What's your plan for the new financial year? Happy new financial year!

Published Mon, July 6 2009 2:32pm by Frank Sirianni

January 1 may be the normal date to review your personal plans and set New Year's resolution, but in business the key date is usually July 1.

Synopsis

Planning and business review must be a regularly part of your business management cycle. We all need to take time out to consider alternatives, review priorities, and kick-start your business year.

This is not rocket science... but needs the review of where you are at, where you are going, and how you will get there? This means understanding and determining where you want to be!

Measurable and indefinable goals are critical to check your business and personal journey.

How's your business going?

With the dawning of a new financial year and the Federal Budget behind us (what budget? you may ask) it is a good time to re-examine your success to date and make plans for the forthcoming financial year. Preferably you will have your plans in place before the commencement of the New Year.

Take some time to review:

  1. What business are you in? What is your key focus (services, customers, specialty)? Is the business operating structure and platform best suited to your business today?
  2. How has your business performed in 2008/09 compared with expectations and with prior years? (you did have a plan in place! Otherwise how do you know how well you are going?) How does this performance compare with pharmacy best practice and benchmarks?
    How does your pharmacy compare with general pharmacy sales growth, gross margin and net profit (after allowing for your time)... are they in line?
  3. Has your financial structure maximised your after-tax income and contributed to long-term wealth creation? I know you've thought about superannuation, savings plans and wealth creation plans; now is the time to get to it!
  4. Are your finance arrangements the most appropriate for your business? Do you need to arrange more suitable finance in the line with asset life cycle and working capital requirements? Finance needs to be matched to business and personal needs maximising deductible interest.
  5. What are your plans for 2009/10? Does your budget and financial plan help you achieve your long-term personal plans and contribute towards your retirement? Have you prepared a cash flow and capital expenditure plan as well as an income and expense budget?
  6. What's your business worth? Have you increased the value of your business since you purchased? Is it time to capitalise on your investment, reinvest, or sell?
  7. What can you do to improve the business performance over the next year? Should you introduce a junior partner? Is it time to re-invigorate the pharmacy? Junior partners and reinvesting in the business may give your pharmacy the vital boost it needs. But, before proceeding, ensure financial risk is quarantined or that all parties bear the risk according to their assets.

As well as review on the business performance of your pharmacy, a review of the financial structure in place is worthwhile. In addition to the above points, you should think about:

  • Are your current loans suitable for your needs going forward (in amount, cost and flexibility)?
  • Have your interest rates and total borrowing costs declined in line with the market? How do you know you have the best deal?
  • Do you have personal assets (for example, a family home) tied up in the security arrangements, and is your family comfortable with this?

If your business and financial structure review highlights any areas of concern or dissatisfaction, take action and negotiate with your financiers.

Get professional advice and take time out to review the options, strategy, and plan

Work with an independent professional consultant to assess your business performance and develop strategies with you to improve the underlying performance of your business. Take time out to review your options and develop your own plan.

Many of the questions above may seem obvious. Often they are critical to the development and review of your business yet, historically, many pharmacies have not been in the position to be able to undertake this assessment until many months after the year has ended. There may be reasons for this from a tax perspective; however, being kept in the dark is not a great idea!

Now is the time to review your business and develop a plan recognising that competition will continue to increase and the most financially secure pharmacies will be best able to compete.

Let's put things into context — don't be penny wise but pound foolish

For the younger amongst us, we do not remember pennies and pounds. However, the saying refers to being stingy about small expenditures and extravagant with large ones. Spending a couple of thousand dollars may save you from making a mistake worth a couple of million.

I am often puzzled at pharmacy owners, and aspiring pharmacy owners, who are reluctant to spend for advice to assess their business or develop a strategy, yet will spend almost a million dollars for a shop fit and re-branding. They are reluctant to spend a few thousand dollars on due diligence when considering the purchase of a pharmacy in excess of two or more million dollars.

How's your business tracking?

Now's a great time to complete a business health check.

We offer clients a business review service which helps them assess how they are tracking against benchmarks and their own plan. It identifies the primary business drivers for your pharmacy and the underlying financial model. Understanding this model is critical in competing against the pharmacy (PBS) reforms and the current financial climate in Australia.

Have you completed a business health check for your pharmacy?

What's your business worth?

A key element in your review is what is your business worth and, by implication, is this the best use of your money?

If you are buying the business, the need for an independent valuation is obvious. Your key task is to identify what the future may hold? What is the value of the business and what is its future maintainable income?

On the other hand, if you own the business, you may want to reassess how much you have invested and are you willing to continue to invest. If you choose not to sell, you are effectively deciding to reinvest at current prices".

Indicative Valuations available

Medici Capital's pharmacy valuations are a prime resource to pharmacists in identifying the value of a pharmacy. However, often such an in-depth analysis of the business is not required.

Often pharmacists need only an indication of the value of the pharmacy — a calculated approximation of the value of the business. Whether due to curiosity or limited available information for analysis, the Medici Express Indicative Valuation System has been developed by Medici Capital to provide the answer to your question — how much is this business worth?

Medici Capital Pharmacy Indicative Valuations are available at http://express.medici.com.au Indicative Valuations cost $220 (inc. GST) and produce a commentated analysis of the performance of the business along with an indication of the market value of the business, within 24 hours of the submission of the data. This means that you know what your business is worth quickly, conveniently and most importantly, without the additional costs of acquiring and analysing more descriptive data.

This useful tool is now being used by many banks as well as pharmacists throughout Australia.

You are provided a personal password and access code and all information remains CONFIDENTIAL. You can regularly update and process valuations. You are given an individual portal that contains a list of all valuations in process, submitted for processing and completed valuation assessments. Which means that you can manage all your valuations easily and conveniently?

Information required to complete a Medici Capital Pharmacy Indicative Valuation at http://express.medici.com.au:

  • One year's Profit and Loss Statement;
  • Shop Size of the business;
  • Operating Hours;
  • Staff Hours;
  • Pharmacy Location; and
  • An idea of future prospects.

This system has been developed to assist pharmacists in the management of pharmacy value and to enable quick access to relevant and up-to-date information and analysis. Use it in your planning and business development.

We hope 2008/09 has been successful for you and we wish you a happy new year for the financial year to 30 June 2010. Frank Sirianni can be contacted at Medici Capital, PO Box 80 KEW VIC 3101 or by email here

The take-away

  • Use the new financial year to
    • assess how your business is going
    • check all finances
    • determine what your business is worth
    Do it now!
  • Develop a clear understanding of what business you are in and the boundaries of your market
  • Actively monitor business performance against goals
  • Assess that your site, layout, and product mix is appropriate for your business today and its focus
  • Plan for 2010 and beyond — no plan no idea! You're just drifting... chart your own course
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