Inside: Facing uncertain financial times, you can prepare your pharmacy to stay afloat.
The coronavirus pandemic has caused volatile markets and mass unemployment. Even though independent pharmacies have seen unprecedented demand, the financial effects of COVID-19 will be far-reaching.
As the world braces for another recession, is your pharmacy ready? Prepare yourself to weather a potential downturn by taking these steps.
Build a contingency fund
Financial experts recommend keeping three to six months’ worth of expenses in an emergency fund. When lean times hit, you’ll have a safety net ready to catch you.
But building up such a large reserve of cash probably seems daunting, if not impossible. Building an emergency fund will become like second nature when you:
- Automate your savings
- Open a high-interest savings account
- Save more during good months
Because these funds need to be easily accessible, you shouldn’t put the money in the stock market where it is susceptible to volatile swings. Instead, open a money market account or savings account with your regular bank. With these funds in place, you can continue to make payroll and pay bills even if there’s a temporary downswing in business.
Focus on cash flow
Even with a hefty emergency fund, your pharmacy won’t survive if you can’t keep cash flowing throughout the business.
Don’t let receivables sit on your balance sheet. A late payment is money that should be in your pocket to pay your bills or employees, so it’s crucial to pursue people who owe you.
Point-of-sale vendors all convert cash at different speeds, so check in to see if your money is being tied up there. It may be worth it to switch to a new POS if it means you get your money faster.
Open a line of credit
Opening a line of credit is a failsafe for when your cash flow isn’t enough to keep the business running smoothly in a bumpy economy.
A line of credit is a present borrowing limit that you can access at any time. It’s open-ended, meaning you can borrow and repay whenever the need arises.
Even if you don’t think you need a line of credit, if you’re facing down a recession, it can still be a good idea to open one. Banks want to lend to people who are in good financial shape, and if you wait until you need the money most, you may not be able to find a bank willing to lend to you.
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Connect with current patients
When times are tough, reinvest in your relationships with current patients. Your loyal patients will help power you through a downturn, and maintaining those relationships is more cost-effective than trying to attract brand new patients.
Reward them for coming into the pharmacy with a well-designed loyalty program. And don’t forget to ask them for their feedback so you can provide the services they really care about.
If patients are highly satisfied with the service they receive at your independent pharmacy, they can also be an important source of new patients. Your best patients will become unofficial ambassadors for the pharmacy, powering your growth through word of mouth.
Expand your offerings
Introducing new products or services can introduce new revenue opportunities. With more money coming in from more places, you’re less reliant on one thing to keep your finances afloat. When a recession hits, you’ll have funds in your bank to weather it and multiple avenues to continue making money.
New products and services can be a risk, of course, so it’s important that new revenue streams complement your current services. If your patients are using medication synchronization services, for example, you could introduce adherence packaging.
As a small business, you have the ability to pivot and be flexible, which is an advantage over your large chain competitors. Use that advantage to diversity your services and stay nimble in the face of financial challenges.
Stay in touch with local lawmakers
In a recession, it’s more important than ever to advocate for laws that will help keep your independent pharmacy up and running.
Even during boom times, DIR fees and low reimbursements make staying profitable close to impossible. To keep community pharmacies up and running throughout a recession, independent pharmacy owners need to insist on laws that protect them. Reach out to your representatives and let them know your position. Legislators interested in protecting the interests of small businesses will have an open ear.
Visit the NCPA’s page on legislative priorities to help you articulate what actions you want your lawmakers to take.
Keep a lean inventory
In a tough economic climate, don’t let your cash get tied up in inventory. In pharmacy, it’s especially important to get a handle on inventory management, because a single NDC can mean there are thousands of dollars sitting on your shelf instead of in your bank account.
Use a perpetual inventory system to minimize the amount of inventory you have in the pharmacy without risking running out of what your patients need.
Make it a habit to return unclaimed prescriptions to stock on a regular basis so you have a better idea of what you have in the pharmacy and can prevent over-ordering. Synchronizing patients or putting them on automatic refill can help you order inventory more intelligently.
Take a hard look at expenses
When you start to feel the pinch of a recession, you may need to make some hard decisions about where you’re spending your money.
Before that happens, take a look at your books to see where you can afford to cut expenses. You don’t necessarily have to cut them right away, but you’ll know how to tighten your belt when the time comes.
You can also make small changes across your business that add up to significant savings. You may be able to schedule your employees more efficiently or save on utilities.
The best area to save on expenses is your cost of goods. By dropping your costs a few percentages, you’ll free up thousands per month to help buttress your bottom line when a recession hits. To do that, though, you need technology to maximize wholesaler rebates and you need buying power to get you better pricing and terms.
An Independently Owned Organization Serving Independent Pharmacies
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The company is a member-owned organization that serves independent pharmacies with group purchasing services, expert contract negotiations, proprietary purchasing tools, distribution services, and more.
PBA Health, an HDA member, operates its own NABP-accredited (formerly VAWD) warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.
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