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Pharmacy Finance Pitfalls to Avoid

Pharmacy finances can suffer if owners are tripped up by these common pitfalls.

Keeping pharmacy finances in the black is important, but it’s not always easy. A research letter published in JAMA1 showed that although the number of pharmacies opening in the United States was increasing, 1 in 8 pharmacies closed between 2009 to 2015. Many of the closed pharmacies were independent pharmacies or pharmacies that served low-income or underserved communities. Although there are many potential financial pitfalls, here are 3 major ones to avoid.

1. Having More Debt Than the Cash Flow Can Support

It takes time to build up revenue, and new pharmacy owners should be prepared for a period of 12 to 24 months before the business is able to break even.2 Although it doesn’t help to be pessimistic when making projections, being conservative can protect pharmacies from taking on too much debt. For example, if a pharmacy has $800,000 in revenue for one year, the business owner shouldn’t borrow $1,500,000 for the next year. Pharmacy owners should ensure there’s enough financing to reach the breakeven point and refrain from taking on additional debt during this period.

2. Taking on Managing the Pharmacy’s Finances

A certified public accountant or financial planner will add another line-item to the costs of running a pharmacy—and owners may be tempted to either completely skip hiring one or wait until a pharmacy is more established to hire one or both.3 This places the burden of managing finances on the pharmacy owner, which can mean long hours spent managing cash flow and less time building the pharmacy and customer base. Delegating financial management to someone who’s well versed in finances allows pharmacy owners to focus on their area of expertise: pharmacy.

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3. Expanding the Business Without Taking Stock

Business is going well—more than well, actually. Is it time to consider expanding the business? Time to open another location or offer new clinical services? Before jumping into those opportunities, pharmacy owners should slow down and conduct some self-evaluations.4 First, figure out the current financial situation with a small business audit. Not only will the audit show financial security to any stakeholders, but it can also show rooms for improvement and strengths. Second, do market research of the area. Market research can identify potential competitors, break down the labor market to determine potential labor costs, and determine the best place to expand. Third, create an expansion plan that addresses any potential concerns.

References

  1. Guadamuz JS, Alexander GC, Zenk SN, Qato DM. Assessment of pharmacy closures in the United States from 2009 through 2015. JAMA Intern Med. 2020;180(1):157-160. doi:10.1001/jamainternmed.2019.4588
  2. Avoid these mistakes and realize strong returns with your pharmacy or healthcare practice start-up. Blog. US Medical Funding. Accessed October 31, 2022. https://usmedicalfunding.com/avoid-these-mistakes-and-realize-strong-returns-with-your-pharmacy-or-healthcare-practice-start-up/
  3. Five common financial mistakes to avoid as a pharmacist. Blog. IDStewardship. Published June 21, 2022. Accessed October 31, 2022. https://www.idstewardship.com/five-common-financial-mistakes-avoid-pharmacist/
  4. Planning to expand your independent pharmacy business? Things to consider. Blog. First Financial Bank. Posted February 1, 2021. Accessed October 31, 2022. https://blog.ffb1.com/planning-to-expand-your-independent-pharmacy-business-things-to-consider/

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