The way to do bookkeeping for dispensaries is not really unique compared to other small businesses. We must consider some differences, however, like financial challenges and regulations.
What is Bookkeeping and Why is it Crucial for Dispensaries?
Bookkeeping is the foundation of financial health for any business. It’s the process of systematically recording and organizing all of the company’s financial transactions. Think of bookkeeping as keeping track of your business’s money in a very detailed way. It involves:
- Recording every financial transaction, both for money coming in and going out.
- Classifying transactions by categorizing them into specific accounts, like “sales revenue,” “office supplies,” and “rent.”
- Maintaining accurate records with proper documentation and important details so that everything is clear and traceable.
With proper bookkeeping, you always have a clear picture of your business’s financial health. You know how much money you have coming in, where it’s going, and what your profit or loss is.
Having good financial data allows you to make informed business decisions. It also tells you if you have the cash flow to support expansion plans.
Accurate financial records are crucial when it comes to tax time. Bookkeeping ensures you have all the documentation you need to file your taxes correctly and efficiently.
Knowing that your finances are in order gives you peace of mind, too. You can focus on running your business instead of worrying about missing receipts or hidden expenses.
Unique Financial Challenges
Dispensaries face some unique financial challenges due to medical regulations.
Inventory Management
Medications can be expensive, especially specialty drugs. Dispensaries need to carry enough stock to meet patient needs. However, overstocking can lead to expired medications and wasted money.
Spoilage due to expired medications, damaged products, or incorrect dispensing can lead to significant financial losses.
Drug prices can fluctuate significantly, making it difficult to accurately predict inventory costs.
Reimbursement
Insurance companies and government programs may not reimburse dispensaries for the full cost of medications, leading to reduced profit margins.
Obtaining prior authorization for certain medications can be a time-consuming process. Denials can lead to lost revenue for the dispensary.
Mail-order pharmacies can offer lower prices due to their lower overhead costs. This puts pressure on dispensaries.
Operational Challenges
Dispensaries must comply with a complex set of regulations, which can be expensive and time-consuming to maintain.
Medications are valuable and can be a target for theft, both internally and externally. This can lead to not only financial losses, but also require increased security costs.
Regulatory Compliance and Bookkeeping
Federal Regulations
Federal income tax applies to medical dispensary revenue. Dispensaries need to comply with IRS regulations for business income tax reporting.
The Americans with Disabilities Act (ADA) requires that all public accommodations be accessible to people with disabilities. Dispensaries may need to make modifications to their physical space and ensure staff are trained in disability etiquette.
The Food and Drug Administration (FDA) oversees the safety and efficacy of medications. Dispensaries must comply with regulations on:
- Drug labeling so patients receive accurate information about their medication.
- Good Manufacturing Practices (GMPs) that ensure safe and consistent drug manufacturing.
- Controlled Substances Act (CSA) classifications around the abuse potential of certain medications. This includes:
- special licenses
- DEA registration
- requirements for record-keeping
- security measures to prevent theft of controlled substances
- Standards for the secure processing of electronic prescriptions.
State Regulations
Each state has its own laws that govern the licensing of dispensaries, including licensing where they employ pharmacists. This also covers what activities those working and volunteering at dispensaries can perform, like dispensing medications, providing counseling, and administering immunizations.
Some states require technicians to be certified. They may also have additional requirements for valid prescriptions, such as specific refills allowed. Some might require inspections to ensure that dispensaries comply with regulations.
Local Regulations
Some local jurisdictions may have additional regulations around business licensing before they can legally operate. Local municipalities may also require additional business permits and may levy local taxes on dispensary sales.
Regulations may dictate where a dispensary can be located within a community.
Specific procedures may be required for disposing of expired or unused medications.
Additional Considerations
The Health Insurance Portability and Accountability Act (HIPAA) protects patient health information. Dispensaries that collect patient information need to comply with HIPAA regulations regarding data security and patient privacy.
Bookkeeping for Compliance
Dispensaries need to maintain accurate records of their patients. Bookkeeping systems can be used to store and organize this information securely.
Tracking sales by individual patient allows dispensaries to demonstrate they are only selling to qualified patients. Furthermore, it shows they are operating within the state-imposed limitations on quantity or purchase frequency.
Dispensaries need to record all sales accurately to ensure they are paying the correct amount of state and local taxes. Inventory records not only help manage stock but are also crucial for tax calculations.
Dispensaries may collect some personal information from patients during financial transactions. Bookkeeping systems can be set up to minimize the storage of sensitive patient data, complying with HIPAA regulations.
Some states may require dispensaries to submit reports to regulatory agencies regarding sales, taxes collected, or other data points. Accurate bookkeeping records ensure these reports are complete and compliant.
Setting Up Your Dispensary’s Bookkeeping System
Choosing the Right Bookkeeping Software
Your software should ideally include inventory management features. This helps you efficiently track medication stock levels, including dosage forms, expiry dates, and lot numbers. Features like automated reordering and low-stock alerts are beneficial.
The tool you use should securely capture and manage electronic prescriptions (eRx) directly from providers. The software should allow for easy filling, tracking of refills, and integration with insurance verification systems.
You must ensure accurate dispensing and clear labeling. Features like barcode scanning, medication profiles, and generation of patient medication instructions are helpful. Medication interaction checks are also crucial for patient safety.
You need to maintain comprehensive patient profiles with medication history, allergies, and potential interactions. Secure access control within the software is essential.
Any software you use must comply with HIPAA regulations to ensure patient data privacy and security. Look for features like encryption, access control, and audit trails.
You must also comply with DEA requirements. So, your software needs features like tracking controlled substances and generating reports for DEA audits.
Essential Bookkeeping Tasks
Daily Bookkeeping Tasks
- Record sales, cash received, and any other income
- Track business expenses
- File receipts for business purchases
- Reconcile bank statements to accounting records
- Verify that you recorded bank deposits accurately
Weekly Bookkeeping Tasks
- Reconcile credit card statements to accounting records
- Review employee timesheets and process payroll
- Pay bills
- Review aging reports and follow up on late payments
- Back up bookkeeping data
Monthly Bookkeeping Tasks
- Thorough reconciliation of all bank accounts, including checking, savings, and any credit card accounts used for business
- Finalize financial records for the month, ensuring all transactions are properly categorized and recorded, and close the accounting period
- Generate and review financial reports to understand revenue, expenses, and overall financial health
- Calculate and submit any estimated tax payments due
- Review inventory
- Review budget versus actual income and expenses and make adjustments as needed
Managing Cash Flow
Effective Cash Management Strategies
Cash flow is the lifeblood of any business, so cash flow management is foundational.
Use a bookkeeping system that suits your needs to record all income and expenses accurately and consistently. Classify your income and expenses into specific categories so you can understand where your money is coming from and going.
With that information, you can analyze better and create better budgets. Project your future income and expenses to anticipate potential shortfalls or surpluses. Plan for upcoming bills, investments, or potential slow periods.
Set aside some cash reserves to cover unexpected expenses or fluctuations in income.
Handling Cash
Invest in a secure safe or cash register to store all cash receipts. Implement clear procedures for how staff should handle cash deposits. Limit access to minimize the risk of theft.
Don’t let cash accumulate in your dispensary. Make regular deposits to a secure bank account or armored cash carrier service. This reduces the risk of theft and insurance issues.
Cash Flow Documentation
Issue receipts for all sales transactions stating the date, amount, product details, and any taxes applied. Generate daily reports summarizing your sales totals. Break them down by either product categories or payment methods (cash versus debit).
Maintain clear records for all expenses, including receipts, invoices, and canceled checks.
Inventory Management and Cost of Goods Sold (COGS)
Tracking Inventory Accurately
Assign unique Stock Keeping Units (SKUs) to all your products. This simplifies identification, tracking, and data analysis.
Categorize your inventory by product type, or any other relevant criteria for easier organization and locating specific items. Establish designated storage areas for different inventory categories. This ensures proper storage conditions for various products and facilitates cycle counts.
Consider using specialized inventory management software designed for the medical industry. These can track stock levels, expiry dates, and automate reorder points.
Barcode scanners can help with efficient product identification and data entry during receiving, sales, and cycle counts. This minimizes manual errors and streamlines the process. Explore mobile apps options, too, for on-the-go tracking and data access.
Control Procedures
Conduct regular cycle counts on a schedule. This helps identify discrepancies and potential shrinkage; i.e., loss due to theft, damage, or errors.
Implement the first-in, first-out method to ensure that you sell the oldest stock first. This minimizes waste and spoilage.
Set minimum stock levels for all products so you always have enough inventory to meet patient demand. Be careful of overstocking, though.
Set up a reorder point system that automatically triggers purchase orders when inventory falls below a certain level. This helps maintain optimal stock levels without wasting time.
Impact of Inventory Management on Finances
Inventory management affects your balance sheet, income statement, and potentially your cash flow statements.
Balance Sheet
Inventory is listed as a current asset on the balance sheet. This represents the cost of goods a company holds for sale. Effective inventory management helps maintain an optimal level of inventory.
Lower inventory can improve cash flow. However, it can also lead to stockouts, lost sales, and potentially higher costs due to emergency restocking. High inventory ties up cash that could be used for other purposes. It also increases storage costs, and raises the risk of spoilage and products becoming outdated.
Accurate inventory tracking ensures the balance sheet value reflects reality. Inconsistencies between physical inventory and accounting records can distort the company’s financial health.
Income Statement
Inventory directly affects the cost of goods sold (COGS), a key expense on the income statement. The inventory valuation method you use, like FIFO, LIFO, or Average Cost, can also impact COGS.
When inventory becomes obsolete or damaged, it needs to be written down in value on the income statement. This reduces gross profit. COGS and inventory management practices directly affect gross profit, too.
Efficient inventory management aims to maximize gross profit by minimizing COGS and preventing write-downs.
Cash Flow Statement
Inventory management can indirectly impact cash flow by affecting inventory purchase timing. Effective inventory management can help optimize this. Then, it potentially leads to discounts for buying in bulk and reduces overall inventory costs.
Higher inventory turnover indicates efficient use of inventory, potentially improving cash flow. Accurate inventory valuation ensures financial statements reflect the true financial position of the company.
Lower COGS and fewer write-downs contribute to higher profitability. By optimizing inventory levels and potentially securing purchase discounts, cash flow can improve.
Frequently Asked Questions
How should a dispensary handle financial contributions from investors?
Consider the investor type and their motivations. Individuals, venture capitalists, and angel investors have different expectations. One might be purely profit-driven while another may have a social impact focus. This will influence the structure of the investment.
Make sure you comply with investment regulations for the medical industry. Federal law prohibits kickbacks to induce referrals for healthcare services. Investors cannot receive benefits based on the volume or value of prescriptions dispensed.
How can technology improve financial transparency in dispensaries?
Dispensary management systems with real-time inventory tracking can help facilities optimize ordering.
Automating the claim submission process for insurance companies can improve efficiency and reduce errors.
Integrating with insurance databases allows for real-time verification of patient coverage and benefits.
What are the long-term financial planning considerations for dispensary owners?
Track trends in the industry and adapt your services to remain competitive.
Consider specializing in specific areas to differentiate your facility.
Offer additional services and opportunities like value-based care programs.
Negotiate favorable contracts with drug wholesalers and insurance companies.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
Bookkeeping for dispensaries can be a breeze as long as you focus on compliance and accuracy. These are the key considerations in a highly regulated field.
