Business Health Check – Pharmacy

The Business Health Check – Pharmacies provides accounting firms with a comprehensive collection of pharmacy-specific resources for evaluating the financial and operational performance of a pharmacy business.

The package supports the complete advisory engagement — from identifying the client’s needs and gathering detailed information through to KPI analysis, financial evaluation, benchmarking, reporting and an agreed Action Plan.

Industry-Specific Pharmacy Business Health Check Workbook

At the centre of the product is the Pharmacy Business Health Check Excel workbook. It contains linked Data Required and Key Performance Indicator worksheets specifically developed around the operating characteristics of a pharmacy.

The Data Required process gathers information across areas including:

• Trading days and hours of operation
• Customers and patients
• Prescription activity
• Sales and sales mix
• Internet and credit sales
• Cost of goods sold and gross profit
• Working owners and principals
• Employees and staffing
• Property and floor-space measurements
• Stock and inventory
• Balance Sheet information
• Operating expenses
• Profit and Loss information

Pharmacy Key Performance Indicators

Information entered into the workbook flows through to the linked Pharmacy Key Performance Indicators report, allowing your firm to analyse the commercial and financial drivers behind the client’s results.

The KPI report covers areas including:

• Sales analysis
• Sales dissection
• Customer and patient information
• Gross profit analysis
• Overall business analysis
• Wages and staffing
• Operating expenses
• Profitability
• Supplier analysis
• Productivity
• Ratio analysis
• Broader financial analysis

This gives your adviser a structured basis for discussing not only the financial result, but the operational factors that may be contributing to that result.

Sales, Prescriptions and Customer Activity

The pharmacy workbook goes beyond total revenue and provides measures that can help your firm explore how effectively the pharmacy is generating sales and serving its customer base.

Depending on the information available, the analysis can include:

• Sales growth or decline compared with the previous period
• Daily sales
• Sales per full-time-equivalent person
• Sales per total hours worked
• Sales per square metre
• Sales relative to total store-opening hours
• Average sale
• Average internet sale
• Percentage of credit sales
• Customer and patient numbers
• Prescription activity

These measures can help the client better understand whether changes in sales are being driven by customer numbers, average transaction values, prescription activity, staffing capacity or other operational factors.

Analyse the Pharmacy Sales Mix

The resources allow sales to be separated into pharmacy-specific categories where the client’s records support that level of analysis.

The workbook includes categories for prescription income and a range of retail areas such as:

• Institutional and non-institutional prescriptions
• Cosmetics
• Vitamins
• Gifts
• Perfumes
• Personal hygiene products
• Other pharmacy sales

This can help your firm and the client identify which areas of the pharmacy are contributing most strongly to sales and provide a basis for discussing gross margins, stock investment and future sales strategies.

Gross Profit, Wages and Profitability

Pharmacy profitability can be influenced by the interaction between sales mix, gross margins, staffing levels and operating costs. The KPI resources bring these areas together so they can be reviewed as part of the same advisory engagement.

Your firm can use the resources to discuss:

• Gross profit performance
• Wages and salaries
• Staff productivity
• Operating expenses
• Profitability trends
• Supplier expenditure
• Sales generated relative to staffing and space

Stock, Inventory and Working Capital

The package includes a dedicated Working Capital Evaluation to help your firm examine how much cash is tied up in the day-to-day operation of the pharmacy.

The review can consider:

• Debtors and debtors’ days outstanding
• Stock and inventory investment
• Stock turn
• Inventory days
• Creditors and creditors’ days outstanding
• Bank balances and available facilities
• Overall working-capital requirements
• Current ratio and relevant banking requirements

This provides a practical basis for discussing whether improvements in inventory, debtor or creditor management could release cash or strengthen the financial position of the business.

Break-Even and Financial Analysis

Break-even resources are included to help your firm identify the level of activity the pharmacy needs to achieve before it begins generating profit.

This analysis can be used alongside the KPI and profitability information to help the client understand the relationship between:

• Sales
• Gross profit
• Operating expenses
• Fixed costs
• Break-even activity
• Targeted profitability

Ratio Analysis

The product includes both a Data Required to Complete Ratio Analysis form and a Ratio Analysis Report, supported by explanatory papers covering Profit and Loss and Balance Sheet ratios.

This allows your firm to extend the health check into a broader review of the financial structure and performance of the pharmacy.

Pharmacy Benchmarking

A dedicated Pharmacy Benchmarking Report Guide identifies the types of data that can be maintained and compared when suitable external benchmarking information is available.

Benchmarking measures can include areas such as:

• Sales and gross profit percentages
• Key expenses as a percentage of sales
• Sales and gross profit per team member
• Sales and gross profit relative to wages
• Sales and gross profit per square metre
• Staffing levels and pharmacist numbers
• Stock turn
• Dispensing activity
• Trading hours
• Rent and occupancy measures
• Debtors and creditors days
• Selected financial ratios

The package provides the guidance and reporting framework for benchmarking. Your firm can then use suitable current benchmarking information available to the practice when preparing the client comparison.

“What If” Sales and Profitability Scenarios

The included “What If” workbook provides a way to demonstrate how changes in key business assumptions can affect the future financial result.

Scenarios can be explored around factors such as:

• Changes in customer numbers
• Changes in average selling price
• Changes in frequency of customer visits
• Changes in gross profit percentage
• Alternative sales targets
• The resulting effect on projected profitability

This helps turn the Business Health Check from a review of past performance into a forward-looking discussion about what may need to change to achieve a stronger result.

Future Maintainable Profits and Business Valuation

Where valuation forms part of the agreed assignment, the package includes resources for calculating future maintainable profits and considering the value of the business.

Supporting valuation papers provide additional background on traditional business valuation concepts as well as valuation approaches relevant to businesses developing new products, processes or services.

From Needs Analysis to a Defined Advisory Engagement

The package includes the SME Needs’ Analysis, which can be used during an initial one-on-one client discussion to identify the areas in which the client may want further assistance.

Once the scope of the Pharmacy Business Health Check has been agreed, the supporting engagement resources help your firm turn that opportunity into a clearly defined professional assignment.

Scope, Quote and Manage the Assignment

Practical engagement-management resources include:

• Work Programme/Budget/Quotation Form
• Work Programme Timetable
• Business Health Check proposal template
• Pharmacy Assignment Control Form
• Data-gathering forms
• Sub-report planning
• Allocation of work to team members

These resources help establish the work to be undertaken, estimate the time required, calculate the quotation, communicate the timetable to the client and allocate responsibility within the firm.

Business Health Check Report and Action Plan

The individual analyses and sub-reports can be brought together into the Business Health Check Report, providing the client with a structured summary of the findings.

The report can incorporate:

• Key Performance Indicator findings
• Ratio analysis
• Break-even observations
• Working-capital findings
• Benchmarking comparisons where applicable
• Valuation findings where included in the assignment
• “What If” scenario results
• An Action Plan identifying agreed priorities and next steps

Supporting Technical Guidance

The subscriber resources include supporting papers to help your team understand the analysis behind the Business Health Check.

Guidance covers topics including:

• Key Performance Indicators
• Performance measures
• Break-even analysis
• Working capital
• Debtors
• Stock management
• Ratio analysis
• Benchmarking
• Business valuation

A Repeatable Pharmacy Advisory Service

Together, the resources give your firm a practical framework for delivering a specialised Business Health Check to pharmacy clients.

Rather than developing your own pharmacy KPI workbook, data-gathering forms, financial-analysis tools and engagement process from scratch, your team can use a coordinated set of resources to gather the information, analyse performance, identify issues and opportunities, report the findings and establish clear priorities with the client.

This creates an opportunity to move the conversation beyond historical accounts and use industry-specific information to provide more commercially focused advice to pharmacy owners.