Now the 2017 Guild Digest is out, we have been running the ruler over the data to get the main points that impact pharmacy businesses. The Digest is a key document pharmacy owners can use to help align the performances of their own business and help understand the trends they are experiencing.
If you haven’t been through the Digest yet, here are the key points you need to know about. Please note the data we have used below is comparing the 2016 to 2015 financial years from pharmacies that contributed data in both years. That is, matching like with like.
Sales fell by 3.01%. Dispensary was the main cause here falling by 2.48%. Please note this fall happened despite script numbers increasing by 3.79%. The impact of the reform measures is very clear here.
Gross Profit decreased by 2.17%. Measuring trends in Gross Profit is probably more relevant in pharmacy today as sales trends can be influenced significantly by high cost scripts.
Other Income increased by 20.49%. More pharmacies are embracing professional services and this is very clear. We would expect this increase to also feature in next years data as well as a result of recent funding announcements. Recent announcements of changes to funding of 6CPA programs gives pharmacies the possibility of increased income from Professional Services.
Wages to Gross Profit ratio increased from 36.2% to 38.3%. It is an interesting feature of modern day pharmacies of having to maintain staffing levels to dispense higher numbers of prescriptions only to return less in terms of Gross Profit dollars. Efficiency of systems and procedures is important here when trying to balance dispensing processes with providing the service your patients need.
Rent increased from 14.4% to 15.2% of Gross Profit. Increasing rents during a period of decreasing profits from dispensary, together with maintaining the service and staffing levels is putting a lot of pressure on modern pharmacy. Also note these same pharmacies on average decreased their tenancy size by 9%.
Overall though Total Expenses to Gross Profit ratios were relatively consistent at 88.5% from 88.9%. Although pharmacies are maintaining their investment in their team they are cutting expenses in other areas in order to maintain profitability.
After a proprietor’s salary has been taken into account the profitability of pharmacies during this period increased from a loss of $14,016 to a profit of $15,084. This is not a lot really when taking into account the risk, debt levels and pressure of owning a business.
Interestingly, the levels of stock carried increased from $305,156 to $343,464. Stock turnover dropped as a result from 6.11 times to 5.21 times. Pharmacies had invested more in stock for fewer returns which will have a cash flow implication.
The overall result is clear that pharmacies are handling increasing volumes of scripts for less return in Gross Profit, yet trying to service these patients with the care and attention they deserve which obviously costs money. In order to deal with these issues pharmacies are reducing the tenancy size to reduce the impact of rent, investing more in professional services and cutting costs.
So how are you dealing with these issues? This is a great opportunity for pharmacy owners to compare their 2017 results, look at the trends and compare to these results. You then need to have a solid structured plan and map out your 2018 financial year. Where are your growth opportunities? Do you need to review your stock mix? Talk to your wholesalers and BDM’s here. Are you adequately embracing professional services? The Pharmacy Guild can help out here. What efficiency measures can you introduce? In what areas can you reduce costs? This is where you should talk to your accountant. Now is the time to have a solid plan in place before you head into a new financial year.
You need to have firm plans in place to handle these pressures. Sitting back, doing nothing and having a “business as usual” approach is not how a modern day pharmacy business is conducted. There is plenty of support around you.
Compare your variation in results from 2016 to 2017 with the trends in the Guild Digest.
Have a solid, structured plan for 2018.
Review your stock holding and stock mix.
How can you reduce costs without compromising service and range?
Are you maximising opportunities from Professional Services?
Talk to your supporters, wholesaler BDMs and your Guild.
Written by John Thornett FCA CTA, Director, Peak Strategies Pty Ltd.
Every effort has been made to ensure that the information and/or advice contained in these pages are free from error and/or omission. You should seek your own advice prior to acting on any information contained within these pages. No responsibility can be accepted by the Pharmacy Guild of Australia or its employees involved in the preparation of these pages for any claim which may arise from a person acting on information and/or advice contained herein.