The primary function of a pharmacy is to dispense medications and help patients in their use. But pharmacies are businesses as well, and to keep a pharmacy functioning smoothly, a pharmacy manager needs to know how to handle the financial end of things.
Having a problem with cash flow is usually a symptom of some underlying financial trouble. To get a handle on cash flow problems, it is necessary to look at the business’s financial fundamentals. These are laid out in three different reports that make up the overall financial statement, which shows where the money came from, where it went, and where it is now.
The Balance Sheet
This tells you what your assets and liabilities are. Assets are items of value owned by a company that can be converted into cash or already is cash. Liabilities are what the company owes, its debts. The balance sheet tells the financial position of the company at a specified date.
This shows how much revenue a company earned over a certain period of time and what expenses were over the time period. Net income is revenue minus costs. This can tell you whether you made a profit over a certain time period.
Cash Flow Statement
This is a record of the money that goes in and out in the course of operating the pharmacy. It tells whether the company generated or lost cash over a certain time period. The cash-flow statement includes operating activities, such as the revenue from the sale of goods or services, and payment to employees. It also shows investing activities, which are changes in the amount of cash from the purchase or sale of property or equipment. And it shows financing activities, the changes in cash amounts resulting from the purchase of stock, issuance of bonds, payments of interest, and dividends to shareholders.
It is important to recognize, according to financial professionals, that the balance sheet gives you a financial picture at a certain point in time, while the other statements give you information covering a period of time. It is also important to remember that profit and cash are not the same. Profit is a projection or expectation of what you hope to achieve, while cash is something real and tangible you have now.
Here is a scenario that shows the difference between the two. You want to increase profit and plan to increase sales to do that. But instead of increasing profit by bringing in more cash, you might boost profit more effectively by cutting the amount of cash going out through expenses.
Financial decisions become clearer cut when you understand that the function of both an expense and an asset is to increase income, while the function of a liability is to buy an asset. There are three questions that should guide all financial decisions:
- Do you need it?
- Can you buy it at another place more cheaply?
- Is it necessary?
When putting together a budget, it is helpful to use the profit and loss statement from the previous year as a reference point, and also factor in other past information, such as how sales are going.
If you are a pharmacist or pharmacy technician looking for work, Cameron and Company can help you. We provide temporary pharmacy professionals to healthcare organizations nationwide. With over 45 years of experience, we have the expertise and knowledge to help you find a challenging position. Give Cameron and Company a call today.