Ongoing medicine supply shortages, coupled with instability in the Middle East, are driving up drug prices, leaving many community pharmacies dispensing at a loss. At the same time, rising National Minimum Wage levels, increases in National Insurance contributions, and the end of business rates relief are adding further financial pressures. Together, these factors are placing significant strain on community pharmacies cash flow positions.
According to Community Pharmacy England’s 2025 Pressures Survey 99 percent of pharmacy owners identified finance as their primary concern with 45 percent pharmacy owners using personal funds to keep the business afloat and keep serving the community.
This article will examine how community pharmacies can identify potential cash flow problems and implement strategies to navigate these challenges effectively.
Sales mix
Is your business solely reliant on NHS and OTC sales? A modern-day community pharmacy needs to supplement traditional income streams with the incorporation of additional services.
Expanding range of services such as weight loss management, travel health clinics, contraception services, and ear health services, can provide additional revenues that are often received more quickly and carry higher margins. This in turn will help to stabilise overall cash flow position as well reduce the reliance on the core dispensing activities.
HMRC VAT refund claims
Typically, community pharmacy businesses are in a VAT refund position, and this is an important cash flow. In the current climate, more business owners are reliant on their HMRC refunds to help ease cashflow. Therefore, it is essential that your VAT returns are prepared and submitted promptly.
As VAT returns for a community pharmacy business have become more complicated with the introduction of various services and varying rates of VAT applicable, it is essential that you employ a pharmacy specialist accountant to ensure that you get the correct refund.
Stock management
Effective stock management is essential for maintaining healthy cash flow in community pharmacies. Holding too much inventory can tie up significant amounts of cash, limiting funds available for daily operations such as payroll and supplier payments. Regularly reviewing stock levels, monitoring fast- and slow-moving items, and aligning purchasing decisions with actual demand can help optimise cash usage.
NHS Remuneration & supplier payments
It is important to ensure that you submit your scripts in time so that there is no delay in the payments. Any delays in reimbursement can create cash flow pressure, making it difficult to meet creditor obligations as they fall due unless sufficient cash reserves have been built up. If there is insufficient money in the bank, the direct debit will be returned, and the supplier will put a hold on your account which will in turn result in stock availability issues forcing patients to get their medication elsewhere.
Furthermore, most major suppliers offer early payment discounts or rebates. Ensuring suppliers are paid within time can provide meaningful savings and improve overall cash flow over time.
It is also advantageous to monitor supplier prices to ensure you are buying at the best available price. Consider potential use of buying groups or use of pharmacy specific procurement software that provide live supplier price comparison and help secure better purchasing decisions.
Cash flow forecasting
Forecasting will help you to identify potential shortfalls early and supports better financial planning and decision-making. Request your accountant to prepare a cash flow forecast as this will allow you to anticipate income and expenses over upcoming weeks or months.
Staffing costs
Rising National Minimum Wage rates and increased National Insurance contributions are driving up staffing costs for pharmacies. To address this, investing in technology such as an automated dispensing system will help to streamline routine tasks and improve efficiency with fewer employees. Additionally, investing in staff training, engagement, and development will help to reduce the high costs associated with turnover and recruiting new employees. Small improvements across multiple areas can have a significant positive impact on cash flow.
Drawings
Owner drawings can significantly impact cash flow for pharmacy business owners, particularly when withdrawals are not aligned with the business’s financial performance. Ideally, the business should maintain at least 3 months’ working capital so that the owners have sufficient time to address short-term cash flow issues.
Credit Facilities
Frequent use of overdrafts, loans, or extended supplier credit may indicate underlying cash flow issues. While credit can support short-term needs, consistent reliance suggests that incoming cash is insufficient to cover operational expenses. If you have existing finance in place, plan to clear expensive short-term debt first and use longer term finance where possible. Short term finance is typically more expensive and can significantly deplete cash flow.
In conclusion, community pharmacies are currently facing increasing financial pressures, but proactive cash flow management can make the difference. By providing additional services, forecasting effectively and maintaining tighter cost controls, Pharmacies can strengthen their resilience. This approach will safeguard their financial sustainability while ensuring they continue to deliver vital healthcare services to their local communities.
(Shivam Modi is a partner at Xeinadin)
