How confident are you in your financial management?
Maybe you’re a pharmacy owner with a business degree who knows his way around an income statement. Or, maybe you’re a trained pharmacist who knows more about the side effects of antibiotics than what’s on the balance sheet.
Even if you’re savvy with your finances, a refresher can be as helpful as learning something new.
Get back to the basics with these 10 foundational finance tips.
1. Organize your finances
The first step to making smart financial decisions is to know how much money you have as well as how much, how often, and where you spend it. Take inventory of all your expenses and income streams. Keep track of your finances using the easiest method for you, be it a spreadsheet, financial software or through a third party.
2. Don’t overspend
Once you get a full picture of your finances, you’ll know how much you should be spending. Obviously, you should never spend more than you make. What you make is your net income, after you’ve accounted for all taxes and expenses.
Spending more than you earn puts you in a precarious financial position that often leads to crippling debt. Review your financial data to see where you can cut back if you need to.
3. Diversify income
Find creative ways to diversify your income. Income diversity lowers your risk level and increases your revenue streams. For example, consider expanding into clinical services, such as offering immunizations. The wider your offerings, the more diverse your income streams.
4. Plan for taxes
Taxes are an annual expense. Are you treating them that way?
Accounting for taxes is the only way to know how much money ends up in your pocket. Tax laws are constantly changing, so pay attention to your state’s legislative decisions to know exactly how much you’ll be taxed in a given year and account for that expense.
Also, consider ways to reduce your taxes (and increase your profit), such as charitable giving.
5. Invest early
They say money doesn’t grow on trees. But it does if you invest it. A tree only requires some seed and watering, and then it grows on its own over time.
Investments work the same way.
You have to invest money up-front and add to it, but over time the money grows on its own into a large sum. For example, investing $300 a month at an estimated seven percent rate of return will make you $236,241 in 25 years.
6. Avoid debt
Debt is a drain. It sucks your money every month and gives you nothing in return. Most purchases that put you in debt lose value over time and eventually depreciate to zero. Avoid debt when possible, unless the debt provides value over time, such as real estate.
7. Continue your financial education
Thanks to the Internet, you have a wealth of information about finances at your fingertips. Even financial gurus must stay up-to-date with financial changes and evolving strategies year-to-year. Take time to learn something new about finances regularly.
Here are a few places to get started:
- Sykes & Co. blog, an accounting firm for pharmacies
- U.S. Small Business Administration blog
- Small Business Trends
- Investopedia
8. Evaluate risks
Risk determines the fate of financial decisions. Most often, the higher the risk, the higher the return. Some decisions are better served by risk and others by safety.
For example, it’s safe to invest money in front-end items like allergy products because the consequences of failing to sell them are low. But starting a private line of vitamins and supplements could either significantly boost revenue or completely flop.
Always evaluate the risk and its possible costs and rewards.
9. Prepare for the unexpected
Unforeseen emergencies or a sudden decline in business can happen to anyone. Saving money for the unexpected helps soften the impact and keeps your business afloat.
Maintain a separate account for emergency savings, depositing a percentage of your profits each month.
If your pharmacy experiences periodic fluctuations in revenue, deposit more during the profitable periods and less during slow periods.
10. Don’t be afraid to ask for help
There’s no shortage of finance professionals who can make your decisions easier. It’s smarter to pay a little for help than to pay a lot for a mistake that you could have avoided.
You may even want to take finances off your task list and hire an accounting firm to manage them.
Whether you’re business-savvy or not, these financial basics can help grow and protect your pharmacy business.
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