Transform Your Pharmacy with Better Cash Management

Take a deep breath. 1.. 2.. 3.. Pause. Breathe out.

That's your cash flow.

Now feel your pulse. Thump, thump, thump.

That's the net profit running through the veins of your business.

If either one of these goes missing for more than a moment, well I have bad news for you. You might need a business.

Think about the cash flow in pharmacy

• Buy product → pay for it in 17 days

• Dispense product → get paid in 30-45 days (Commercial PBMs) or 15 days (Medicare D)
  

How can you survive? You need to make enough profits to be able to float the payments while paying the wholesaler on time.

So, what has happened to cash flow in 2024?

• DIR fees have moved from being taken out of the prescription reimbursement 30-90 days after dispensing to being taken at the time of dispensing. (DIR fees average about 12% of the ingredient cost or 50% of the GP at adjudication)

• To make matters worse, the DIR fees from 2023 continued to impact the cash flow in the first half of 2024. "DIR Hangover"

Example:

The average store does about $250,000 a month

60% of their business is Medicare ($150,000)

Of that, 24% was profit at dispensing (in 2023 less the 12% DIR fee taken later)

That's correct! There is $36,000 per month less cash flow in the first half of 2024. This will improve by $18,000 after the DIR Hangover is complete, but the damage is done.

So, what can be done about it?

• Remember, your GP has not changed. If you ran a profitable pharmacy in 2023, you can still be profitable in 2024.

• It's just a matter of cash flow. (Per our earlier conversation, it's air not blood)

• But you need capital to run your business. Here are some recommendations...

BEST: Get a line of credit from your local bank. This will be fully underwritten, so it will take time and you have to be profitable in 2022 and 2023. (Cheapest money available)

BETTER: Apply for an SBA Express Loan. This will require some underwriting, so it will take 4-6 weeks, but this is NOT a traditional 7A loan process. You will have to have good credit and be profitable in 2022 and 2023. (These are typically at Prime plus 3%)

GOOD: Apply for a Business-to-Business loan on the marketplace. These are quick 2-3 days, and do not require profitability in your business. The terms are contingent on your credit rating and cash flow through your bank account. HealthGrowth can help you with this process and determine which loan is the best way to access capital to keep your business solvent.

If you have gotten into debt and have to use a short term, higher interest loan, we recommend you allow us to work with you to improve the performance of your business. We can help to restructure your debt into a long term 7A SBA loan, so you can service your debt while continuing to run a healthier, more profitable business.

Lastly, remember cash is king, so protect the king at all costs! His breath (cash flow) and blood (net profit) are crucial to the success of your business. Don't be put in a position where others dictate how you run your business or be forced to sell the kingdom for pennies on the dollar.

Pharmacy is a tough business, but it can be a very profitable business if you do it right. Let us help you to take your business from just staying alive, to making it thrive!