Pharmacy accounting: what you need to know

Pharmacy accounting
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Pharmacists play a key role in the UK’s primary care system, alongside GP surgeries, opticians and dentistry practices. In March 2019, there were over 11,500 community pharmacies in England alone, with as many as 40% run by contractors with five or fewer pharmacies. As pharmacies earn money through both retail and their relationship with the NHS, accounting for the industry can be complex. Here’s what you need to know.

Pharmacy business structures

The way you manage your pharmacy accounts will vary depending on which business structure you choose:

  • Sole trader: where an individual pharmacist owns and manages the pharmacy.
  • Partnership: where two or more registered pharmacists join forces to own and manage at least one community pharmacy.
  • Corporation: where a corporation (usually a limited company) owns a pharmacy. When using this structure, a superintendent pharmacist must be appointed to supervise and guide pharmacy activities.

Pharmacy funding

NHS reimbursement

As part of an agreement with the NHS, pharmacies are often reimbursed for dispensing NHS prescriptions at a predetermined fee. While some of these fees are applied automatically, others require endorsement.

Keeping detailed financial records can help ensure you’re compensated correctly for any NHS prescriptions you dispense.

Retained margin

Pharmacies often purchase drugs and medical appliances from various suppliers. The drug tariff defines a standard reimbursement rate for these products.

Meanwhile, pharmacies that offer advanced or enhanced services beyond their basic offering (such as flu vaccination or anticoagulation) can receive extra compensation tailored to each service.

Other commissioned service payments

Many pharmacies take on additional roles through locally commissioned services. These contracts, often bespoke, are designed to address specific community needs. The payment for these services doesn’t necessarily come directly from the NHS. Instead, the commissioning bodies, local councils or clinical commissioning groups (CCGs), take on this financial responsibility.

Pharmacy quality scheme (PQS)

The PQS rewards top-tier standards, meaning pharmacies can earn financial rewards under this scheme.

Other NHS payments

Recognising the need for pharmacies in areas that might otherwise be overlooked or under-served, the NHS offers additional incentives. Familiarising yourself with these incentives can help you maximise your claims.

Retail and private services revenue

While the NHS forms a significant portion of a pharmacy’s income, most pharmacies supplement their earnings by engaging in over-the-counter medicine sales, offering private consultations, selling wellness and skincare products, etc.

Pharmacy accounting: measuring performance

Pharmacies face complex accounting practices as they need to juggle their NHS and regulated income streams with retail and private sales.

Here are the core metrics:

  • Gross margin: At its core, the gross margin reflects the primary profitability of your sales. It’s the gap between what you sell and what those sales cost you. Observing a steady or rising gross margin is often a testament to well-executed pricing tactics and adept inventory management.
  • Net profit: The net profit considers the entire operational landscape, not confining itself to the cost of goods. A thriving net profit not only signifies robust sales but also indicates a tight rein on all expenditures.

In pharmacy, where care and business intersect, a clear understanding of pharmacy accounting is invaluable. It’s not just about counting pennies – it’s about ensuring that your business thrives so you can continue to serve your community effectively.

By understanding your business structure, being clear on your funding sources, and regularly measuring your performance, you’ll navigate the industry’s unique income streams and ensure financial health.

And remember, if you ever feel overwhelmed, partnering with an accountancy firm that offers strategic advice can provide clarity and direction in your financial journey.

Do you want to find out more about how your business is performing? Get started with a free business review.

If you would like to discuss how we can support your business with our pharmacy accounting services and virtual CFO services, please get in touch.

Use of this information is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.

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