your pharmacy cash flow reigning supreme.

I have put together 14 proven strategies to help independent pharmacy owners improve their cash flow. WARNING – this is long but well worth it. These are in no particular order since every pharmacy is different, and the choke in the cash flow hose is different for everyone.

Here’s a quick view of all 14 strategies.

You can download the quick reference PDF guide by clicking on the image below and completing the form on the following page.

You can skip to the section you want by clicking on the topic.

Decrease Inventory

Your pharmacy’s inventory is the most significant drain on your cash because it is your largest asset. Its sheer size amplifies any small mismanagement here. With today’s tight Rx margins, you must have even stricter control of inventory. To understand if this is the cause of your slow cash flow, you need to calculate your inventory turns. Just using the total value of your inventory isn’t a suitable measurement. For example, two pharmacies might have $200,000 of inventory, but pharmacy A’s sales are $7 million a year, and pharmacy B’s sales are $2 million a year. Pharmacy B’s inventory is exceptionally bloated, while Pharmacy A’s inventory seems just right.

You will need to know your inventory’s current value and your COGS’ annualized rate (cost of goods sold, not bought) to calculate your turns. You then take the yearly COGS and divide it by the current value of your inventory. This equation will produce your turns. You should aim for your turns to be at 20 or above. Don’t be alarmed if your number is lower. You now know that this is an area you need to work on to improve. TIP: your accountant should calculate this number for you each month.

Renegotiate Payment Terms

With my first pharmacy, I struggled with cash flow crunches too frequently. The problems often centered around my wholesaler payment date. It always seemed to come 1-2 days before the bank had my deposits. Finally, I asked my wholesaler if I could move my payment dates. They graciously obliged, and those extra 3 days were all the difference. Talk to your vendors and see if you can move them around or spread the due dates out differently to ease cash flow crunches during the month. TIP: ask every supplier for a later payment date. The answer is always no unless you ask.

Restructure Debt

If you have any business debt, now could be the perfect time to restructure or refinance it. Interest rates are low, which can help to reduce your monthly payments while saving on paid interest. Talk to several banks and make them show you real numbers on real paper before going forward. Pinging your credit multiple times can hurt you. Before you approach a bank, make sure you have good clean financials, at least 3 years’ worth. Also, you will often have better luck working with a local bank or a pharmacy-specific bank such as HealthGrowth.

Sell Hot OTCs

Selling non-Rx, OTC, and other sundries can be a great way to boost your cash flow. These products not only have high-profit margins; they also are paid in full upfront. No accounts receivables! CBD is still one of the top sellers in this area. I love Ananda Professional’s products. No one else has women’s health products like theirs and their clinical research is amazing. You can get special DiversifyRx perks from Ananda Professional when you order through Blake. PharmaCanna is another CBD company with high-quality products.

There are so many great OTCs, here is a small list of some of my other favorites:

TIP: check out the 6 Supplements To Make Your Revenues Soar.

Reduce Staff

Lowering your payroll expenses is often the hardest to implement. It is also the most common area causing pharmacy cash flow trouble. To know whether this is a problem for you, you need to calculate your payroll percentage. Your payroll percentage goal should be less than 13% and lower than 11% for high-performing pharmacies.

To do this, take all expenses related to payroll (wages, taxes, insurance, benefits) and then divide that number by your total revenue for the same period. Be sure to include your salary (or the market rate of your pay) if you perform critical duties to generate revenue. Here’s an example, count yourself if you fill prescriptions every day, and don’t include yourself if you spend most of the day chatting and networking. If your number is above 13, then this should be a priority to reduce for you.

If you want to keep your people, then you must have them generate more revenue. Sell more OTCs, implement a referral program, optimize your patient’s therapy, improve clinical services, any strategy to increase the revenue. Or you can choose to make cuts. Get rid of the deadweight (bye, Felicia!), or you can spread cuts across the team. Taking a small number of hours away from 1 person per day and rotating through the entire staff can be a great way to reduce your payroll without impacting any one employee significantly.

Be Due Date Smart

If slow cash flow is a worry for you, then paying your bills early is a no-no. To take advantage of the cash you do have, pay your bills as late as possible while still being on time. Take into consideration grace periods. If an account is due on the 1st but isn’t late until the 16th, pay it on the 15th of the month. This grace period gives you 14 extra days to use that cash for something else.

Collect More Payments

Offering unique services such as delivery will often require also offering unique payment options such as charge accounts. While this can bring in more business, it can also put a kink in your pharmacy’s cash flow. Doing all of your billing and accounting in-house is an admin burden for your employees and your pocketbook. You should consider leveraging technology and services that will enable you to accept payments online, by phone, or even automate payment collecting. TIP: Watch this YouTube video for ideas on financing your accounts receiveable to help with cash flow.

Cash In Dead Inventory

Remember that cash monster, your inventory? Not only does it eat cash to grow, but it also eats money when it dies. You can turn your dead inventory back into cash with a reverse distributor. A reverse distributor is a licensed company that accepts expired or almost expired products and then processes them to return to the manufacturer. You need a great one to maximize your value because the manufacturers are constantly changing their return requirements. Beware, many will tell you pie in the sky numbers for a returned value but will come up short when you use them. TIP: the best reverse distributor I have found is Flash Returns.

Increase Profits

Profits do not equal cash. That is a lesson for another day. However, increasing your pharmacy profits does give you a better chance of converting them into cash. You need to optimize both your PBM and non-PBM revenue to maximize your profitability.

An easy favorite of mine is recommending that you use a direct billing company for your worker’s compensation prescriptions. By doing this, you get to eliminate the PBMs (yay!) and keep more of your hard-earned revenue. You can increase your margins by 10 times or more. Only how you bill changes, there are no changes for your patients or what the insurance carrier pays; only the amount you get paid will increase significantly. TIP: The company I use is StreamCare. They are honest, up-front, and work hard for you.

While direct billing worker’s compensation is good in about 40 states, another favorite is perfect everywhere. Lifeline Rx Solutions, run by Robbie Stokes, optimizes your pricing tables to dramatically increase your pharmacy’s profits. Several pharmacy owners that started with Lifeline after attending the Pharmacy Profit Summit, have told me this was the easiest money in pharmacy.

The days of taking whatever walks in your door along with every contract from your PSAO are over. You need to be actively managing your pharmacy’s formulary. This means knowing what works for your plans and your patients. Proactively work with your prescribers to educate and ask for therapeutic changes as needed. Understanding your contracts is a must. Pharmacy owners can no longer blindly accept contracts. You may want to consider leaving your PSAO and going direct. For clear numbers on your true profitability, including DIR fees, at the point of sale, I recommend you reach out to Benjamin Jolley and get his help with setting up your software. 

Cash-Based Services

Sometimes you do need to spend money to make money. For other programs, you need to invest time. Here are a few options that require little of both for you to get started.

Weight-loss coaching can be very rewarding, and you don’t have to limit yourself to only pharmacy customers. You can help your entire community. For less than $300, you can get started with everything you need to begin growing your professional practice. You don’t need complicated certificates or know how to do any billing. This program is a cash-based program that your patients will love and see results. Book a call with Dr. Mark Nelson to learn more.

Remote patient monitoring is the new black. Ok, maybe that’s not as catchy as a TV show. It is where you want to be, though. Due to recent changes, third parties can now perform remote patient monitoring (RPM) services. This new rule allows pharmacists and physicians to collaborate and leverage technology and scale to make it cost-effective and profitable.

Clinical Based Revenue

Pharmacists are finally making some real headway on getting paid for professional services. If you are in a provider state, your opportunities are even more prominent. You don’t have to be a clinical genius to start earning some extra revenue and dipping your toe into service-based pharmacy revenue.

An excellent place to start is pharmacogenetics (PGx). New rules ban labs from doing the interpreting of the tests. This rule opens the door wide open for pharmacists to be the PGx experts and make $90 for each interpretation. Your one-stop-shop for all things PGx should be RxGenomix. TIP: use code “rxg115” to save on your required 16 hours of PGx CE course HERE.

A second great option is point of care testing (POCT). There are many options to choose from and always make sure to follow your state guidelines, you might need a CLIA waiver for some tests. An awesome company that I use is Physician 360. They have several test kits for flu, UTI, COVID, and even ear infections, and all kits come with an included telehealth visit. This way you don’t have to worry about your scope of practice, you have a physician that is caring for the patient. TIP: use code “5offP3601014” to save on any of the kits.

Reduce Expenses

This recommendation is as ubiquitous as eating less and exercising more to lose weight. You must control your costs to run a successful pharmacy. Every year I recommend you look at every line item in your profit and loss statement. See if you can be buying better and cheaper. Sometimes just asking your current supplier for a price decrease is all that is needed. Sometimes you need to change suppliers. Look at every line. No expense is too small to optimize.

An often overlooked area is your ink and toner costs. Buying OEM or through the office supply warehouses or even Amazon means spending more money than you should be. Request a quote from Provider Services of America (PSA) to see how much you could be saving. TIP: Buy your printing supplies in bulk, enough for at least 3 months to reduce your time dealing with it and your costs.

One area we all focus on is our taxes. Taxes are an expense in my book, one that I can manage. First, you must have a good accountant with proper books. I have seen pharmacies pay more in taxes because their accountant miscategorized certain revenues or fees. Second, get a good tax advisor or tax accountant that is familiar with the pharmacy business. There are specific tax rules that you can take advantage of that will save you big. Want to be able to write off your inventory? You can do that now, and you must make sure you meet the guidelines. TIP: Get a pharmacy-specific accountant that knows how to maximize tax minimizing opportunities such as Rx Advisors.

An important component of reducing expenses is to lower your COGS. For strategies and specific suggestions to lower your drug spending check out this popular DiversifyRx article – How To Lower Your COGS.

Credit Cards

These plastic beauties can be a blessing or a curse. When your pharmacy cash flow is slow, you might be wondering if you can leverage your credit cards. There is a right way to use them to help ease the pain of tight cash flow. Use your credit card to pay a bill on its due date—this way, you are paid in full and on time with no late fees. Then you pay your credit card off on its due date. This method will give you up to an extra 30 days before the cash comes out of your bank account. TIP: this only works if you pay off your credit cards, don’t let those balances accumulate and incur interest.

Avoid Fees

Unnecessary overdraft or late fees add up extremely fast. I often see pharmacies where a few payments hit their account when the balance was low, and now they are paying hundreds of dollars in overdraft fees. If you cannot make a payment, it is better to talk to the vendor, negotiate an alternative payment amount or schedule before your due date, and avoid additional late fees. Companies can be quite gracious if you simply ask.

You made it! This information is just the beginning of each of these topics. If you would like any additional information or ideas on improving any of these areas, just ask in the comments below or join our private DiversifyRx Facebook Group.

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