National Director of pharmacy services at RSM and long-time pharmacy business adviser, Peter Saccasan, speaks to Retail Pharmacy about cashflow, telling owners the real story about their pharmacy business performance.

You have been an adviser to the pharmacy industry for 20 years and your firm has recently been part of a global rebrand. Tell us about RSM?

In 2011, Guild Accountants, which was started by Bruce Bailey and I in our former firm 20 years ago, moved into RSM Bird Cameron as it was then known. The firm is 92 years old and was started in WA. Bird Cameron was a founding member of the international RSM global network, which last year has taken the step of all member firms taking on the one name, RSM.

RSM in Australia is an autonomous firm but part of the network. For pharmacy owners, what is important is that we have 30 offices around Australia – all one partnership.

My role is National Director of pharmacy services and I can ensure that any pharmacy in Australia is able to be serviced by a local partner who is supported by the pharmacy services division. Our office coverage matches our pharmacy client base, all around Australia.

What are you seeing in the industry today and just why is cashflow so important?

There is no doubt that pharmacy as a business is rapidly evolving. The business model continues to change, with various pharmacy ‘styles’ now on offer.

Through all of this, pharmacy as a business continues to be attractive. Why else would those outside the industry pull out all stops to try to force changes in the ownership rules?

Presently, I am seeing strong competition for businesses that come on the market and that means owners are willing to take a risk with borrowings to close an acquisition. With high borrowings, this means that maintaining good cashflow is extremely important. The owner needs to be able to meet his or her commitments and run a successful business.

In the financial sphere of pharmacy, there is plenty of talk of KPIs. Surely these indicators will tell owners the story of what is going on?

I agree to a large extent. KPIs can and do help owners focus on specific areas of the business, they certainly set the alarm bells ringing when needed. I find owners are very good at monitoring customer and script numbers, sales, wages, margin and stock levels. Where they fall down is in understanding where profit goes, why it is hard to sometimes pay bills and why tax bills turn up at the most inconvenient times.

This is where a good understanding of the pharmacy balance sheet and the business cashflow comes in. Believe it or not, a business that grows too quickly can go out the door because of poor cashflow management. Knowing your business cashflow can really focus you on the whole pharmacy and not just on running a good wages roster. It is, in my view, where the real story is about business performance.

KPIs will tell you if you have your business operations in order. Your cashflow tells you if your profit is enough to meet your commitments and whether you have enough money to invest in your business at the same time.

Readers should also refer to my articles in the November, December 2015 and January/February 2016 issues of Retail Pharmacy to see the story of how cashflow, balance sheet and profits really connect, and of course, come along to my APP 2016 presentation to hear about it with some practical insights.

You’ve mentioned seeing strong competition for pharmacy businesses. What is the impact of the purchase price on the ongoing business performance? Surely the business is what it is and the buyer hopes to one day sell it for more than what they’ve paid for
it? Is it different if you are buying your second or third store?

This is a common mistake made by budding pharmacy owners. They separate the dream of ownership from the reality of the business performance. It seems sometimes that it is ‘buy at all costs', and then once that is achieved you can get on with running a business. This misses the immediate connection with debt levels, profit and cash.

It is imperative that owners get the balance right – the higher your debt, the more interest you pay and the bigger your commitment to paying off principal will be. This means the bigger the slice of profits that will be needed to do this. Somewhere in the middle of all this, too, there is income tax to pay. If the buffer between what you need to make and what you are making is too small, owners have no room for error.

For owners of multiple stores, the story can be even more clouded. Multiple fit-outs, loan schedules, partner drawings, buying the next pharmacy – all of this can combine to dry up the cash reserves unless owners understand the bigger picture that a cashflow statement can paint.

So, the big message is?

'A picture paints a thousand words’ springs to mind. Let that picture be a one-page cashflow statement for your pharmacy or group.