Following on from my last article when I was referring to the current trading conditions, it is apparent that the economy and general trading conditions in pharmacy are not as buoyant as previous years. Add to this the announced cuts to income in the 5th Agreement and the future reductions in income flowing from the WADP mechanism and I think it would be fair to say that we live in interesting times.
By now, most of you will have your next quarterly income tax installment or some will even be paying their income tax account for the previous (2009) year. With flat sales and stock tied up on the shelves, the overall cash position may be tight.
Whether this be your pharmacy’s exact situation or not, the point is that pharmacy should be either nimble enough to change quickly and improve cash-flow or you should have been aware of what the commitments were through forward planning.
Each year through the forecasting process, I sit down with clients and work through projections to understand what we think will be achieved and more importantly, how it will be achieved through strategic planning and tactical responses to competition. We therefore know what the projected profit results will be and can cater for tax as a consequence. If things go ‘off the rails’ as they sometimes do, we can adjust the business operations and projections to get back on track.
The ability to change quickly to manage stock levels around customer’s habits is improving. Using tools such as the JR.Spacelink retail category management tool coupled with the dispensary on-line tool allowing you to conduct buying, pricing, analysis substitution and prepare “What if” analysis means you have up to date data to manage and enhance the business.
The point of the exercise is of course to develop the pharmacy operations, increase customer visits and transaction value therefore allowing you to have enough cash-flow to repay debt, live and pay tax. Therefore you need tools and forecasts to understand and manage the business.
Our role is to manage and save tax where possible within the boundaries of the Law. However our main focus is to get the pharmacy operating efficiently to the point where there is enough free cash-flow in the business that tax is a mere outcome.
We too are looking at many clients quarterly tax statements and helping them understand if they are in fact paying too much right now based on year to date profitability. Of course regular review and production of relevant data is the key in any exercise like this.
With the patchy trading results in the community pharmacy sector of late I do not think anyone should be paying the March nor June 2010 installments without some form of review.