SERIES: Master The Margin Episode 1: Independent Pharmacy Accounting Fundamentals
Welcome to the inaugural episode of our newest series Master the Margin with Scotty Sykes, CPA, CFP, and Kathy Blanchard, Senior Pharmacy Accountant.
This series is all about diving deep into accounting and tax topics for independent pharmacy owners.
In this episode, we’re starting with the basics…fundamental accounting.
We share insights into:
- How to tackle common accounting challenges in the pharmacy industry
- The basics of balance sheets and profit and loss statements
- The importance of data integrity in your financials
- Scotty’s love for all things caffeine
Ready to take your pharmacy to the next level? Join the discussion with us!
The Master The Margin Podcast Series is your go-to series for independent pharmacy accounting and tax topics.
In this series, we dive deep into understanding your balance sheet, profit and loss statements, key performance indicators, tax advantages, and more.
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More resources about this topic:
Blog – Fundamentals of Pharmacy Accounting
Presentation – Fundamentals of Pharmacy Accounting: Navigating 2024 and Beyond
Podcast – Tackle Independent Pharmacy Accounting
Video – The Fundamentals of Pharmacy Accounting
If you prefer to read this content, the video transcript is below:
Scotty Sykes, CPA, CFP®: Well, hello everyone. Welcome to, I guess this is our inaugural, inaugural Master the Margin series on accounting and tax topics for pharmacy owners. Specifically, you know, we got the podcast on The Bottom Line Podcast where we more or less interview professionals in the industry, vendors and things like that. This is going to shift Kathy a little more towards the accounting and the tax side of things for pharmacies. And so, this is the inaugural Master the Margin as I mentioned and Kathy on this first episode you might notice that I’m drinking my iced coffee. So, anybody who follows our podcast knows that I went from hot coffee to tea and now I’m on the iced coffee. So switching it up a little bit.
Kathy Blanchard, Senior Pharmacy Accountant: I think you have a caffeine issue.
Scotty Sykes, CPA, CFP®: I really might. Although I pretty much stop at this. I don’t drink more coffee or anything after my morning coffee. We’re glad to have everybody listening in. In today’s episode, Kathy, we’re gonna talk about fundamental accounting. And we talk about this all over the country. In our CE classes, you know when we go to trade shows and we’re speaking with people, when people call in, it really all starts at fundamental accounting. So, you know, what is fundamental accounting Kathy, what would you say? And by the way, we got to introduce Kathy. Kathy is a senior pharmacy accountant here. She’s one of our specialists on really 340B receivables. What else, Kathy?
Kathy Blanchard, Senior Pharmacy Accountant: Cleaning up nightmares.
Scotty Sykes, CPA, CFP®: A little bit of everything.
Kathy Blanchard, Senior Pharmacy Accountant: Jack of all trades,
Scotty Sykes, CPA, CFP®: Yeah, Jack of all Trades and does a lot of our onboarding as well. So Kathy is, you’ve been here, how long Kathy have you been here since early, mid 80s, since the early 80s?
Kathy Blanchard, Senior Pharmacy Accountant: Early 80s. Yeah, 41 years.
Scotty Sykes, CPA, CFP: Kathy’s been in pharmacy quite a while. So Kathy with that and fundamental accounting as I mentioned, we talk about that all the time. What is that fundamental accounting for pharmacy? What does that
Kathy Blanchard, Senior Pharmacy Accountant: Well, let’s just kind of start with the basics. Reports that you really want to see on a monthly basis. Balance sheet and profit and loss statement. The balance sheet shows or reflects what you own and who you owe and the equity that you have in your company. You know, your assets are your cash, receivables, inventory, your equipment. That’s what you own. Those are your assets. And then of course on the liability side, you’ve got your accounts payable, your credit card debt, any small payables like payroll taxes, sales tax, and then any debt that you owe institutions like banks, line of credit, that kind of thing. And then of course below that you’ve got the equity. That’s the amount of money that you have accumulated year over year in your pharmacy gets a little bit detailed. We don’t want to go there today. But then on the opposite side is your profit and loss statement, your revenues, your cost of goods sold, your operating expenses, and sometimes you have other income, interest income, dividends, rebates, that kind of thing. Fundamentals are those two reports and of course we can always dig into the weeds on the details, especially on the balance sheet. The balance sheet is basically your thermometer. It controls everything on the profit and loss statement. So if you’re out of control on your balance sheet, you have no integrity in your P&L and you probably shouldn’t even be looking at either report.
Scotty Sykes, CPA, CFP®: Yeah, and so the fundamentals are really the, you know, how are you getting to those numbers on the balance sheet in P&L? Those are fundamental components of the accounting system. And you know, as we get into more episodes, we’ll kind of go down the balance sheet and P&L and we’ll touch on all these topics, but it’s really having that data integrity in your numbers. And you’ve got to have data integrity in a pharmacy because margins are thin and there’s just not a lot of room for error. You got the cash flow issue already built into pharmacy, whereas as Kathy you know, you’re filling scripts, you’re paying that wholesaler in 10 or 15 days, you’re not getting paid until 21 to 25 days later on average. And so right there you have a built in cash flow issue in pharmacy. So fundamentals are very important due to that thin margin, little margin of room for error, and then the cashflow issue. So that’s what we mean by fundamental accounting. Get that data integrity behind each and every number on the balance sheet, the P&L, understand those components, and then you can take that number, take that data, and then really analyze it and really take action on where you need to take action and manage and control your pharmacy. And what we’ll typically see is we’ll get calls where pharmacies will say, I just feel like something’s not right, something’s telling me something’s not quite right, or I’m paying too much tax, or I’m not real sure where I am, I haven’t gotten any financial statements lately. That’s a typical instance where then we’ll come in and do an Rx Assessment review, or an Rx Assessment, where we take the accounting and tax returns overview that internally, get the pharmacy on the call and we walk through everything and then, you know, we’re going through that balance sheet and P&L and we’re identifying those gaps in the fundamentals and the issues and, you know, putting them and giving them the steps they need to take to make those updates and corrections to the fundamental accounting. So, it’s very common in pharmacy to see fundamental issues because pharmacy has its nuances, it’s got some challenges to it. Someone off the street is gonna struggle with the accounting side of pharmacy. If you don’t really understand pharmacy, throw in 340B or what have you and then you’ve amplified it times 10. So, it does take a little bit of experience in the pharmacy accounting space. Well, we lost Kathy somewhere out there anyway. So fundamental accounting, it’s absolutely crucial in pharmacy, you have to have it. We talked about what it is and why you need it, how you would get started here is really just starting with your balance sheet and going line by line through that balance sheet and double checking those numbers and questioning every line item on that balance sheet P&L. So, that’s how you would get started, but we hope this episode’s helpful. We’re gonna be, in this series, we’re gonna be going through each and every, pretty much, balance sheet line item on a pharmacy and P&L. Also dive into tax topics here and there as well, I’m sure. But we hope this was helpful for you and we’ll look forward to seeing you on the next Master the Margin.