Pharmacy Start-Up Costs: Biggest Mistakes in Year One
Start-up pharmacists must pay full attention to getting patients and customers in the door and building relationships with prescribers. Keeping cash flow positive is job one, especially in the first six months of your start-up. The start-up pharmacist can achieve this by assembling a knowledgeable advisory team and by avoiding common mistakes that impact their time and cash flow.
In this video, Ollin Sykes, CPA.CITP, CMA, and Bonnie Bond, CPA, emphasize who you need on your team and how they can help you avoid signing expensive leases, adding employee benefits too soon or getting distracted by day-to-day operational responsibilities that take you away from building your customer base. If you are considering a start-up or have just launched a new pharmacy, view this video now for important insights for year one of your start-up.
To see the other start-up pharmacy videos in this series and more ideas, click here, brought to you by the professionals at Sykes & Company, P.A. We are ready to assist you.
If you prefer to read this content, the video transcript is below.
What are common mistakes that you see in year one of a start-up?
Bonnie: So most start-up pharmacists are really looking to save money in the beginning, and we understand that, but having your accounting in place and accurate and up to date is very important, especially in the very beginning, because we really need up-to-date information to be able to understand how the pharmacy is operating. A lot of times we see the pharmacist trying to save money by not having a CPA in place to help them with those back office functions for automating those processes, or eliminating the paper.
We see those pharmacists working weekends and late into the evenings, trying to handle their accounting, signing paper checks for bill payments. And it’s just really important to understand in the beginning, and always really with any pharmacy, is to let people that work with that handle that. Spend your money and your time and your efforts growing the pharmacy. You know, when you purchase a pharmacy that’s already there, you know, you at least walk into a pharmacy that has revenue. But with a start-up, from day one, you don’t know if one person’s gonna come through the door. So it’s important to put all of your efforts and your time and your energy into growing the pharmacy, meeting with your patients and working with providers in the area to grow those relationships, to grow the pharmacy and leave the back office accounting and that sort of thing to automated processes, and to CPAs that work with that, is really important.
One other item that we see a lot of is, from the very beginning, we see pharmacists that come in and try to offer these great benefit packages to their employees from day one. And whereas that’s really nice and appealing to those that they’re trying to hire, you have to be kind of realistic again. You don’t know what your revenue is gonna be from the very first day. So to try to keep those items as low as possible, you know, we need to wait on retirement plans and that sort of thing, until we see that the pharmacy has begun to be profitable, and just leave those sorts of things for further down the road after we see how the pharmacy is operating.
Ollin: And another big item, Bonnie, is the health insurance.
Ollin: Typically with most pharmacies, we see the pharmacy paying one half of the health insurance for the employees only, not the family, but the employee only. I can assure you, you cannot afford to pay the entire package, not in today’s environment. So don’t get sucked into that process at all. And as Bonnie mentioned, do not start up with a retirement plan, a 401(k) or anything of that nature. Initially, let’s get the cash flow positive. Let’s get six months under your belt, nine months under your belt, let’s see where you are. Those can always be added at a later time. Again, a lot of times, investment advisors will talk pharmacists into those kinds of things. That’s just not what you want to be doing.
Should a pharmacist keep his or her day job while organizing the start-up?
Ollin: If you have made the commitment to do a start-up pharmacy and have the requisite funds in hand, you need to put your 110% efforts into this pharmacy yourself. Now, if you happen to be, have a spouse that works, we know in a lot of cases pharmacists marry other pharmacists. That other pharmacist spouse needs to keep that day job wherever they are working so that it takes the pressure off this start-up pharmacy from having to pull other funds that, that are so valuable, especially during the start-up 18 months, two-year period of time.
But we do not recommend whatsoever that the start-up pharmacist do anything but put the entire time and effort into loving the patients, building the practice, working with the prescribers, looking at opportunities in clinical services — any and all those particular areas that they can grow the pharmacy revenue as quickly as possible in order to become profitable. It’s just a fact of how it works in the pharmacy industry.
What other mistakes or financial issues should the pharmacist be aware of?
Bonnie: So a couple of the biggest ones we see, we’ve mentioned in some of the prior videos of this series. So you can see the link and go and watch those in more detail, but obviously signing the lease too early, signing a lease for a longer period of time, other than five years or two, five-year terms like Ollin mentioned in those videos.
Obviously, in one of the videos we spoke about being underfunded, which is a huge problem we see and a mistake. So, you know, look at those videos, look at more of the detail about that, and just remember that it’s important just to have your team in place from the very beginning. When you decide that you wanna do this, before you start signing documents and making decisions, get a team in place: a pharmacy niche bank, a pharmacy niche CPA, and a healthcare attorney that works with pharmacies. And I think that planning process through the very beginning and through opening the doors will go a lot smoother.