Cash Flow 2013

P H A R M

TOP TEN TIPS TO

Improve Cash FlowWhy should you? Is it obvious? Is this something you manage as well as you wish to? It’s often said that turnover is vanity and profit is sanity, but in reality cash flow is the King of the Roost. Managing and improving it can reduce finance costs, reduce the impact from growth, allow for greater drawings, give you flexibility in purchase deal making; so it’s important to manage it.

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TOP TEN TIPS TO

Improve Cash Flow

Starting PointIf it’s not measured, it’s not managed…simple

but true! What’s your starting point? Do you have a budget, forecast, contingency? All work to be done before you can set about deciding your target and improvement program.

Costs Labour costs are, for most pharmacies, the

single largest expense. Do they need to be as fixed as you think? Flexible labour contracts, fixed total hours, but flexible around when these are worked, can reduce overtime, and meet peak service demands around the needs of the patient. Which days, weeks, months, seasons are busier? Implementing a new labour contract can be contentious, but often employees seek such flexibility to deal with family and social matters. Sensitivity to both their and the business needs, avoids any form of ‘enforcement’.

Electricity/WaterSupplier switching is

becoming commonplace for the average householder; why should your business be different? Cash-back websites are becoming more popular as they can offer

you best deals from suppliers that also include cash back.

Loss/damage/theftFor a pharmacy with

a turnover of £1m, this could equate to a loss of £13,700 at sales prices, representing a high percentage to the bottom line, and an immediate impact to cash flow.

A very difficult area to control, here are some simple tips:Watch for customers who:l Avoid eye contactl Appear nervousl Wander the store without buyingl Leave the store and returns repeatedlyl Linger in a location that employees have a hard time monitoringl Constantly keep an eye on store employees and other customers.

In addition to training your employees to spot shoplifters, general shoplifting-prevention techniques include:l Staying alert at all times.l Greeting all customers.l Asking lingering customers if they need help.l Knowing where shoplifting is most likely to occur in the location.

l Using a log to share suspicions about shoplifters among employees.l Displaying signs that ‘Shoplifters will be prosecuted.’

BarteringFew opportunities exist for pharmacy to barter

services, but one that could increase footfall and reputation, is with your local newspapers. In exchange for supplying articles you can achieve advertorial, ie. marketing your services through articles not adverts. This can be timed for both parties, eg. stop smoking campaign in January, suiting a local paper’s interest in readers new years resolutions; a hardy annual local paper story.

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STATS2011 figures for the UK show retail ‘shrinkage’ increased to 1.37% of sales.

Customer theft £2146mEmployee theft £1765mSupplier fraud £191mCard fraud £120mRobbery/burglary £114mCriminal damage £65mSecurity/loss prevention £1019mError & waste £792m


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Category CashStock on your shelf costs money. All stock

in your store has absorbed working capital and too much stock will stunt your financial performance. The term ‘Cash is King’ may seem to be over used but ignore this fact at your peril. If there is a certainty in business, it is this ….’ No business has ever closed down because it had too much cash.’

Tips to get your get your cash working for you rather than you working for it all the time:l Use your wholesalers as efficiently as possible. Despite that from time to time you may have a minor dispute with them, they do offer an incredible service. So whenever possible try to buy ‘just in time’. After all, it is free warehousing.l On many occasions you do not require to stock the full range of a brand. Pick the faster moving products within the brand and turn over your cash faster. Discuss options with the sales person, perhaps they have ideas which can assist.l Try to purchase product with discount rather than free goods. This means you get your discount up front and forecasting profit is made far easier. Your accountant will thank you for it too.l Leverage credit terms. If you are offered discounts on early payment then take them up – sell before you buy if affordable.l Seasonal stock will not sell when out of season. For example, do not have large quantities of cough bottles in your store in mid-summer. Ensure you run down your stocks during spring and gear up for winter again in September/October. Keeping

out of season stock in your store costs you money.l Up sell on certain items. If there is added value from the customers’ perspective in purchasing larger packs, then give them the option to purchase them.l Don’t be afraid to link sell, but only if it is the going to give the correct patient outcome. For example offer eye drops with every antihistamine. So as not to forget and to prompt your customer, place the eye drops beside the anti-histamines on the shelf.l Remember that you do not make any margin until you sell an item and it leaves your store. Selling is not a ‘bad word’, without sales you will not have a business and you won’t be able to serve your community to the standards you set for yourself.

Shelf Real Estatel Every product in store

must justify its’ position and drive sales and profitsl Every shelf facing has an intrinsic value and must be occupied by a valuable product. l This is the concept of Shelf Real Estatel The practice of Category Management is designed to maximise return from Shelf Real Estate

So, knowing this how do we put the concept of Shelf Real Estate into practice? It’s not rocket science and with just a little effort you can pocket some cash today with these easy steps:1. Check your Epos data to find out your top 100 selling products and your bottom 100 selling products. Perform a simple calculation, stock turn times

margin, producing the total gross margin annually. Quickly check the space you accord the product on your shelf. Can you reduce the purchase quantity in future to give a better stock turn? Does the product justify the space compared to your top 100. Sensible decisions can then be made to get rid of slow movers, poor margin producers, shelf space eaters that can’t justify their space based on their annual gross margin. If you don’t have Epos you should seriously consider getting it.2. Get rid of stock by selling it off or returning it to the supplier (if it’s dead stock then the supplier should take it back as a ‘return’, if they don’t then it’s time to negotiate).3. Now do not restock this product again, take it as a lesson learnt and repeat this exercise every two months, it will mean that you are always aware of what products are adding value to your business and which ones are dragging you down.4. Change your facings according to seasons. You should reduce seasonal stock over the period when it generates most business and make sure that you are not over stocked when the season is over. For example, in winter make sure that you have ample shelf space for winter remedies and make sure that it is clearly visible in a hot spot on your shelf. However, when April comes along, make sure your shelf is still generating as much cash as possible. So switch your winter remedy space for summer, increase category space for products such as hay fever and ensure that they are on show for your customers.

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Price RoundingThe price of a good or service can often be the

tipping point as to whether you make a sale or not. The price of an item is usually set by, or for, one of the following reasons;l By the manufacturer of the product. This is normally referred to as the Recommended Retail Selling Price (RRSP) and is the price which the manufacturer thinks the market will accept while at the same time ensuring that there is sufficient margin for themselves, the suppliers or ‘middle men’ and you the retailer.l For the purpose of ‘Sale’. This may be a reduction in price to clear off stock. This may be out of season stock, short-dated stock, special offer stock priced to attract extra shoppers to the store. l By the retailer knowing their customers and setting prices according to their means.

The concept of price rounding is a rather simple one but one which over a period of time and a number of products can significantly increase your cash flow. Often new product prices are originally set as a bench mark against competitors within their category. After this consideration a price of a new product may be £4.99 or £2.49. These prices are purposely set so that they do dot cross the imaginary boundary of £1.00 or £0.50p …. we all do it and it seems as though it is just ‘best business practice.’ However, within a very short space of time the original price changes, mainly due to economic factors which may include inflation or base cost increases for manufacturers. So if there is an increase of three per cent on an rrsp of £4.99 the price will

change to £5.14. Now the logic of the £1.00 or £0.50p is eliminated and the new price of £5.14 has no resonance. If the product is not price sensitive you may wish to move the price to a higher one such as £5.19/£5.29/£5.49. If you sold a 1,000 units of this product in a 12-month period (you can reference against your epos data) then your cash flow can increase by £50/£150/£350. Now do the same exercise with just 10 products out of the 1000’s which you stock and those figures change to £500/£1,500/£3,000.

As the TV advert says ‘Simples’!!!

Spring CleanWe are all familiar with the term Spring Clean

and we also know that it doesn’t necessarily need to happen in Spring. So no time like the present!

Just like in the Army from time to time you need to inspect your troops or in this case your stock. You definitely need to inspect your Epos data but start with inspecting with your eyes.With a key member of staff look through your stock on shelf, start at the front door and work your way to the back of the store. Work through the store by category and items to look out for in particular are;l Old or discontinued packs l Products which do not fit in the category which you find them in and are actually hard to place in any category at all. l Product which seems grubby, who is going to purchase it? Would you?l Stock which is too expensive for the demographics of the area which you are located. For example electric toothbrushes at £30 may not be considered a

necessity. l Look to see if you can reduce ranges without reducing choice for your customers.l Remember some products may not yield a big financial return for you but you still need to retain them, the category may be small but the product may be important to your customers, for example wart treatments.l Stock can often remain undetected on the shelf for many months or perhaps in excess of a year. Now sell off the dead stock and turn it into cash, if it is there more than three months it’s costing you money and I’m sure that you bought it to make you money instead.

Look for new product launches to keep the store fresh and remember to highlight those products which are supported on TV and in the media, familiarity is a key ingredient to keeping your customers comfortable in what is not a natural environment for them.

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Attention to DetailThe increasing

pressure of financial strain within the pharmacy business is causing pharmacists to take a closer look at how they can increase or maximise their dispensing income. In the last few years, common phrases such as Category M clawback, reduction in practice payments and restricted supply chain of medications have been highlighted over and over again in pharmacy publications.

Even though Category M is mentioned as a clawback, in real terms it is stated that this is actually recalibration based on the accumulation of profits above the £500 million mark that pharmacies are contractually allowed on 500 common generics. It has also been stated that contract funding has been outpaced with the additional volumes of items being dispensed by pharmacies.

The fundamental thing that needs to be understood is the concept of profit: is it a dirty word? It is, in fact, the profit that keeps our doors open, drives competition to improve quality and patient care, and services non-revenue components of contracts such as free advice, sign posting, delivery service, health promotion and many more.

GPs disguise profit as QOF points but, in reality, it means profit. This point really needs to be understood both by PCTs and GPs.

The next thing we need to understand is how services can tick both boxes - that of

providing service and that which leads to profits.

This situation has led to many pharmacies considering increasing their profits and benefitting from offering services such as MURs, smoking service cessation and NMS to name a few. This is a useful exercise for pharmacies, but the reality for pharmacy businesses is that the majority of businesses still make the majority of their profit on dispensing. For this reason I have looked at ways in which pharmacy should could maximise its profits from dispensing. The areas I will briefly look over include the drug tariff, buying groups, short line wholesalers and generic buying schemes.

The drug tariff – the dictionary of pharmacy reimbursement - sets out the cost of what we are supplying on prescriptions. By looking at - or having knowledge of - the prices of commonly used generics, we can see what our buying costs are and what the remuneration will be. After analysis of this we can then look

for the best deal on commonly used generics.

Furthermore, it is important for the pharmacy business to be aware of the NSCOs (No cheap stock obtainable) status. This list is available on the PSCN website and the prescriptions should be endorsed with the wording NSCO. In addition to normal endorsing, the supplier, manufacturer and brand should also be stated.

NSCO status is important if pharmacies are not stating the endorsements correctly and not listing the price because they will not be paid the correct amount.The other areas which are of importance are: pharmacists should understand the endorsement of special item prescriptions so that correct payment can be received. It is also important that out-of-pocket expenses are claimed correctly and recorded correctly on prescription.

Moreover, pharmacists should have a correct understanding of the broken bulk, and should use the separate filling for broken bulk prescriptions. The last check that pharmacies should make is to be sure that they are filling in exemption prescriptions correctly at the back of the script. If a patient is exempt from prescription charges - and it is not correctly stated on the back of the script - the script will get switched by the PPA computerised system and multiple script fees and charges will be taken.

Computer PMR systems help us a considerable amount in making sure scripts are endorsed properly. However, we shouldn’t

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Point 10 supplied by Leicester Pharmacist Altaf Vaiya, with

grateful thanks


DRUG TARIFFIt is particularly important to look at part viii which is broken down into four categories;

Category A - commonly used generics

Category B - less widely used generics

Category C - generics based on specific brand

Category M - commonly used generics


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just rely on them; spending a few seconds to make sure that the endorsements are done correctly and highlighting expensive items can be a good practice procedure.

If everything on the prescription is correctly endorsed and the correct exemption statuses are ticked and signed for, this prevents us from losing any unnecessary money when claiming our reimbursement.

Like any business, alliances are useful to have, with a large number of buying groups now set up. Being a member can have benefits when it comes to purchasing and retrieving discount level savings on pharmacy prescription products. Many of the buying groups are linked to major wholesalers which help in bringing down spending thresholds and help obtain discounts when buying.

They also have alliances set up with short line wholesalers to offer competitive deals on generics, especially on generics in Category M.

In addition, buying groups help distribute information on purchasing stock and produce lists of where to obtain best deals. Some buying groups also reimburse loyalty of buying through preferred partners in the form of shares or pharmacy stock. Some offer help/training with patient services and share best practice. A few will also offer to share options in their organisations; thereby doubling the benefits as trading and shareholding membership.

With regard to short liners: there are many companies who have grown to ensure that they keep supplying pharmacies with competitively priced generic products and parallel

imports. Because of their low cost operations, they are able to undercut mainline wholesaler prices and some will also offer niche products such as disability ranges and diagnostic aids.

With many of these companies, using electronic ordering systems makes it relatively easy for businesses to pay attention to purchasing prices and buy stock from where they find it cheapest. As category M has squeezed the profits out of generics it is good to keep an eye on short line wholesalers’ prices.

Pharmacy may seem like a penny pitching profession but, as cashflow decreases, saving the pennies seems to help accumulate the pounds. It is therefore important that pharmacies are watchful of price changes and look at the offer sheets that short line wholesalers send out.

One example could be that you buy Bendroflumethiazide for twelve pence at one wholesaler and ten pence at another wholesaler. If you are dispensing these quantities in large supplies each month, the two pence savings eventually add up. The common mistake some pharmacists make is tha,t whilst they are mindful of prices of fast moving lines, they lose out on prices for slow sellers. For example, £1 dearer on Gabapentin would be the equivalent of savings of 50 bendroflumethazide.

Generic purchasing schemes are offered through companies such as Teva and Actavis, where schemes such as purchasing generics from the companies via your wholesaler can accumulate

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rewards and discounts for your pharmacy. The discount or rebate increases with the increase in purchase you make from these companies. That puts you at serious disadvantage of not knowing what final price you are paying, but they do offer an advantage of brand continuity. Furthermore, as the generic demand increases, these schemes become more popular as they are less time consuming to order. Pharmacy businesses do not need to worry about the prices as these companies always attempt to get the best prices in terms of competitiveness with the market and in due course the more you purchase the greater you will save or be rebated for.

Lastly, with regards to stock control, as prices of generic products and availability of PIs are changing all the while, keeping extra stock makes no commercial sense. Yes, stock up on essential fast liners, but don’t over stock. As most companies offer twice a day delivery and the majority of pharmacy business remaining repeat business or PCS (patient collection service), the need to over stock has no value. Keeping good control of stock will help cashflow, while by using the PMR system and ordering systems correctly, we should be able to manage our stock control better and derive greater benefits from it.

It has to be concluded that, in the current market, pharmacies are finding that their profits are being hit. Even with control of entry, many pharmacies have been faced with high competition and warning signs of cash flow problems are starting to appear.

For some, these challenges are nothing new; pharmacy has been evolving and will continue to do so. However, if we start looking not just at the services that we offer, but at the basics of dispensing wisely and giving ourselves the opportunity to be wise in our buying, we will find this basic principle a wise decision in keeping our business income from our main source dispensing viable.

In conclusion, don’t be over carried with prices. Watching pennies over pounds (in service such as MUR, NMS) would leave you worse off but be watchful as every bit of saving helps sustain and build a business.

Created and published by Medical Communications Ltd. publishers of the English Pharmacy Review, Scottish Pharmacy Review, Welsh Pharmacy Review & Northern Ireland Healthcare Review including our online presents at www.pharmacy-life.co.uk

Cash Flow 2013

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