Firstly, a quick disclaimer. I have been doing some valuations lately where the quality of financial reports have been on the poor side and contained several clear errors. So, to slay these dragons (yes, I am a GOT fan) I thought its best to write about it so, hopefully you don’t make the same mistakes.
Turnaround times for valuations are crucial, so spending additional time trying to decipher the data delays the process unnecessarily and raises doubt as to what the exact trading position of the business is. We must also consider who the users of this data are:
The banks are relying on these reports to see if you are meeting reporting covenants, for making funding decisions,
Valuers to determine the value of your business.
Your accountants to prepare your tax returns.
Future potential junior partners who may be buying into the pharmacy.
Future buyers of your business.
Lastly, even owners trying to make future strategy decisions.
We have said this repeatedly; good data means good decisions.
So, this blog is all about the little tips and tricks that can help improve the accuracy of your financial reports;
1. Ask yourself “Does it make sense?”. When ever you or your bookkeeper prepares and presents a set of financial statements, always look at the data and ask yourself, does it make sense? So many problems can be solved by asking this simple question.
2. An accurate Point of Sale System will lead to accurate financial statements. It is often the simple things, but you must have good systems in place to ensure things like your Stock on Hand reports are accurate. Stock invoices are entered in on invoice date. Check and fix the obvious errors like items sold with nil cost, negative stock count items etc. Ensure you have the systems and procedures in place to get your POS data accurate.
3. It is a basic thing, but ensure you also have regular physical stock takes done. Twice a year is a good practice. At the very least 30 June each year. POS stock counts v actual stock numbers on the shelves can often be different things. Your POS won’t pick up the theft element.
4. Don’t make the financial data too complicated. There are some financial statements I have seen contain so many non-business elements in them, it makes it so hard to understand the true position of the business. Keep the main business accounts simple. Don’t confuse it with too much personal, or investment activities.
5. Have the PBS accruals and customer debtors reconciled in the accounts every month. Often these elements are missed out altogether. If you are looking after a nursing home also ensure Scripts Owing is also reconciled monthly.
6. Separate out any high cost drugs and nursing home sales and purchases, into different account codes to ensure the trading performance of the various elements of your business is easily understood and interpreted.
7. If you do service a nursing home or two, being able to separately report on this, via a separate Profit and Loss Statement, to separate reports from your POS is important. Separately tracking this data will help you understand what profit you are making on this activity.
8. Match up your monthly Sales and Gross Profit in your financial statements to the monthly Departmental Sales Report or Profit Analysis Report. This is a good check to see if your financial data is accurate. Of course, if your POS Data is wrong, then you will never know. Hence the importance of point 2.
9. Separate out all Professional Service Income and Incentives into Other Income, not in Sales. This is so important as it is a growing area of community pharmacy and going forward will be a KPI that will need to be tracked regularly.
10. Lastly, technology and software are there to make your life easier. These systems make the bookkeeping process so much more efficient and accurate. Don’t be afraid of them. Use them to your advantage. It will make your life simpler by being able to process a lot of transactions in a fraction of the time, and avoids the mistakes often caused by the human touch. Make sure you are using the latest versions of MYOB or Xero and you undertake enough training to ensure you are using these products properly. Of course, garbage in, garbage out.
You don’t have to struggle with this side of your business. We have the answers for you, that can help you have a simple, effective and accurate financial systems. This is our speciality. Speak to our team at Peak Strategies, and we can assess your systems, recommend changes, and implement new systems, to get your financial reporting systems on track, so you and your advisors know exactly how you are trading.