Let’s Chat Pt.2 – RBC Cardinal Health, ThoughtSpot 2023, DIR Fees, and ERTC

In this episode of the Bottom Line Pharmacy Podcast, our hosts Scotty, Kendell, and Bonnie take you on a journey through the final leg of their tradeshow travels. Join them as they recount their experiences at Cardinal RBC in Boston, #ThoughSpot Amerisource 2023 in Vegas, travel bloopers, DIR fees, and insights into cash flow control.

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Scotty: All right, everybody, welcome to another episode of the Sykes Bottom Line Pharmacy Podcast. And today is the middle of July, and it’s hotter than Hades out there. Bonnie’s got her bathing suit on just about over there.

Bonnie: It’s hot.

Scotty: It’s brutal.

Bonnie: But you just got back from Cardinal?

Scotty: I did.

Bonnie: How’d that go?

Scotty: Good. We had about 240 in the class.

Kendell: Oh, man.

Scotty: Talked about DIR fees.

Bonnie: That is the topic.

Scotty: That is the topic.

Kendell: What’s the top question on DIR fees people have right now? Is there one, a reoccurring one?

Scotty: No, there’s not. My main thing for everybody in the class was your fundamental accounting. So, it’s all going to start there. I mean, if you’re trying to prepare for DIR fees, you got to have your fundamentals in place, and then you can use your accounting to help you plan and prepare. So, I toldfolks, step one, get your fundamentals in order. And what that looks like is you take your balance sheet at the end of last year and you literally go line by line that balance sheet and you be able to support each line item on that balance sheet with a workpaper or something. And be confident in those numbers, especially your equity section, because if that’s not tied down, that typically means you have two sets of books compared to your tax return and what your CPA is doing. So, the fundamentals is just a huge piece of that. And a lot of times we see inventory not being adjusted. Every year it’s the same number. No receivables or payables has a bunch of old stuff in there. There’s duplicate checks in the bank account. So, the fundamentals are all out of whack. And if that’s happening, you can’t really rely on your accounting to help you plan and prepare for 2024 DIR fee unknown. So those fundamentals, first step, you got to have it.

Bonnie: Yeah, I know we talk about that, but it really goes back to the basics of that indefinitely. Every line on the balance sheet is important, but inventory and the receivables drive that P&L, your gross profit. And if those are off and not correct, and we have to go as far away even with our clients right now to explain to even if you have a third-party reconciliation service in place, there’s still a lot that you have to do with that. So, you’ve got to go a step beyond that and look at your reports and make sure that they make sense and they’re correct and that you’re checking off those claims. Because if you’re using the number on your report but your report is bad and you’ve got a lot in that over 90-day column, then your receivables are off and then your financials are off.

Scotty: There’s a lot of data. There’s a lot of data in that third-party reconciliation system. So, it’s not just for getting your receivables and your DIR fees because that’s where you’re getting that information from, but there’s a whole host of information in there. I mean, you know who’s paying you when they’re paying you what’s not being paid?

Kendell: Yeah, a lot of times there’s different fees and things like that. DIR fees and then there’s additional fees on top of DIR fees that you kind of got to take a deep dive in if you want to know what’s going on at the granular level.

Scotty: But I’d say the environment was just kind of tense. People are not sure what’s going to happen. Nobody knows. So, you just got to plan and prepare best you can. And one thing I did mention is which kind of gets not talked about is owner draws and distributions. So, monies the owners are taking out of the pharmacy. You’re going to have to be mindful of that going into the end of the year. Taxes is obviously a big part of that because that does not show on your P&L, profit, and loss. Those are balance sheet items. So be mindful of that in addition to the debt you’re paying because principal on debt is also not an expense on the P&L. It all goes into the cash flow cycle in your pharmacy and how cash moves in your pharmacy. And again, they got to have the fundamentals to do it.

Kendell: And that’s one thing that I feel like everybody knows is important, but people are afraid to talk about a little bit is cash. Just how much cash is enough and how much is too little. Because if you think about it, the inventory, and the receivables, those are moving pieces that a lot of people have no handle on. But you can just pull up your phone quickly and you know exactly how much cash you have. Now you know how much you have. But the question is do you have enough? Do you have too much?

Scotty: Never enough.

Kendell: Or do you have too little? Think about it.

Bonnie: Yeah, everybody’s appetite is different for what…

Kendell: For what they can have.

Bonnie: Yeah, but I know I have some clients that are concerned about the timing so you’ve got all this going on in the first quarter, get taxes that will be due in first quarter, personal estimates for the next year. But also, we’ve had a lot of clients under the cash basis that have been doing a lot of prepayments to get expenses to bring down taxes for that current year. And their concern is, am I going to be able to afford to do that and have the cash to do that with everything coming first quarter?

Kendell: Yeah, that’s a good question.

Bonnie: Do we need to save it? But then I’m going to have more tax due.

Kendell: Can I tee y’all up a question real quick? I’m going to tee this one up. Y’all can hit it out the park. How does current debt, like your amount of current debt, impact the amount of cash a pharmacy should be thinking they need to have coming into this DIR fee first quarter situation? How do you think that would impact the cash flow that they need?

Scotty: Well, I would say you need to be looking at that current ratio, that’s, that key performance indicator on your balance sheet for liquidity and cash flow. And that’s going to take into consideration that current debt, getting that current ratio, historically, it’s been around two and a half to one for a pharmacy, but you’re going to want to get that up to three, maybe even higher than that. Going into the end of the year is probably a wise thing to do. But also having some kind of idea of what we don’t know what’s going to happen. But having some number or estimate you can work off of I think is important too. So, we’ve got some clients who will take the trimester DIR Fees January through May of 2023. And they’re going to multiply those by two and a half. Add them up, multiply them by two and a half, and say, this is kind of the impact I’m going to see next March, April, when it’s expected, everything’s going to hit. So that should give you a good idea, I reckon, of a number to shoot for. So, we’re seeing some pharmacies do that. And also, the third-party reconciliation systems have some estimators in there as well.

Bonnie: And it just makes it hard to estimate when you’re talking about debt. So many of our clients have SBA loans with adjustable rates, which are great when rates are going down, but with them going up, payments are up, but that’s just another thing.

Kendell: Yeah. So, a client that has like, for example, they’re paying monthly on their wholesaler bill, so their accounts payable is very large and then they may be a newer pharmacy that has a lot of outstanding debt from the purchase. So, in the next year, the current portion of those purchases is going to be pretty heavy too, which doesn’t factor in on the P&L because principal payments, they might need to have a little bit more of a cushion than a mom and pop who’s third generation pharmacy owner who doesn’t owe anybody anything. And there’s no current debt on the books.

Scotty: You mentioned prepay earlier, and inventory does not count for prepay. Inventory is inventory.

Bonnie: Operating expenses. Yeah, we have people that go ahead and pay rent for the year that are on cash basis in December. Go ahead and get that deduction, those sorts of things.

Scotty: It is a good question because are you going to prepay the whole year? Are you going to prepay the first three, four months while you’re trying to deal with…

Bonnie: It’s a lot of moving pieces.

Scotty: So, it should be interesting.

Bonnie: Makes it fun for us for tax planning, too.

Scotty: Got to love tax. Check this out. On my coffee machine, there’s this bold button, and I’ve never hit it before. So, I made my normal coffee, and then I hit the bold button. I’m telling you, caffeine doesn’t really get me, but this thing like, got you.

Kendell: You’re awake now. Got some nitrous oxide. It looks like you just hit the nitro button.

Scotty: It’s almost like one of those…

Kendell: Fast and the furious.

Scotty: … caffeine jittery. I don’t really like it.

Bonnie: What did it do? What did it add?

Scotty: I don’t know Kendell’s the expresso man.

Kendell: I don’t know about this. I haven’t even gotten my coffee, so I didn’t want to be screaming into the mic. So, I’m getting my coffee after the…

Scotty: Oh, man.

Kendell: podcast session.

Scotty: Got to have coffee.

Kendell: And then no, we had some good, nice photos. You guys were looking good on the trade show floor. The highlight was the one of Ollin and he had this gesture, like, we posted it, and hopefully, did Ollin get upset? Did he see that it was posted? I didn’t know how he would feel.

Scotty: He didn’t make any comments about it.

Kendell: He didn’t make any comments.

Scotty: I don’t think he was too flattered by it.

Bonnie: I’ve seen that look many times.

Kendell: He’s like, I don’t know. What are you doing?

Scotty: But it was in this especially when you’re traveling. You’ll see that all the time when you’re traveling with him.

Kendell: Yeah. Do you remember what that was in context of? Or is it like…

Scotty: I have no idea.©© Sykes & Company, P. A.

Kendell: We’ll have to make following captions for it.

Scotty: I have no idea.

Kendell: Yeah, if you ever seen it, have.

Bonnie: If you’ve ever seen it, we should have everybody submit…

Scotty: It’s a meme.

Bonnie: a caption

Scotty: It’s a total meme.

Bonnie: And pick the best one.

Kendell: Yeah, definitely check out our social media. I think that was on our Facebook page. I got the biggest compliment, and my heart hurt the hardest at the same time. So, we had a client who called and was like, what’s going on with the DIR fees? You got any advice? So, I said, yeah, and I sent them the podcast we’ve done on DIR fees. And I was like, let me know. We can talk about it in detail after you get a chance to watch it. So, she replies back, “Great information!!! Looking forward to listening to future podcasts.” So, at that point, I’m on cloud nine. I’m like, okay, we’re doing something, we’re touching some hearts, we’re moving people. The next sentence, “I didn’t know y’all did this.” My heart hurt at that moment.

Scotty: We’ve sent some emails out about it.

Kendell: I think so. We’ve got to send some more soon though. But no, it tells you that people are listening and yeah, it’s answering questions too. So, I got to give a big shout-out to you guys and all our guests who’ve come and kind of shared some good knowledge. It’s impactful, people are listening. Did you hear any people on the trade show floor mention?

Scotty: Yeah, we got a few people that mentioned and always ask subscribe if you don’t know about our podcast. So, we got a few hits out there. Come up to the booth. “Hey, I’ve been listening to y’all’sstuff.”

Kendell: So, we need anybody listening to this one. We want to make sure it stays relevant. So definitely whatever platform you’re using, put a comment in there, let us know exactly what you want to hear and talk about next, and we’ll do it. We’ll put it on the list for sure.

Scotty: Yes, we will. We ain’t scared of nothing.

Bonnie: Because right now the topics are DIR fees and ERTC.

Scotty: Is that your cue to switch into your favorite topic?

Bonnie: Well, why not? Have you had any updates, Scotty?

Scotty: Well, as a matter of fact I have.

Kendell: Reporting live from Edenton.

Bonnie: Also, this is prerecorded so this could have changed by the time it’s live.

Scotty: When we did do our talk, ERTC was a few questions. We did get a few questions on that. My go to answer is I’m not going to tell you, you don’t qualify, but and even though dad told everybody, they don’t.

Kendell: He said, I’m not going to tell you, Dad will.

Scotty: And I told him that in the show while we were talking. It was funny anyway.

Bonnie: Maybe that’s what he was doing, he’s like “You don’t qualify”.

Kendell: Yeah, he’s like, “How in the world do you think you qualify?”

Scotty: It’s not that you don’t qualify. It’s like if you do qualify, what you have to do to show you qualify is extensive. It’s not the check the box and then just attach a government order and this and that. You have to show that nominal impact and with quantifiable numbers and things like that, which I have yet to see any third-party produce. So that’s why I say it’s very hard to qualify or to make yourself eligible there.

Bonnie: You have to be careful with that too because I’ve had a client recently to send me the paperwork before they signed it. They’re like, they used a third-party and they’re like, they gave us they sent it to me, the attachment, this is the paperwork they gave me that’s proving that we qualify. And they were like, yay, we qualify, and we look at it and it is not, so even if somebody tells you this is attachment proves that you qualify. What is that?

Kendell: And I think in some industries, maybe that’s one thing I always emphasize, maybe it was as easy as some of these third parties are exclaiming it to be in some industries. Meaning if you owned a restaurant, your restaurant was closed for several months. Yeah, definitely. Let’s slap that government on it, order on there and write out the details and do it. It’s going to be quantifiable too because you had no income for several months. But specifically for the pharmacy industry, I mean, the restaurant didn’t get revenue. The pharmacies had their best years and it’s just that this particular industry didn’t have that impact that other industries had.

Scotty: So that’s why it’s harder to qualify yourself.

Kendell: As a pharmacy.

Scotty: The supply chain disruption qualifier really took a hit this past week. With the IRS issuing this memorandum here, eight-page memorandum from their legal counsel there, and they pretty much say the supply chain was never in the statute. And that it’s going to be very rare to claim a supply chain disruption. So, if you’re leaning on the supply chain disruption, you might want to read this memorandum that just came out, AM 2023-005, release date 7/21/2023. And that’ll give you some insight on what to expect with the supply chain disruption and what’s needed there. Because if you’re going to go with that route, you got to go and argue why the supplier had a disruption. So, you have to pull the orders they’re under, pull the issues they face. So, you have to do pretty much an ERTC study on the supplier and then roll it into how it impacted you. So, it’s crazy.

Kendell: I’ve never seen this many updates and changes from the IRS and memos on one topic in such a short span. It basically says, hey, we know a lot of people are not doing this right. And this has gotten our eyes, obviously got the attention of the IRS. It’s every few weeks they’re releasing something new.

Scotty: So, you just want to be careful, do your due diligence. But if you did have the drop in gross receipts and you meet that test, then I would certainly be looking at the ERTC because that is a clear-cut black and white test.

Bonnie: But that’s about 1% of what we’ve seen, clients, pharmacy clients.

Scotty: Right.

Bonnie: With a drop.

Scotty: So that ERTC continues to unfold. I imagine that might just have to be like a permanent topic.

Bonnie: This could be forever.

Scotty: It can be the court cases coming, it’d be nice and juicy getting into those.

Bonnie: We’ll be amending tax returns.

Scotty: I don’t know, man.

Bonnie: Four years from now.

Scotty: You can’t amend a return that far.

Bonnie: That’s true.

Scotty: So just be careful. Just be careful out there. Know what you’re doing. Know what you’re signing.

Bonnie: It’s the wild wild west.

Scotty: What else we got?

Bonnie: I mean, that’s basically the only two topics.

Kendell: Those are the big ones right now. And then obviously we’re about to start ramping up tax planning and things like that. We’ll start ramping that up a little bit.

Scotty: We do have some, during the summer lull here of our podcast, in between all the travel, we are looking at booking some new, exciting guests, in the fall.

Bonnie: We’ve got some really good ones.

Scotty: Hopefully, get NCPA, maybe Doug on here, or maybe link up with Pioneer, hopefully on one of these, 340B. Let’s see, what else? All kinds of stuff. So, we’re working on that in the background. Maybe even have the big man himself, the Big O, and do another travel blooper.

Kendell: Yeah, we definitely got to get Big O on, Big O.

Scotty: I’m trying to think of any travel bloopers. I don’t really have any.

Kendell: Y’all were packed. Y’all were so busy. Didn’t have time to make any film.

Scotty: I do have one funny story. I guess it’s kind of funny. So, we went out to eat at Cardinal somewhere in downtown Boston. And I was like, it’s a mile away. I’m going to walk. I’m not going to sit in the traffic for 20 minutes. So, I walked. But dad wanted me to go ahead and reserve the Uber for like, 5:15. So I had the phone. I reserved the Uber, and I was like, well, I’m going to cancel it because I’m going to walk. Blah, blah. He’s like, no, don’t do that. Don’t do that.

Bonnie: We’re not going to get one. There’s no more.

Scotty: I didn’t argue with him. I was like, fine. So, I’m sitting there in front of the restaurant just waiting, relaxing for a minute, and I get the message from the Uber guy.

Bonnie: He’s following you.

Scotty: I’m here, and it’s 5:00, not 5:15.

Kendell: Oh, wow.

Scotty: Dad, Megan, they’re all up in their hotel rooms. I texted the whole group and was like, hey, the Uber is there at 5:00. And then I didn’t hear anything. Yeah, then they get to the restaurant. They make it to the restaurant. And Megan, later that next day, she’s like, oh, my gosh. You have no idea. He was knocking on our doors. He was running down the elevator, running to get into the cab. The cab’s going to leave. He’s going to leave. He’s going to leave. So, he was freaking out.

Bonnie: Those are good times.

Scotty: I was like, I know all about that.

Kendell: Yeah.

Scotty: Meanwhile, I’m just sitting on my bench just relaxing. No stress.

Bonnie: Yeah. And you walked.

Scotty: And I walked.

Bonnie: So, what you learned from this is you get your own Uber with your own phone when you’re ready. When the group is ready. Listen, one day we’ll need a whole separate episode to go through my favorite Ollin travel blooper when he had to call up security to check on me in my room on a Saturday morning.

Kendell: Yeah, we got to do that one.

Bonnie: I had ten people at my door.

Scotty: Oh, he almost did that on this trip. Caroline, we had to tell him, like, hey, you know.

Bonnie: That was my favorite.

Scotty: Yeah, he texted Caroline. We’re sitting at breakfast. Where is she? She’s not here.

Bonnie: I would just say I had 3 hours before I had to be somewhere. And it was a Saturday morning, and I had my phone on silent. And apparently, after he texted me a few times, he expected the worst, so he sent up a well check.

Kendell: I missed a teams meeting one time and I had a wellness check.

Bonnie: Get somebody from your town to go check on you. He cares. It’s important.

Kendell: Yeah, we love that guy. Love him.

Scotty: He wouldn’t check on me. He’d be like, whatever. If I don’t show up at the tradeshow, he’d be like whatever.

Bonnie: I think that might have happened. You’ve been late to the tradeshow before. And he was like ugh. Years ago. He didn’t care. He’ll be here.

Kendell: I’m about to cut my phone off silent right now just in case.

Bonnie: You better answer.

Kendell: I will keep my ringer on.

Bonnie: We also could talk about another time you know my favorite, Ollin’s phone got crushed. Got run over at a gas station right before the last tradeshow. That was exciting. We were leaving, like, on Monday morning, and this happened on a Sunday. He was in a complete panic. He was not going to have time to get his phone before he left.

Scotty: But he got it.

Bonnie: Unless he sat in a Verizon store, which nobody does that anymore. So, he spent his Sunday in a Verizon store. But the best part was he kept complaining about the idiot who ran over his phone. And I was like, how is it somebody else’s fault if somebody runs over your phone? And finally, while we were at the tradeshow and he had his new phone and everything was fine, he explained to us that he thinks he could have been the one that ran over it. I was like what is happening?

Scotty: He pretty much told me he did it.

Kendell: His Tesla probably recorded it.

Bonnie: Why were you at the gas station if you have a Tesla? And how did you run over your own phone? But those are the things we’re dealing with here, real life topics.

Scotty: That’s what keeps us going.

Bonnie: Well, you leave for Amerisource soon. Kendell and I will not be there.

Scotty: Should be good.

Bonnie: Then NCPA coming up in October along with another ownership workshop opportunity for anyone who’s looking to do that ahead of the show.

Kendell: Definitely.

Bonnie: So, they’re definitely taking registration for that. I saw that the other day, promoting that.

Scotty: And let’s go ahead and plug because when we go to the NCPA, we go ham on podcast, video, marketing, interviews.

Kendell: Stop by the booth, please.

Scotty: Because Kendell’s going to be in action.

Bonnie: Kendell’s going to be there. We’re all going to be there.

Scotty: So, if you want to get a guest appearance or something like that, that’s where you want to be. Come on.

Bonnie: We need to go ahead so that we are accountable. And I’m going to go ahead and say it right here live today, so we can’t go back.

Kendell: I’m scared. I’m scared.

Bonnie: We’re going live. We’re going to do a live podcast at NCPA.

Scotty: Let’s do it.

Bonnie: We need to do it on the tradeshow floor. We’re doing it.

Kendell: Yeah, we need to do it. iPhone 14, a little microphone. We can make it happen.

Bonnie: We do have some old stuff from like a year ago that we could re-release.

Kendell: Listen, you give me the green light. We’ll have that ready in no time.

Bonnie: I mean, I don’t hate it.

Scotty: Well, I guess we have some tax returns and financial statements to look over.

Kendell: Yeah.

Scotty: So better get back at it.

Bonnie: I need to read that IRS notice.

Scotty: No, you really don’t. It just says, you know if you’re going for supply chain disruption, forget about it.

Bonnie: Forget about it.

Kendell: So, the bottom line. That’s the bottom line right there.

Scotty: The bottom line. Yes, that’s the bottom line. And come see us at one of the tradeshows.

Bonnie: Absolutely. And if you’re interested in an assessment. Talking about going back to fundamental accounting. You want us to look at what you’ve got? We’ve got a service for that too on our website.

Scotty: One-time service.

Bonnie: One-time service.

Scotty: One shot.

Bonnie: Kind of, a checkup to see how things are going.

Scotty: Yes. All right, everybody. We appreciate you listening in, and we will see you on another episode of The Bottom Line Pharmacy Podcast.

Kendell: And that’s the bottom line.

Bonnie: And that’s the bottom line. Bye.

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