Common Accounting Errors

You encounter unique challenges day in and day out in your pharmacy, especially with managing financials. Accounting is an essential part of your business, and it can easily make you feel in over your head. You may be getting by from month to month, but you probably aren’t boosting your potential. And if your accounting isn’t accurate, you might be putting your pharmacy at risk.

Your numbers need to be precise. Not only to handle your cash flow each day, but to be able to set long-term goals. When done correctly, you will receive important insights into your pharmacy’s financial health. But if you manage it incorrectly, your business will quickly sink.

Everyone makes mistakes. What’s important is that you catch those mistakes and avoid them next time. Here’s how:

Be aware of your numbers

Stay on top of your finances and know where you stand. Don’t drive blind. When you’re on top of your funds, you’re able to set goals for your pharmacy and find areas that need improvement.

Having reliable numbers and knowing how to use them is vital. Use resources such as the NCPA Digest from the National Community Pharmacists Association, which highlights independent pharmacy financial trends. With this, you’ll be able to see how your pharmacy’s numbers stack up.

Don’t manage your system haphazardly

Make a time commitment to put a proper system in place. Without one, your business will lack the structure it needs to operate efficiently and effectively.

Keep track of your expenses

You can’t properly manage your business if you aren’t tracking money in and money out. Record all your spending, save all your receipts, and keep your personal and business accounts separate.

While failing to record your spending may not hurt your business, it will eventually cost you. If you don’t have proper record keeping, you’ll end up paying income taxes you wouldn’t have had to pay if you had noted all your expense deductions.

Track outstanding receivables and reimbursements

Be sure to track the money that’s coming in. It’s just as important as watching what’s going out. Track payments from your patients for your products and services as well as reimbursements from their insurance. Lacking a proper system to record your outstanding receivables and reimbursements can result in a loss of thousands of uncollected dollars.

Hire an accountant

There’s nothing wrong with wanting to hire a professional. After all, accountants don’t try to fill their own prescriptions. They go to their pharmacists. Like you, accountants and tax specialists are experts in their field. They can save you a lot of time and money in the long run by keeping your records safe and organized, entering details into your system, taking care of your business, keeping track of deadlines, contracts and much more. They ensure your expenses are tracked, bills are paid on time, and will even advise you on what opportunities to invest in.

There are a lot of accountants to choose from, but the accountant you use for your personal finances is not a wise choice since they won’t understand the pharmacy business. Find someone who understands the intricacies of community pharmacies, and someone with impressive accounting skills. This gives you two options to choose from. You can either find an accounting firm that specializes in community pharmacies or opt for a consulting firm that provides operational guidance, support, and accounting for pharmacies like yours. Whichever you choose, be sure they’re a good fit and that they speak in terms you understand.

Accounting firms that specialize in pharmacy understand such things as what the reimbursement process can do to your cash flow and ways to mitigate the negative effects. They know the appropriate options for minimizing your tax commitment and how to assess the financials for a pharmacy you may be thinking about acquiring. They understand how benchmarks like wholesaler acquisition cost (WAC), average wholesale price (AWP), and average actual cost (AAC) influence what you charge and are reimbursed for pharmaceuticals. Plus, they can do all the usual things as well, such as processing invoices and payments and filing tax returns.

On your journey to find the right accountant, look at the value and not just the cost. When it comes to your pharmacy’s accounting, it pays to look past the upfront fees to see the future value of your investments.

Finding the Right Accountant for You

Looking for an accounting firm that knows the ins and outs of community pharmacies? Check out the resources below:

  • Community Pharmacy
    Trade Association
  • National Society of Accountants
  • Service Corps of Retired Executives

Accountants offer the following value-added services:

Tax planning

A good accountant will start your tax planning from the start to make sure you get the maximum benefit of tax-sheltering or tax-reducing opportunities. They’ll also help you minimize the amount of taxes you pay.

Your accountant will help you keep good documentation. That way if you’re reviewed or audited you won’t run into trouble with the Internal Revenue Service (IRS). The IRS can request to review any business transaction at any time.

The most typical review for pharmacies happens with sales tax (GST/HST/PST) returns. This is when the IRS requests to see the top 10 expenses claimed in your most recent return. If you notoriously save your receipts and have a good accountant by your side, you decrease your chances of being hit with penalties and interest for lack of documentation. You don’t want to be questioned and find that there may be fraud present. This can lead to an audit.

With all the busyness in your pharmacy each day, it can be difficult to know who you owe or who owes you. With daily deposits from insurance plans, frequent purchases from vendors, and your point-of-sale (POS) system, it’s nearly impossible to know your exact financial status at any time.

An accountant can keep financial statements and finances up to date and organized on a daily, weekly, monthly, and annual basis. That way, you’ll know exactly what your financial situation is at any time.

Up-to-date bookkeeping will help your accountant with financial documents such as a profit-and-loss statement, balance sheet, and cash flow statement to show the business’ financial health.

Accounting services help you understand what all the numbers mean and help identify if there is an opportunity for growth or issues that need to be addressed. At that point, your accountant will offer business advice to address the issues.

From the Magazine

This article was published in our quarterly print magazine, which covers relevant topics in greater depth featuring leading experts in the industry. Subscribe to receive the quarterly print issue in your mailbox. All registered independent pharmacies in the U.S. are eligible to receive a free subscription.

More articles from the March 2024 issue:

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