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Anne Hutchings comments:
“I know how hard my clients work in their pharmacies, long hours and often 6
or 7 days a week. It is important that after all this effort you keep as
much of your hard earned money as possible”. Anne recently wrote two
articles for Chemist and Druggist on increasing profits. These are
reproduced here for your reference.
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Practical tips to help
pharmacists increase their profits |
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I have the privilege of working with many retail pharmacists, which
gives me the opportunity to provide practical advice and suggestions to help
community pharmacists increase their profits.
Essential financial information
Look at the last 5 years business accounts for your pharmacy, if you have
been trading for a shorter period examine the information available. Look
specifically at your turnover, preferably split between NHS and OTC, your
stock levels, gross profit margin, your business expenses and net profit
before tax. This information will give you a summary of how your business
has performed during the period under scrutiny. This is the starting point
for building a more profitable business in the future.
Action point
Summarise the key information from your accounts on one page using a
spreadsheet. This will give you a snapshot of the trends and highlight
areas for further investigation at a glance.
Once you are aware of how the business has performed the next stage is to
focus on the areas where you can improve the results.
Increasing turnover
Most of the pharmacists I meet have higher NHS income than OTC, frequently
as much as 80% NHS and 20% OTC. It should be possible for most pharmacists
to increase their turnover in both parts of the business. How are you
going to increase your business? I suggest the
starting point is to allocate a quiet time for yourself away from the shop
where you can review your current customer base, location, what you think
currently attracts customers to the pharmacy, your role in the business,
the function of your staff etc. What are your strong selling points
from your customers prospective? How can you develop these further? Here
are a few ideas to start your creative thinking process.
Brainstorming session
Ask your staff for feed back. Ask them what they would do to attract more
customers if it was their business. Your staff are likely to be local to
the area, they probably know many of the customers. Their knowledge and
experience could provide many useful suggestions. As a little
encouragement to start the ideas flowing you could offer a £20 voucher or
a bottle of champagne to the person who comes up with the best suggestion.
There is an added benefit of involving your staff in this way, they will
feel part of the team and be keen to help you implement the new ideas. If
the initial response from your staff is good you may wish to consider an
ongoing suggestion scheme where staff are rewarded for their ideas. The
awards can be tax free to the staff if the scheme is properly structured.
You should take advice on this to make sure the scheme complies with
Inland Revenue regulations.
Free publicity
Have you considered approaching your local newspaper and offering to write
a regular column for them on topical health care issues. This is a way of
providing valuable information to the local community whilst also
promoting your pharmacy as caring and knowledgeable. The information
produced for the articles can then be used in leaflets available at the
pharmacy, again providing a helpful service to the community.
Customer care
As a small (in comparison with the large retail chains) local pharmacist
you have the opportunity to provide an excellent quality of service to
your customers. When I speak to pharmacists who are producing outstanding
returns in their businesses I find that time and time again they attribute
this to customer care. Nothing is too much trouble for the customer. Their
attitude is to always go the extra mile, do that bit more than is
expected.
Premises
Because I visit so many pharmacies I always make a note of appearances. I
see pharmacies ranging from dark and dingy with poorly displayed items and
staff that are uninterested, to pharmacies which are a pleasure to walk
into with good lighting, decoration, attractive displays and welcoming
staff. What category does your pharmacy fall into. Whatever it is there is
always room for improvement. The next time you go to your pharmacy have a
long critical look at it, pretend you are a customer, what do you see
through the customers eyes. For example, do you have a sign outside the
shop that stands out, are the windows clean, does the shop look welcoming
from the outside. Inside is the shop in good decorative order, with
appropriate lighting. Do your displays look old and tired etc?
Action point
Set a target for increasing turnover in the next 12 months and work out
a plan of action to achieve the target. The target should be realistic,
a figure you feel able to achieve whilst also being challenging. The
action plan should be in writing and should be reviewed and worked on
every day. Do involve your staff in your plans so that they can be part
of the team helping the business to grow.
Time management
I meet many pharmacists who are working 6 days a week in their
pharmacies and often spend the 7th day doing their books. The problem
with this is that there is no time set aside to work on the business to
think creatively and develop the business. To stay one step ahead in
this competitive market I believe it is crucial to allocate time to work
on the business. Again the more successful pharmacists that I meet do
allocate time to work on their business.
Action point
For the next 7 days keep a note of exactly where you time goes. You
will need to keep detailed notes so that you can review them and
decide what action to take. For example can staff be trained to deal
with some of your current tasks? Can some work be reorganised to free
up time? It may be appropriate to consider locum cover, whilst this
may be an added cost your time spent creatively working on the
business should far outweigh this in the long term.
Added bonus
Based on current valuation methods of a percentage of turnover, the
more you increase your turnover the greater the goodwill value when
you come to sell.
Monitoring business performance
If you are serious about increasing your profits you need to put a
system in place to produce regular monthly or quarterly management
accounts. This way you can quickly identify how successful your
efforts have been. If something has not produced the required results
you can take immediate action.
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A fine balancing act |
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If you have acted on the advice in my
article above you will now be producing
accurate financial information enabling you to determine how your
business is currently performing. This is vital because if you are
taking positive steps to increase your profits you will want to
measure your success at each stage. In this article I will examine
some of the pharmacy costs which should be carefully monitored and I
will also cover the tax issue which is for many pharmacists one of
their biggest costs.
Stock control
Stock ties up cash so the objective should be to keep stock to a
minimum whilst still meeting the customers needs. Review your rate of
stock turnover and set a target for increasing this. Stock turn can be
calculated by dividing the cost of goods sold by the average stock
value.
For example;
If cost of goods sold in the last 12 months was £400,000 and the
average stock value is £40,000 the stock turn would be 10 times per
annum. You should use this to separately calculate the stock turn for
NHS and OTC.What are your fast selling items and which are the slow
movers? What contribution are your slow moving lines making to profits,
in addition this stock is taking up valuable shelf space. Buying large
amounts of stock at a substantial discount can be expensive if the
items are slow to sell.
Action point
Maintain good stock records, so that you can identify not just your
fast moving stock but also which items are the most profitable.
EPoS systems (Electronic point of sale)
If you do not already use an EPoS system I would strongly recommend
that you give this serious consideration. On the one hand this
represents an extra cost for the business but the savings which most
pharmacists can make with the system should far outweigh the cost.
Some of the benefits are:
 | Automatic re-ordering of stock. |
| Identification of over and under stocking of products and lost
sales. |
| Improved cash flow. |
| Highlighting areas of low profit. |
| Improved gross margin. |
| Price monitoring and quick implementation of price changes. |
| Pre set reports to provide vital information. For example
these can be used to help you highlight shrinkage and analyse
profit margins. |
| Customer loyalty schemes can easily be introduced. |
Overall if you want to increase sales, reduce stock
levels, reduce your buying costs and make your business more
profitable an EPoS system should be considered .
Action point
Speak to two or three EPoS providers and ask them to demonstrate
how their system will benefit you and how much this should save
you and what it will cost you to install and run. Then make your
decision.
Ensure that the EPoS providers are specialists in the pharmacy
market and request all quotes in writing. Some EPoS providers
also incorporate a patient medical record system (PMR) in their
systems, which may be beneficial to you.
Shrinkage
Do you know what you loose each year as a result of shoplifting,
employee theft and poor stock management? For example a shop
with a turnover of £700,000 pa with a gross margin of 25% which
lost 2% of stock would need to take an additional £56,000 to
recover the loss of £14,000.
Action point
Review your security measures. To minimise customer theft,
remove blind spots, consider using CCTV cameras and put
expensive and high theft items near the till. To minimise
staff theft introduce strict procedures. For example, set a
policy whereby staff cannot personally carry cash on the shop
floor. Provide staff lockers for personal items, if this isn't
practical provide a specific area for their personal items.
Carry out random till and delivery checks. Have specific
procedures in place for staff purchases, discounts, till
shortages etc.
Staff costs
This is probably one of your biggest costs. The obvious
question is whether your pharmacy is overstaffed. A detailed
review of your opening hours, which periods are busy and which
are quiet in conjunction with a review of the staff on duty at
the different times, should provide an insight as to whether
you are overstaffed. Such a review may highlight that you are
actually understaffed at certain times which could have a
detrimental affect on the business such as lost sales,
dissatisfied customers etc.
Action point
Do not neglect staff training, as this is vital for a
successful business. Good training will help motivate the
staff and enable them to provide a better quality of service
to the customers, leading to increased customer loyalty and
increased sales. During quiet
periods can staff time be utilsed by helping you with some
of the routine administration tasks? Thus freeing up your
time enabling you to be more productive in other areas.
The tax issue!
Why do most pharmacists pay the maximum amount of tax? I
hardly ever come across pharmacists who have taken action to
reduce their tax bills. A generous estimate would be about
one in every twenty pharmacists that I speak to have had
some tax planning advice but sadly many of those have not
acted on the advice. For most pharmacists, tax planning is
an easy route to increasing income. The task is delegated to
a tax expert who will advise you and carry out the necessary
actions to achieve the savings. From the pharmacists
prospective you need to find a suitable expert who can
advise you and then delegate the task to them. It does not
require the day to day input and management like your
pharmacy business does. Yet it can produce one of the
biggest savings you can make.
Action point
Ask your accountant if they are able to produce a detailed
tax planning report for you. Do establish first if they
have the expertise to do this, as not all accountants are
tax experts. If you are concerned about the cost come to
an agreement with your advisor whereby they will only
charge you a percentage of the tax savings, which they
demonstrate, can be achieved. That way you will have
nothing to loose.
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