Being a pharmacy valuer, my weeks are consumed with delving into the financial reports of various pharmacies. Naturally, I often stumble upon errors. That's why I've decided to share some invaluable considerations for financial reports, especially when you're gearing up for a valuation soon.
Quick turnaround times for valuations are paramount. Spending extra time deciphering data not only delays the process unnecessarily but also casts doubt on the precise trading position of the business. It's essential to keep in mind the diverse array of stakeholders who rely on this data:
- Banks: They scrutinise these reports to gauge your compliance with reporting covenants, which influences their funding decisions.
- Valuers: They rely on this data to determine the value of your business.
- Accountants: They use these reports to prepare your tax returns.
- Potential Junior Partners: Those considering buying into the pharmacy depend on this information.
- Future Buyers: Prospective buyers look closely at these reports.
- Partnership Exits: These reports play a significant role in partnership transitions.
- Owners: Even as an owner, making informed decisions about the future of your pharmacy hinges on the accuracy of your financial reports.
We've emphasised this repeatedly: good data equates to good decisions. Therefore, this blog is dedicated to sharing some practical tips and tricks to enhance the accuracy of your financial reports:
1. Does it make sense? Always ask yourself this question when preparing or reviewing a set of financial statements. Many issues can be resolved simply by using this litmus test. You don’t necessarily need to be a finance wizard, you just need to apply logic to your in depth knowledge of the business to know if the accounts make sense. Even if you don’t understand, the best question you can ask is “why?”.
2. An Accurate Point of Sale System: It's often the simple things that matter most. A reliable Point of Sale (POS) system ensures accurate financial statements. You must establish robust systems to guarantee precise metrics like Stock on Hand reports. Ensure that stock invoices are entered on the invoice date and rectify common errors like items sold with zero cost or negative stock counts. It can become extremely problematic with valuations when no stock take is done and the POS data is wrong.
3. Regular Physical Stock Takes: Conducting physical stock takes at least twice a year, preferably at the end of the financial year, is a wise practice. Your POS system may not catch theft, and discrepancies between POS stock counts and actual stock numbers on the shelves can occur.
4. Simplify Financial Data: Some financial statements become unnecessarily complex, laden with non-business elements, making it challenging to discern the true position of the business. Keep your core business accounts straightforward and avoid mixing them with personal or investment activities.
5. Reconciliation of PBS Accruals and Customer Debtors: Neglecting elements like these can lead to significant inaccuracies. Ensure regular reconciliation, and if you manage a nursing home, also reconcile Scripts Owing monthly.
6. Segmentation of High-Cost Drugs and Nursing Home Sales: Use distinct account codes to distinguish between different aspects of your business. This practice helps in comprehending the performance of various business elements.
7. Separate Reporting for Nursing Home Service or News Agency: If your pharmacy serves nursing homes, or has a news agency, lotto agency, having a separate Profit and Loss Statement for these segments is essential. Separately tracking this data enables you to assess the profitability of this activity.
8. Cross-Check with Monthly Reports: Ensure that your monthly Sales and Gross Profit figures in your financial statements align with the data in your monthly Departmental Sales Report or Profit Analysis Report. This cross-check is a reliable accuracy test.
9. Classify Professional Service Income Separately: Place all Professional Service Income and Incentives into an "Other Income" category rather than mixing them with Sales. This practice is crucial, especially as this area of community pharmacy continues to grow and these metrics become key performance indicators.
10. Embrace Technology and Software: Leverage technology and software to simplify your bookkeeping process. These tools not only make it more efficient but also enhance accuracy. Don't shy away from them; the latest versions of MYOB or Xero can expedite your operations and reduce the likelihood of human errors. Remember, garbage in, garbage out.
You don't have to grapple with the intricacies of your financial systems alone. We have the solutions you need to simplify, streamline, and ensure the accuracy of your financial reporting systems. This is our specialty. Reach out to our Peak Strategies team, and we'll assess your systems, recommend improvements, and implement new systems to put your financial reporting on the right track. With our expertise, both you and your advisors will have a crystal-clear understanding of how your pharmacy is performing.