Independent Pharmacy Accounting

Pharmacy Accountants Recap 2022 Trade Show Circuit

In this lighthearted, yet educational episode of our new The Bottom Line Pharmacy Podcast, join the Sykes & Company, P.A. team as they recount memories and takeaways from their tour of the independent pharmacy trade show circuit in 2022.

Pharmacy accountants and advisors Bonnie Bond, CPA, Kendell Harris, CPA and Scotty Sykes, CPA, CFP® discuss the “bottom line” for independent pharmacists attending conferences and trade shows this year.

Some of the subjects they touch upon include DIR fee management, diversifying revenues streams, and consulting with patients in addition to filling prescriptions.


The Bottom Line Pharmacy Podcast is your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors, and other innovators.

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If you prefer to read this content, the video transcript is below.

Scotty: Welcome everybody to the Sykes & Company, P.A. Bottom Line Pharmacy Podcast and today we are going to be talking about the trade shows and we just got done with a marathon of trade shows. I am telling you, I got back from what, six or seven weeks on the road and I literally felt like I had run a marathon. Kendell, you know all about it. Bonnie, you knew all about it, you all were there.

And I will tell you, we had a full crowd: 230 people, plus. So, we touched on the fundamentals of accounting. We touched on a few tax topics and ended on some buy-sell considerations, which could be a whole class in and of itself.

And, and one of the takeaways from the speaking would be we got a lot of questions on DIR fees, a lot of questions on the chart of accounts, how that needs to be set up, which there are some good questions, but there is, I think there is a little confusion out there with the chart of accounts here.

Some were saying rebates should be against cost of goods. Some were saying it should be as other income. Same with DIR fees. DIR fees should go against your sales or DIR fees should be shown as an expense. Lot of contention there, I would even say, with how that is supposed to be reported. And I think the big takeaway that people were missing was it does not matter how you are showing these accounts, your bottom line is going to be the same. It is how you are analyzing.

These numbers as long as they are accurate and you follow the fundamentals as we touched on in on those engagements. At the end of the day, the numbers are the same. It is just about how are you analyzing these numbers? Whether you have these accounts in certain areas or not.

Bonnie: And how to see those percentages and the reasoning for what we do and how we show it – it is really for reporting purposes, to be able to see it on our end, how that pharmacy is operating and the percent of sales for DIR fees and percent of sales for the rebate.

Kendell: I know we are really familiar with the various ways to present it, but just to kind of recap a little bit for those who were not there, some are lumping rebates and then they are also lumping DIR fees. All of that is going against the cost of goods sold and it is all being lumped up. Some that want the presentation to be different. But one thing I always think is most pharmacies that I talk to, they do not have a line item anywhere on their P&Ls.

They are not reporting it at all. So, I think that is the first thing is if it is just not reported or if it is grouped with other accounts and you say, well, you know, the bottom line is going to be the same. So, I just want to know what my net gross profit percentage is. That is an argument. I just, I just want to know what net, I just want to know what I am getting, but then you think about, it, it is like, okay, if you know your net it is because your buying had slipped or is it because your DIR fees have increased or is it because your rebates have gone down? What is going on? So, then you cannot be actionable even though it’s the bottom line.

Shout out to the podcast, The Bottom Line, even though the bottom line is the same. If it is not broken out, how can you make any decisions on what you are doing? So, I think the one thing we can all agree on is that you need to have it listed on your P&L somewhere.

Scotty: Yeah. Got to have, yeah. Got to have the fundamentals in there. And then from there, however you present, it is kind of up to you and your unique situation. But as long as you are pulling the information out of what those numbers are telling you, that is what you need to be able to understand. Not exactly where they are, but what do they tell me as a pharmacy?

So, that I do not want folks to get caught up in that because we, you know, we had a lot of questions on that. And so anyway, moving on here, I think we answered that pretty well when we were talking, too, as well, but, and Bonnie, we got a lot of good feedback on that talk. We also talked at Cardinal, we spoke there, we got a lot of questions on the ERC employee retention tax credit, which we have already done a podcast on.

Bottom line there is, it’s going to be hard for a pharmacy to qualify. It’s just going to be difficult. So, you have to be very careful there.

Bonnie: I think you need to be clear when you say it should be hard for a pharmacy to qualify, Scotty. I think it is very possible that if you fill out the paperwork, you may qualify as far as they may give you the credit. Do not feel like you are out of the woods because you fill out the paperwork and someone gives you the credit. That is not what we are talking about. I think if you fill the paperwork out and you send it in, there is a good chance you might get the money, but… do you actually qualify truthfully?

Scotty: Again, OSHA: not a government order. CDC: not a government order. The supply chain issue is a stretch. So, partial shutdown due to a government order is going to just be very difficult to make yourself qualify in that regard. And it is very subjective. So, just be careful there, if you do come across employee retention tax.

Bonnie: And just be careful with the people that are calling and knocking on your door, trying to get… pushing you to do it, they are really, you know, in it to win it, get their portion.

Scotty: They want their 15, 25%.

Bonnie: So, they’re not going to tell you if you are the one that is going to sign it and say that you qualify. So just keep that in mind.

Scotty: And let’s see what else we talked on DIR fees this year at the Apex show had a presentation for about an hour on DIR fees. What we are seeing there, you know, DIR fees continue to trend upwards for 2022. It seems like it was about 2 1/2% in 2020, 3 1/2% of revenue in 2021. And looks like we are creeping up to 4 1/2% of revenue in 2022 here. So, you know, a lot of pharmacies… I guess, Kendell, is we, they do not know where they stand as a percent of revenue for DIR fees and that goes back to your point you were making earlier, but you need to know these percentages because it is going to open up a whole can of questions on why you are or not, where you are performing, where you should be in terms of DIR fees.

I mean, you may be above average and as long as you know why you are above average, you know, that is that. But if you are above average and you have no idea why you are above average, I mean, that opens up a can of questions. Hey, what can I do to get at average or below average, what can I be doing differently? What areas of DIR fees can I control.

Kendell: Yeah. And you could tell when you said the words, so the letters DIR most of the pharmacists, they were just.

Bonnie: There were sighs.

Kendell: There were sighs, their heads were hanging low. So, it is impacting the pharmacists that we work with. And then also just, you know, just being at the trade show to see it, we can see the impact. The very least to know is it is impacting you – if you kind of got your head in the sand – and do not know it is going to be hard to really make wise decisions on your business, not knowing what the trends are, as far as how your DIR fees are being treated… becoming a very serious, hot topic. And I mean, one you do not want to bring up, but you have to so.

And we definitely see it in the numbers, guys. I mean, there is not a whole lot you can do, but there are some things you can do to keep it down as far as you can. I mean, because we, in looking at the clients that we work with, I mean, you can see the ones that do not do anything. Like you talk about, just put your head down and just hope for the best versus those that are doing some things to do what they can to decrease those. And it makes a difference. It is still terrible. It is still a lot of money, but it makes a difference, so…

Scotty: One percent of your revenue is quite a bit of money. And if you can invest time and effort into maybe getting a 1% reduction in DIR fees, no matter what you have to do, whether it is cutting out these scripts that you are losing on, that maybe you did not know you were losing on or, or whatever it may be. That is going to be a lot of money for you in your pharmacy.

Because it is now the third largest expense in a pharmacy as your DIR fees, which then leads into another topic we touched on.

A trend in the trade show takeaway here is the revenue mix. Diversifying that top-line revenue to expand that gross margin and weed out that PBM and those DIR fees. So, we are seeing a lot of hot conversation on expanding revenue mix. And as a matter of fact, you cannot just fill scripts anymore. You have to find, and we are saying this in our talks, Bonnie, we have to find, or the pharmacy has to find in their community, a niche revenue source, whether it is cash-based OTC, pet meds, compounding long term care, whatever it is, they have to go out there and find something in their communities that can fit the needs of their patients, and so on, to grow that top line.

Bonnie: And that is actually one of the things that we were discussing as far as brainstorming for more opportunities for this podcast: bringing on some clients that do just that and let them tell us about the different things they do to diversify their revenue. So, we have some exciting things, hopefully, to come, with some people talking about those things that they do in their community that works for them, but you definitely have to get out there and figure out what that is and do something other than fill scripts in your community, for sure.

Kendell: Bottom line. So, some people might think, “Well, this is such a small portion of my revenue in total,” but if the gross profit margin is so much higher and you are just breaking even, if you can get an extra $100,000 in revenue, something with a 50% margin, that is $50,000.

Scotty: Just filling scripts you should be able to get to a 3% bottom line, plus. So, 3-7% bottom line just filling prescriptions. The diversified revenue mix is going to add to that bottom line, but you know, if you are running your pharmacy very efficiently, you are using the technology solutions out there: payrolls, lean, you are managing DIR fees. I mean, you should be in a 3%+ bottom line.

You should not be break even, that is not a benchmark – benchmark would be that 3-7%. So, the whole thing here is just getting away from these DIR fees and serving your patients better. Because as we have seen at these trade shows, pharmacies are becoming that healthcare center, the wellness centers in their community access to reliable providers is harder and harder. Pharmacies are in a great opportunity. It is an exciting time to be a pharmacist. It is a difficult time to be a pharmacist owner, because you are not just filling these scripts anymore, you have to have a passion for kind of going outside that box.

Kendell: Like a healthcare provider, you are being a provider more than just filling scripts. I was eating lunch and I ended up talking to a gentleman beside me, and he is thinking about getting out of pharmacy. He was trying to figure out, “How can I get out?” He is getting old and ready to retire, but even for someone who maybe previously was satisfied with filling scripts, he said that people are coming to him asking for different kinds of vaccinations, asking for what he does for the flu, asking what he does for COVID. So, now even if you would like to just fill scripts or you feel like you could survive just filling scripts, which most pharmacies can, now the community is coming to you and asking you for those things. And I bet that more and more pharmacies are going to see that the client, the community is going to be dissatisfied.

Bonnie: That is a good point. I mean, you may not be a choice anymore. I mean, if people want it, you are going to have to provide it or they are going to go somewhere else. So, we may be past the point of it being something that you choose to do. It may be something that you are kind of forced to do as an independent pharmacist. So, that is a good point.

Scotty: I mean, come on. I mean, if you are a pharmacy owner out there, take care of your community, take care of your patients, this is what it is all about. This is what you got to do, so…

Kendell: I think legislatively pharmacists have more authority to do those things than not.

Scotty: Things have changed recently, especially with the COVID. So, it has opened a whole new door.

Bonnie: Yeah. Guys, the other thing I noticed a lot, obviously at all the shows was the technology. Like we always see, but still hot out there, all the different robots and different other technology advancements with all the different equipment that is out there. One thing that I thought was good news is everyone, all the vendors I spoke with all seemed to feel like that different from last year that they are about six-to-eight weeks out when you order at this point is what they are telling us. So, if you are looking to make any kind of purchases to help you with tax mitigation for the year, it looks like that those things still can be ordered and put in place before the end of the year.

Scotty: Technology is huge. Payroll continues to creep up.

You are asking more of your staff to do more of these other ancillary revenue, clinical services, whatever, whatever it is, you know, you need that technology behind the bench there; you need to be able to maximize what is going on there behind the bench. And technology is key to doing that. So, and like you said Bonnie, depreciation rules are still liberal, 100% write-off, generally speaking for 2022, here. So, as tax planning tools are still there.

Bonnie: Yep. So, what I enjoyed the most about the trade show, guys, is obviously meeting all these new people, but it was also great to see all of our clients.

That is a big part of what we do, you know, we do not see our clients in person. We see them virtually all year long, but we do not see them in person. We do not go to offices. We do not visit the pharmacies most of the time. So, it is so great to come to these trade shows and be able to see our clients in person and talk with them and their families… such a good time. So, we have enjoyed that over the last few months.

Yeah. A couple of times, people have come up to me, “So, how does this even work, working virtually with an accountant?” And I asked, well, “How often do you actually see your CPA face-to-face?” Well, maybe once a year, besides that, we do everything over the phone.

Kendell: I was like, “It’s kind of the same with us.” We see a lot of our clients at the trade shows; we get to catch up.

But virtually on web calls, we can meet monthly if they like, show their financials and still talk to them, but it was nice to see a lot of familiar faces and a lot of people just really happy to show their love to the rest of the Sykes & Company, P. A. team who was still home.

Bonnie: Yeah. And the vendors – the same way. I mean, it is so great to go into the trade shows and speak with these vendors on all different topics, on all different things that they are selling and things that are out there and learning about all the new technology and advancements. So, it is just super great to go to these shows if you are not doing that already, then we definitely encourage everyone to do that and if you have not hit a trade show this year, definitely there is one more left: NCPA. The big one at the end of the year in October. Definitely look at Kansas City, I believe. Is that what it is guys?

Scotty: K.C.

Bonnie: Coming up in early October 1st. Yeah. So, it is definitely worth it to go. And just to walk that trade show floor, to see things that you could do with your pharmacy.

Kendell: That Bonnie and this guy, they were trying to be humble when they said there were not that many people there. So, [in these pictures], if you see any empty seats, they were full about five minutes into the presentation and then they started adding rows and then people started sitting on the floor and then people started laying on the floor.

Bonnie: They were not asleep, were they? The ones that were laying down?

Kendell: No, no, no. They were not asleep. I thought I was at Disney, with people waiting in line to get in…

Scotty: Well, I did not see anybody leave. So, that is generally a good thing. I did not see anybody leave. I did not see anybody fall asleep. So, you know, accounting is not the most exciting topic.

Bonnie: And it was 8:30 in the morning, too. So, I was a little concerned, but people had their coffee, they were interested. There is the team [shown on screen].

Scotty: We have great clients. It is always wonderful to see them. You know, we love those relationships we have with our clients.

We do our best to take good care of them and if we did not see you out on a trade show, make sure you get out there because these trade shows are invaluable in terms of networking, seeing us, of course. And just learning what is new and different out in the industry.

Bonnie: Well, again, the trade shows, like we said are so important. I am going to do a quick plug for the NCPA Ownership Workshop. That is going to be right before the NCPA show in October. So, I believe it is that weekend, that September 30th, October 1st weekend. If you are looking at purchasing a store or doing a startup, definitely look into signing up for that workshop. We will be speaking there that weekend; just a full weekend full of content from the whole nuts and bolts of buying and purchasing a store to doing a startup.

NEXT VIDEO: TOP KPIS FOR PHARMACY ACCOUNTING

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