Common Errors in Pharmacy Bookkeeping Part 1

Errors in Pharmacy Bookkeeping.

Everyday I deal with and review numerous sets of accounts. You’ll be surprised how big the range is for the difference in quality of data in the various accounts. Some of the accounts are just so glorious; they represent a true and fair picture of the business.  Others requires a bit of an “accounting touch” to it and some will drive me directly to the café downstairs and get a mocha (yes, my fav) to calm myself and prevent me from pulling all my hairs out.  Once in a blue moon, there are the ones where it’s beyond repair and you just better off scrunch it up, bin it and start from scratch again.

What really frustrates me with poor quality data is not only that there is potential compliance issues, costly and timely to fix errors. They are creating poor foundations that are hard to change later on down the track. However most importantly, the fact that business owners make business decisions based on data that is so poor quality you may even be better of trusting your gut feeling or sixth sense. You wouldn’t take 1 million dollars and gamble it at a casino. Why are you gambling with your million dollar business? So for the next couple of blogs I am sharing some of the common processing errors/pitfalls I have come across in pharmacy accounts. PLEASE action immediately if any of them rings a bell………..

  1. Poor presentation of chart of accounts

This is the backbone of your financial system so it’s really important you get it right. Make sure you separate out the transactions that needs separate reporting, but not over do it and end up with a 5-page balance sheet or P & L.

For example, different business departments – retail, dispensary, nursing homes, and other business lines such as lotto/post/news agency all needs separate reporting. Combining all of these into a one-liner, it’s not very informative is it? You’ll also find yourself facing a lot of problems later on, when getting a valuation done for instance.  The valuer will require you to separate out all different business lines’ sales and expenses individually, as they need to be valued differently. Separating out the business lines will also allow you to analyse the lines separately. Which line is the most profitable one? Which line is making a loss? And if so is it better to drop it or focus on implementing some changes and improvements to turn it around? Obviously you won’t be able to work out the answer to these unless you have proper records.

So, create accounts and report important information separately. But please don’t over do it!

I’ve seen an account with all of the following expense accounts:

  • Stock Purchases

  • Material and Supplies

  • Printing and Stationery

  • Office Supplies

  • Shop Consumables

Seriously!?! Can you please tell me what the difference between some of these accounts is? Is it really necessary to have all of these accounts? Some of these accounts amount to less than $100 for the whole year, is it material enough to report these separately in a million-dollar business’ accounts? Yet you thought I was joking about some accounts having a 5-page P & L. I see a lot of people create separate accounts for once-off transactions or transactions that rarely occurs. Please ask yourself next time you create an account, is it really necessary?

The more lengthy and micro level the accounts, the more difficult it is to interpret as you will need to filter through a lot of information. At the end, for a 5-page P & L, you will only pick up the top figure and the bottom figure. Everything in between will be a bunch of numbers which doesn’t make much sense unless you spend hours and hours analysing them. Funny enough, our brain works in an interesting way - it likes easy tasks and naturally discourages difficult tasks. I bet if I put a 5 page P & L in front of you and say please read it, it will help with your decision making, your brain would tell you to walk away and use your gut feelings instead. It’s much easier that way than to pick up the report and do an extensive analysis.

It is very important to have a good set of Chart of Accounts. A good set of Chart of Accounts should be at the appropriate length. It should be informative and easy to interpret, allowing you to see trends/results, and telling you a story about your business. It should set a strong foundation for you to capture data in a way so that you can rely on. Also to make sound business decisions. So please review your current chart of accounts, maybe it’s a time for a cleanse!

Note: your accountant and bookkeeper should be an expert at creating a good set of Chart of Accounts. Talk to them and trust their expertise. Send me an email on helen@peakstrategies if you need further explanation, always happy to help!


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