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Only those independent pharmacies that prioritise the diversification of income through the provision of additional services and control costs will survive these challenging times, says Vinku Shah…

Community pharmacy funding for 2025-2026 was increased to £3.073 billion from £2.698 billion in the previous year, representing a 15 per cent uplift under the Community Pharmacy Contractual Framework

Although this was a welcome relief to the sector already struggling with rising costs, it is a short-term fix with national minimum wage increases, national insurance rates increases and end of business rates relief from April 2026 that will erode most of the funding uplift.

According to Community Pharmacy England’s 2025 Pressures Survey, 99 per cent of pharmacy owners identified finance as their primary concern, with 45 per cent of pharmacy owners using personal funds to keep the business afloat and keep serving the community.

This represents a severe cashflow crisis within the sector and the numbers will get worse over time if rising costs are not addressed in the 2026-2027 funding negotiations.

It is now imperative for pharmacy business owners to find ways to improve their cashflow and then monitor and maintain the same for business success.

Improve cashflow

Expanding range of services – there has been a push to take on more service income like NMS, hypertension checks, specifically ambulatory, as well as contraception services and minor illness consultations which have all been increased and can provide additional revenues and better cashflow.

Private services – Offering travel clinics, flu vaccinations, various health checks, etc, can generate additional revenue outside of NHS constraints and help with additional cashflow.

Stock management – monitor stock requirements and avoid overstocking especially expensive line items as cash stuck in slow moving stocks means the supplier will need to be paid when due but cash is held with stock items on the shelf.

Category M reimbursement – ensure you are subscribed to the NHS Drug Tariff updates and Category M adjustment notifications so that you can take advantage of margin allowances where possible. For example, stocking up on a Category M item before an expected reimbursement price drop. 

Pricing reviews – review the price of OTC line items and ensure that it is competitive especially on high demand items and that can boost sales revenues and gross profit margin.

VAT refunds – ensure your accountant deals with completing your VAT returns promptly and that you collate and send across complete information to facilitate the submissions. VAT refunds are a valuable source of cashflow especially where contractors are operating multiple branches under one VAT registration.

Purchasing controls – 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.

Monitoring Cashflow

Monitor NHS Remuneration – it is vital to ensure timely submission of claims for services to ensure payment received in good time. Check the monthly NHS statements to see if any discrepancies and query any shortfalls promptly.

Management accounts – request your accountant to provide at least quarterly management accounts so that you can keep an eye on key metrics for your pharmacy business such as gross profit margin, staff cost to turnover, EBITDA, etc.

Plan ahead – Forecasting can be a valuable tool especially for larger pharmacy contractors as that helps identify potential cash flow issues for example, rise in national minimum wage and national insurance contributions would be factored into any forward-looking forecasts and identify impact on EBITDA and cash flow.

Maintaining cashflow

Review of overheads – regular review of overheads and shopping around for better pricing for utilities, insurance, etc, to keep these costs at an optimum level. Service providers often offer discounts to keep their customers for a longer term.

Rebates and discounts – Most major suppliers offer early payment discounts or rebates. Ensure the suppliers are paid within time to take advantage of these as over time could be substantial.

Financing – If you have outstanding finance, plan to clear expensive short-term debt first and use longer term finance where possible. Short term finance is always expensive and can deplete cash if used for a longer term.

Drawings – this may be one of the most crucial factors to pharmacy business owners. Business owners should limit drawings to what the business can afford to pay out. Ideally, the business should maintain at least three months’ working capital so that owners have sufficient time to address and short-term cash flow issues.

Cashflow management is a strategic priority for pharmacy businesses. Contractors who prioritise diversification of income through the provision of additional services, monitor cashflow generation and maintain discipline in controlling costs will survive in these challenging times.

Vinku Shah is a partner at Silver Levene – a Xeinadin Company.