SERIES: Master The Margin Episode 3 | Fixed Assets 101

Fixed Assets…what are they and what are the best practices you need to implement in your pharmacy?  

In this episode of Master The Margin, Scotty Sykes, CPA, CFP® and Kathy Blanchard, Senior Pharmacy Accountant dive into the essentials of fixed assets.  

Tune in to learn more about: 

• Significance of planning and tax strategies 

• The importance of correctly classifying fixed assets 

• Best practices for managing and reviewing your fixed asset schedule 

ASK A QUESTION

More resources about this topic:  

Schedule An Rx Assessment 

Resource – The Changing Pharmacy Dynamics

Blog – Tax Smart Depreciation on Pharmacy Buildings and Equipment

Blog – Tax Planning for Equipment Investment Using Section 179

Podcast – Independent Pharmacy Accounting Fundamentals 

Blog – Fundamentals of Pharmacy Accounting 

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, good morning, everyone. Thanks for listening in to another episode of the, this is the Master of the Margin podcast with myself and Kathy Blanchard. And this is where we talk about kind of accounting specific items, Kathy, and there’s no shortage of topics we can discuss.

Kathy Blanchard, Senior Pharmacy Accountant: Yeah, it took us five minutes to figure out today’s topic. 

Scotty Sykes, CPA, CFP®: It did, but we got like 10 topics out of it. So. Today we’re gonna talk about fixed assets. So, we’re gonna stay on the asset section of the balance sheet. We previously have been touching on the asset section of the balance sheet. Of course, that balance sheet is the key statement you need to be reviewing. So, we’re gonna focus on that in the next few episodes. And today again is gonna be the fixed asset section of the balance sheet. And the fixed assets, Kathy, is those capital type of expenses, purchases, right? 

Kathy Blanchard, Senior Pharmacy Accountant: Furniture, fixtures, computers, vehicles, leasehold improvements, sometimes the building and land. But yeah. 

Scotty Sykes, CPA, CFP®: And when we’re talking about the fixed assets, there’s a few best practices with this. Number one is making sure you’re classifying your fixed assets correctly. In other words, if you purchase a, what are those robots that count the pills? What are they called? Pill counter?  

Kathy Blanchard, Senior Pharmacy Accountant: Eyecon Pill Counters. 

Scotty Sykes, CPA, CFP®: Eyecon pill counter. If you purchase one of those, they’re about 10,000 bucks, give or take. You know, that is a fixed asset, for example. That is a depreciable fixed asset. It goes on your balance sheet as a capital piece of equipment. It is not just written off and expensed on the P&L in that manner. So, it needs to go on as a fixed asset and you depreciate or write that off over a period of time. Now that’s where your CPA would get involved there, Kathy. Your CPA would determine that write-off period, but there are sections of the tax law, and we can probably get into this on another episode, where you can aggressively write that off. So whereas maybe a robot like that or a pill counter would be a five-year write-off under the IRS rules, there could be provisions in the law that allow you to take that write-off in year one. So planning is a key part of fixed assets. Fixed assets should definitely be part of your planning, tax planning and strategy in that regard. Kathy, the other thing is at the end of the year, reviewing that fixed asset schedule, right? 

Kathy Blanchard, Senior Pharmacy Accountant: That’s right, because you want to sit down with your accountant, pull that depreciation schedule from last year, review it from top to bottom. Don’t just go to the bottom and see what you didn’t add. Start at the top and see what you’ve got. We saw one this past week that had assets from 1982. So they had computers from 1982. They had printers and phone systems. As a matter of fact, they had four phone systems. They had not cleaned up the depreciation schedule recently. So that’s step one is to look and see what you got and then identify those items in the store and then clean up the stuff that’s old that you’ve probably replaced over time. You may have disposed of it and are no longer using it at all. You may have sold it or you know it just disappeared. But you definitely need to make that an annual practice of going through that schedule and not only identifying what you got rid of, but identifying the things that you bought in the current year that you need to add and providing your accountant with that documentation and identifying the purpose of that piece of equipment because some of the CPAs don’t know pharmacy and it makes it a little bit hard for them to understand what a Parata does or specific pharmacy robots and those can have specific depreciable lives. 

Scotty Sykes, CPA, CFP®: For sure. And I guess the last thing would be here of the three points Kathy would be… 

Kathy Blanchard, Senior Pharmacy Accountant: Getting an estimate of your accumulated depreciation for the current year and booking that on a monthly basis. Your accountant can adjust it to the actual amount at the end of the year, but making sure you’re at least plugging something in monthly for that expense, again, to add additional integrity to your balance sheet, but to make your profit and loss statement more accurate on a monthly and year-to-date basis. 

Scotty Sykes, CPA, CFP®: That’s exactly right. Getting that estimate in there is important to give you the best kind of picture of what’s happening in the pharmacy in terms of your P&L. And when we’re talking about P&L later on in further episodes, having all these pieces tied together is important. So with that, that is kind of the fixed assets 101, I guess, if you will, 201, 301, 401 would go into that real tax planning piece behind it. But hopefully that’s helpful for everyone listening in. Until next time, we’ll see you on our next episode. Thanks for listening in.