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How pharmacy cash flow works
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This example shows how the cash flows in a typical pharmacy.
This example shows how the cash flows in a typical pharmacy.
Sales | Aug | Sept | Oct | Nov | Dec |
OTC: | 5,800 | 5,800 | 6,700 | 8,300 | 9,300 |
NHS: | 52,200 | 49,600 | 55,600 | 50,000 | 47,700 |
Total: | 58,000 | 55,400 | 62,300 | 58,300 | 57,000 |
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Income |
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OTC: | 6,700 | 6,700 | 7,700 | 9,600 | 9,600 |
NHS: | - | - | 41,800 | 50,100 | 54,400 |
VAT: | - | - | 6,600 | 6,300 | 7,000 |
Total: | 6,700 | 6,700 | 56,100 | 66,000 | 71,000 |
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Expenditure | |||||
Purchases: | - | - | 50,900 | 48,600 | 54,500 |
Rent: | 2,900 | - | - | 2,900 | - |
Wages: | 5,700 | 5,700 | 5,700 | 5,700 | 5,700 |
Other: | 5,800 | 1,000 | 1,900 | 1,025 | 900 |
Loan: | - | 4,100 | 4,100 | 4,100 | 4,100 |
Total: | 14,400 | 10,800 | 62,600 | 62,325 | 65,200 |
Opening Bank | - | 7,700 | 11,800 | 18,300 | 14,625 |
Net cashflow: | 7,700 | 4,100 | 6,500 | 3,675 | 5,800 |
Closing Bank | 7,700 | 11,800 | 18,300 | 14,625 | 8,825 |
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O/D Facility | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 |
Headroom | 12,300 | 8,200 | 1,700 | 5,375 | 11,175 |
In this typical example, the effect of the delayed payment of the monies due from the PPA is quite clear. Because overhead costs are incurred almost immediately there is a need for an overdraft facility to be made available to ensure that the business does not run out of cash.
Alternatively, the owner may prefer to inject cash into the business account at the start, in order to provide the necessary cushion.
The cost in interest of such an overdraft facility for the period shown would be in the region of £350.
You could release the PPA monies early through a factoring scheme. Whilst this would ensure that your cash flow was very positive and as a result, there would be no need for an overdraft facility, you should beware of the cost of such schemes. A typical monthly charge of 2% would amount to a levy of over £5,000 for the period of the above example.
Whilst you could earn some interest on the money on a deposit account, this will not amount to very much after tax has been paid, as interest rates are at relatively low levels.
If the suggestion is that you could use these monies to invest in the business, you should consider carefully. Capital investment is usually better placed on a reducing loan, for a period of no more than the life of the asset. This will ensure that it can easily be replaced at the end of its life.
If in any doubt you should discuss fully the situation with your accountant.