A Pharmacy Bean Counter Spills The Beans
As a pharmacy-specific accountant, Nick Perrett knows his way around a pharmacy’s accounts. Here, he reveals what questions you should ask to make sure you…
budget
/ˈbʌdʒɪt/
noun– an estimate of income and expenditure for a set period of time
We know. Setting a budget for most people is about as thrilling as scraping burnt rice from the bottom of a pan. As a human being, I get it. As a pharmacy specific bookkeeper, I don’t. It amazes me how many pharmacists don’t have budgets. It’s not rocket science and is absolutely essential to your business – to both your understanding of your business and your bottom line. Once written, you will feel that little more in control; taking the reins so you feel more hashtag blessed, less payday stressed.
Your budget is basically your forecast for a rainy day. You can measure it with either the best-case scenario (if I can meet this, I’m kicking goals) or the worst-case scenario (this is the minimum I need to tread water). Personally, I liked to know the minimum I need to hit, with everything on top of that the sound of sweet kicks being punted through the goals. Do your budget well and you should see profits creep up, or at least no profit loss. Do it badly and maybe pharmacy ownership isn’t for you.
Types of Budgets
There are quite a few types of budgets and you will use different ones depending on your pharmacy size (and how many shops you might own). The budget must-have is your operating budget. Do this, or suffer the wrath of the budgeting gods!
- Your master budget is the accumulation of your business’s individual budgets, often used when you own more than one pharmacy. This shows you an overall picture of all the business’s health and activity and helps you to set your goals and calculate overall performance.
- Your Operating Budget is your tarot card session – but with a little more proof. Here you look at the forecast of expected income and expenses, usually for the next 12-months. This includes all of your payroll, sales, stock costs, rent and administrative costs. It can be very handy to evaluate this every month to check in that you’re not overspending.
- Your Cash Flow Budget checks out the trends around when cash flows in and out, such as accounts payable and accounts receivable. This paints a picture about where times might be tight or ample, and how productive your cash use is. For example, this is helpful to know where you might be able to afford an expansion to accommodate growth.
Your mini how-to when it comes to budgeting
Plan it out
Spreadsheet, assemble! You can use a simple Excel spreadsheet for a basic budget – free and at your fingertips. If you’re looking to upgrade to software, look to processing systems like Xero or MYOB which boast budgeting options. A bookkeeper can also set a budget up for you as well. As a book keeper, I personally find MYOB the more powerful for the tools that we need, however Xero is probably more appropriate for those with one or two businesses as it’s a little more user friendly.
- Look at your previous year’s profit and loss in a month by month breakdown and see if there are any anomalies i.e buying a new fridge or installing new software. Take those anomalies out and transpose those expenses over into your current year. Find your standard expenses for a standard month.
- Now, take into account the year’s trends that retail pharmacy tends to experience. Over winter income tends to go up slightly thanks to the colds and flus doing the rounds. Leading up to Christmas is often the busiest retail time, while January and February can be as quiet as mute mouse. Take into account how this is likely to affect your business.
- Go ahead and pop on your future-reading specs and add what you think is a reasonable percentage for increase and decrease. Don’t inflate your income or expenses by any more than five to seven per cent. It’s always better to have lower expectations and budget accordingly.
- Make the time to do it. Too many don’t because it’s a pain in the arse. Either you report against your budget each month, or get your book keeper to do it and it keeps you honest. Don’t make the time and risk the draining of your bottom line and worst case scenario, the shutting up of shop.
Include your team
In order to hit your budget goals, it can be incredibly helpful to communicate effectively with your staff in an encouraging way. Getting your employees on board by outlining the budget and how everyone can contribute makes them feel accountable as well as a respected part of a working community.
Check in regularly
It’s important to remember that budgets aren’t static things, and should be treated as the fluid creatures they are. This means checking in with your budget regularly; every month or at least every three, to check you’re on track and the assumptions you’ve made have held true.Eventually, you get to realise that a great budget is less science, more art. You’re trying to predict the future but without a Back-to-the-future time machine.The more time you spend at the beginning to hone in on your budget well, the better set up you are in the long run – a short term pain for a long-term profit.
However, try not to get obsessed
While it’s important to keep a beady eye on your budget, it’s equally as important to not sweat every ebb and flow. I’ve seen clients become a little too obsessed with their budget and if it’s not tracking as planned, they can get quite down. Realise that while fortune favours the prepared, even the best laid budgets can come unstuck thanks to unforeseen curve balls flung your way.
Let us know how you budget for your pharmacy in our discussion forums here