Independent Pharmacy Accounting, Tax

Pharmacy Tax Planning for Year-End

Tax planning is a year-long process for independent pharmacies and even more so with the recent tax reform. In this video, Scotty Sykes of Sykes & Company, P.A. shares which pharmacy KPIs are important to monitor throughout the year as they relate to pharmacy tax planning.

Is the accrual or cash accounting method right for your independent pharmacy? Learn more about both methods and the tax impacts in this article.

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

A couple of KPIs you need to be monitoring in a pharmacy, is your current ratio, which is going to be your current assets divided by your current liabilities. Now making sure your balance sheet has current assets broken out correctly and current liabilities broken out correctly. You don’t want long-term liabilities in your current liabilities section. It’s going to throw off your ratio. This ratio is key, it’s the number one balance sheet ratio that we use to monitor our pharmacies. And the current ratio is more of a cash flow ratio. It’s going to tell you the cash flow in the pharmacy. Anything above two-to-one is okay, average about two and a half-to-one. Anything above two and a half-to-one is good. So the current ratio is obviously a key performance indicator. Not really from a tax standpoint, more of a cash flow standpoint.

Now, from a tax standpoint, one of the key performance indicators is just going to simply be net income on the P & L. What percent of net income is revenue? So, percentage of revenue is net income. Usually we’re seeing about four to seven percent on the bottom line. I’d say it’s maybe even cut back a little bit this year because of the DIR fees, the impact, to maybe two to six percent, bottom line. So obviously if you’re in that five, six percent, four, five, six percent of total revenue on the bottom line, you’re running a profitable pharmacy, and you’re going to be facing some, probably, be facing some tax consequences, tax liabilities for 2019.

Potentially, we’ve got a ways to go here, and a lot of things you can do to minimize that. But certainly, net income, percent of revenue, is going to be a key metric you’ll want to look at to see potentially your tax situation for the year.

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