Let’s face it! Accounting mistakes happen, especially if you are not just the pharmacy owner but also the pharmacist. Sometimes, life happens, the ball gets dropped, and your ability to navigate the books in your business goes awry.
Let’s save you some time and get your accounting back on track.
Here are the top 5 accounting mistakes that have ruined deals and have worked against pharmacy owners when they are ready to sell their business:
1) Negative Margins
One of the biggest mistakes that pharmacists make is not taking the time to resolve disparities between dispensary reports and third-party billing. If a disparity gets missed between the dispensary and billing record, it can create havoc in the sale process. It is one of the significant “sniff tests” a buyer uses to verify margins.
The root cause of these disparities is often created by pack sizes used by different third-party insurers, especially if the copay overages get overridden. The transaction will be appropriately recorded in the pharmacy’s accounting software, but the dispensary software continues to spit out a negative margin in the reports making due diligence for the buyer nearly impossible.
The solution to this problem is simple by just by taking the time to run a drug-by-drug gross margin report from your dispensary software. Then ensure that it matches the actual cost thus ensuring there are no negative margins in the reports.
If you take the time to do this one simple task it could save you a lot of tears and headaches when you plan to sell your pharmacy. At the end of the day reliable numbers are what will help you close the deal faster simply by showing the suitor they are buying from a trusted source.
2) Failing to Accurately Record Your Accounts Payable
When you fail to record your accounts payable properly, you end up creating a false margin in your income statement. The result is that you don’t give future buyers an accurate picture of your pharmacy’s finances.
Here is an example:
Many pharmacy wholesalers have future due lines not recorded in accounts payable. When you fail to record this in your accounts payable, you are underestimating the cost of goods and overestimating earnings, which can put you in hot water later.
3) Using “cash accounting” When Recording Accounts Receivable (AR) and Payable (AP)
Always ensure to log your accounts receivable and accounts payable correctly. Many pharmacy owners use “cash accounting” and do not record anything in these accounts. If you are not, you and your buyer have no way of verifying gross margin?
Someone evaluating your business will then have to average out the EBITDA over a period of time. However, because the margin needle changes every year, the valuation becomes a guess when the performance of the pharmacy cannot be determined to be accurate.
4) Misrepresenting Dispensary Relief Expenses
When a pharmacist-owner logs a payment to a relief pharmacist as an accounting and professional expense this will misrepresent your wage metrics. Payments to a relief pharmacist should be recorded as a staffing expense. This practice shows a lower staffing cost, which throws a wrench in the deal flow when you are ready to sell your pharmacy.
5) Paper Ledgers are not Best Practice for a Modern-Day Pharmacy
The obvious problem is that a paper ledger makes it harder to sort, analyze, and share information with the required deal flow participants. Also, when it comes to paper, people are less inclined to input all the required transactions, and things get missed!
Accounting software is here to stay; the benefit is that your transaction advisor can work with your data, providing meaningful insight to the future buyer of your pharmacy.
Don’t Make the Same Mistake Twice
If you are making these errors, now is the time to fix them, and it will save you time down the road when you are ready to sell your pharmacy. If you have healthy accounting, you can present a viable pharmacy with transparent bookkeeping to future buyers who are less likely to haggle over cost.
Robert Kiyosaki once said, “The word accounting comes from the word accountability. If you are going to be rich you need to be accountable for your money.” It’s time to take your accounting seriously and build a pharmacy business that is a legacy which will pave the way to a more wealthy and relaxing retirement.