How do you recession-proof your pharmacy business? Part 2

Read part I

Expand your business and customer base

● Where possible, add new lines or categories that suit your location. Many larger organizations constantly rationalize their SKU offerings based on corporate sales; this may leave an opportunity for smaller operators to market individual items or categories that are still in demand and have a decent return in sales and gross margins.

● Promote your business to local clinics, schools and employers. Watch for opportunities to tender for local supplies and/or services to organizations such as day care centres, group homes, local companies. Any extra business, even when the margin is lower, often helps in difficult economic times.

Add non-sales revenues where available

● Many operators drive prescription business and generate training fees by promoting blood glucose meters and blood pressure monitors. Blister packing chronic meds in weekly pack units has often been a source of increased Rx profits, however with rules in some provinces regarding minimum days' supply allowed, careful evaluation should be made of the current profitability of such programs.

● Rent patient aids where feasible, such as wheelchairs, crutches, walkers and breast pumps. Services such as this give patients an extra reason to patronize your business.

Take a realistic look at charge accounts

● Many pharmacies allow customers to charge without evaluating the credit risks. Often those who charge are using the service to supplement their cash flow. A customer may charge a prescription on his or her account, not pay for 60-90 days, and then pay on account using a Visa card. Why not insist on the Visa payment at the time of the transaction? Others who cannot qualify for a Visa or MasterCard are allowed to charge on account. If they do not qualify for a major credit card, this should tell you something.

With the current margins on expensive medications as thin as they are, even after the dispensing fee, you cannot afford to pay for the drug cost to your supplier in 14-30 days, then wait for 60 to 90 days or longer to be paid by the customer.

In some pharmacies, bad debts often exceed the gross profit generated on prescription charge accounts. If you have any charge accounts, verify the customers’ viability and follow up their balance and payments every two to four weeks. In bad economic times, as customers lose or change their third-party coverage, customer accounts can be a real source of loss and negative cash flow.

Control your inventory

● Your inventory is the largest liquid asset in any business. It’s important that it be maintained as liquid as possible by avoiding dead stock. Monitor your in-stock position on the 20% of the items that generate 80% of your sales so that investment in stock is promoting your liquid position and driving sales by avoiding out of stocks on the best movers.

Make sure anyone with the authority to buy pharmacy or front store understands this philosophy, especially in the pharmacy, where it’s very easy to tie up thousands of dollars in outdated drugs, slow movers, order errors and items that have slipped because of prescribing trends. Your inventory should ideally be like a short-term deposit note that can be redeemed regularly by selling it. Excess inventory generates extra financing and labour costs; improve your turns and reduce these costs.

Promote proven traffic builders

● Recession does not usually affect sales of lottery tickets and staples like toilet paper, facial tissue, single greeting cards and surprisingly many personal care cosmetic items such as lipsticks. If you sell this type of product, be in stock and have enough inventory and selection to support everyday sales and price promotions. This is how you generate repeat business and make yourself a retailer of convenience.

Communicate with your suppliers

● Do they have new sales opportunities to present, which may offer sales potential to your business? Visit trade shows to see new trends; don’t just send your staff. The person signing the cheque must understand and evaluate the product.

Above all, be a hands-on pharmacist/owner

● Many a business owner, softened by success, runs into difficulty in tough economic times because he or she has not laid a strong foundation for long-term growth. Through perhaps lack of staff training, poor business controls, over-delegation or being an absentee owner, some operators will find business problems will surface much more quickly in a recession.

Don’t be a victim of this syndrome… it’s up to you.

Barry Ray is a retired pharmacist in Welland, Ontario.