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11 ways to boost your equine practice's value
A major portion of the value of your practice is based on profitability. So to increase your practice's value, it's important to manage your profits, revenue, and expenses.
A major portion of the value of your practice is based on profitability. So to increase your practice's value, it's important to manage your profits, revenue, and expenses. There are also intangibles to weigh: patient care, standards of care, client service, work-life balance, and so on. In one way or another, all these pieces affect profitability. To up your practice's value in preparation for a sale—or just to keep your practice in tip-top shape—consider these 11 items:
1. Emphasize ethics. Incorporate ethical guidelines into your practice's standards for patient care and client service. When mistakes occur, it's best to acknowledge and learn from them instead of trying to cover them up. Analyzing errors with the help of associates and support staff can often prevent future problems.
Following ethical business and accounting principles are critical to the ultimate value and "sale-ability" of a practice. And ethics also play an important role in maintaining positive relationships with veterinary colleagues and equine professionals in your practice area.
"When you're trying to sell a practice that's built on poor ethics, how do you explain hidden income, intermingled personal and practice expenses, failure to follow accepted patient care standards, or lack of respect from colleagues?" says Dr. Harry Werner, owner of Werner Equine in North Granby, Conn. From a business-value perspective, practicing unethically is a dangerous road to travel.
2. Articulate your standards for the quality of patient care you provide, the services you offer, and the work environment you create—then let them guide your decisions. Put these standards in writing so there's no confusion among your team members about how to best approach care and service. Written standards will also help team members understand—and meet—your performance expectations.
3. Strive for stellar patient care. Stay current on the latest medical techniques and strive to offer the best quality of care possible. This means referring cases when appropriate. Remember, clients can help you deliver exceptional care—if you educate them. Don't allow clients to be solely responsible for certain aspects of their horse's care. Take initiative to schedule that next visit if you know you want to see a horse again, for whatever reason—follow-up blood work, a lameness exam, dentistry.
Think about future necessary care and plant a seed in the client's mind. Do the horses need to be on a deworming or vaccine schedule? Do they need a checkup prior to competitive season to ensure they're in sound shape? "There's a lot of care that would happen a lot more often if the veterinarian was the one leading the charge rather than leaving it up to the client," says Denise Tumblin, CPA, a Veterinary Economics Editorial Advisory Board member and owner of Wutchiett Tumblin and Associates in Columbus, Ohio.
To give clients a nudge, be sure you're using reminders—both sending them out and following up. If a client hasn't responded after two written reminders, the third should be a phone call encouraging the client to schedule an appointment. "It's too easy for care to drop through the cracks because clients aren't as proactive as they could be," says Tumblin. "They get busy and forget." So jog their memories. The more that clients are reminded about the wonderful care you can provide their horses, the more apt they'll be to have you do it. This adds to your practice's bottom line.
Harry Werner, DVM
4. Offer the best client service possible. Communicate proactively and regularly with clients and be available to answer all of their questions. Not sure how to make yourself more available? Try this strategy that Dr. Werner has used for the last 25 years: Monday through Friday from 8 to 9 a.m., he is solely dedicated to taking calls from clients who want to speak directly to him or an associate. Clients love it. And it helps Dr. Werner because it concentrates his phone time so he's not distracted all day long. He still answers calls throughout the day, but most clients take advantage of the morning call-in hour.
Great client service also means communicating the value, scope, and professionalism of your services to clients. This shifts the focus to value rather than fees. Before giving estimates, explain how the horse—and the clients themselves—will benefit from that service.
If you aren't comfortable discussing fees with clients, you can delegate fee-related tasks to staff members you've trained to deliver consistent messages. In fact, Dr. Werner says his team members do a better job discussing fees than he does. "They're involved with the horse's medical care in a different way than the doctor," he says. "They don't have the same type of relationship, so they're more objective." This frees you to concentrate on what you're good at: medicine and surgery.
5. Provide a pleasant practice environment, strive for work-life balance, and address staffing needs. Provide the doctors on your team enough staff support to be productive. Tumblin says that for an ambulatory practice, staffing costs should make up about 12 percent to 15 percent of revenue. Haul-in practices might even go up to 18 percent.
If your staffing costs fall below these percentages, you may not be employing enough team members. For instance, are assistants going on calls with the doctors? Assistants or technicians make the workday smoother and safer for everyone. "With help, most doctors could get one more farm call in each day," Tumblin says. "Just be sure the assistant has the training he or she needs to be an asset and not a hindrance."
The key to an efficient, happy, and knowledgeable team is ensuring that staff members understand the why and how of what they're meant to do. This means you must foster a team approach to services and care and help employees adjust to change.
Offer employees a fair compensation and benefits package, and structure work and appointment schedules realistically. At Werner Equine, appointments are scheduled only Monday through Friday. Dr. Werner does offer 24-hour emergency care, but he says it's been rewarding to have no scheduled calls on the weekends—and the team loves it.
6. Promote wellness care. This results in healthier horses, of course, and fewer emergencies, more reasonable work schedules for doctors and staff, and a regular stream of income. "Wellness care is easy to schedule," Dr. Werner says. "It's predictable, as opposed to waiting for clients to pick up the phone and call—which some will never do."
7. Cut expenses. When it comes to managing your profits and growing practice value, one of the most straightforward things you can do is cut down on your expenses. Variable expenses are some of the most costly: drugs, medical supplies, and laboratory costs. Ideally, Tumblin says, your variable expenses should average about 22 percent of the practice's total revenue. If you're doing a really stellar job of managing these expenses, your average will be closer to 18 percent.
What if you find your variable expenses are higher? You may not be pricing your markups appropriately. (See "Properly Mark Up All Products," for more.)
Properly mark up all products
Now, think about some of the products you carry that have low markups. Maybe you carry a deworming product that's also available to clients through other channels, so you only mark it up 20 percent. Revisit any items like this and evaluate whether you want to continue offering them. Are these products so readily available that other places are selling them for less? If so, Tumblin suggests eliminating some of these items from your inventory.
Next, look at how much inventory you have on hand. Tumblin's rule of thumb is based on a per-doctor calculation. When you calculate the value of your inventory, it should be between $10,000 and $16,000 per doctor. Sometimes that number creeps up, especially when doctors develop new preferences or when you stock new drugs in addition to their older counterparts. Keep a close eye on your inventory numbers so they don't sneak up too high.
Dr. Werner has saved big by moving to "just-in-time" inventory control. Stocking only what you need at any given time saves money. With this method, you establish the minimum and maximum quantities of a product or drug—or anything that fits under the umbrella of necessary inventory—and deliberately keep that minimum low.
To successfully implement this method of inventory control, first define what "just-in-time" means for your practice. Dr. Werner's work is mostly ambulatory, so he carries products in his truck that aren't in the clinic. His team orders supplies once a week. He keeps stored or shelved inventory—whether it's in the truck or at the clinic—to a minimum. "This way, we don't have dollars tied up in inventory that's just sitting on a shelf," Dr. Werner says. "This also reduces the amount of inventory we waste because it expired."
8. Assess your reinvestments and debt load. This one's a no-brainer. Work with professional advisors to minimize debt loads. Use advisors and management-software tools to make informed decisions about new equipment purchases, additions to your staff, and upgrades to your physical plant. All these things can increase profitability, but before you buy or expand, be sure you're able to handle the initial financial burden.
9. Manage accounts receivable and cash flow. To minimize accounts receivable and improve your cash flow, establish and communicate your practice's financial policy. Dr. Werner introduced a policy that requires new clients to pay by credit card. After the first visit, clients either opt to pay each invoice automatically via credit card or agree that any invoice unpaid after 30 days is charged to the credit card on file.
Over a period of 18 months, the policy change was gradually introduced to existing clients—and it has worked. The key, Dr. Werner says, was maintaining a positive and professional approach. The bonuses of switching policies include no monthly statements to send to clients, lower billing costs, and improved cash flow. "It also weeded out clients that weren't happy or didn't pay. When they went elsewhere, it was a positive for us," says Dr. Werner.
Invoicing and collecting payments at the time of service is key to improving cash flow, Tumblin says. "If it's an especially busy day and you don't write that ticket when you're at the barn, you're at risk," she says. "If you wait until the end of the day to write your tickets, how are you supposed to remember what you did?" And if you're not capturing all charges, you're missing out on revenue. Collecting payment at the time of service also reduces costs. If you decrease the number of bills you send each month, you'll reduce staff and postage costs—and you might even save a few trees.
10. Create a logical fee structure and update it regularly using your practice management software. Review your fees twice a year or even quarterly. This doesn't mean you should make changes every quarter, Tumblin says, but at least examine your fees thoroughly.
As you analyze your fee schedule, ask yourself whether it's based on your true cost of providing services. If it isn't, it should be, Dr. Werner says. "If you don't maintain a fee structure, it's not possible to have an accurate picture of the financial health of the practice at any given time," Dr. Werner says. "A common mistake is to avoid making the effort to understand the true cost of providing services." It's also important to consider market sensitivity and value-added aspects of any service, but consider these factors after determining your true costs.
One final bit of advice about fees: Ensure that a majority of practice income comes from professional services, not product sales. "We're losing product sales to the Internet and catalogs," Dr. Werner says. "That won't happen with professional services." So charge appropriately, capture all charges, and avoid discounting your services.
11. Use the business tools you have at your disposal, especially your practice management software. Invest in the time and training to get the most out of the program you use, or empower someone on your team to act as a management partner who will tackle this duty. This person can help you identify the day-to-day challenges of managing the practice. Where do you find such a wonderful person? He or she could be one of the doctors on your team who already possesses management skills or an office manager or practice manager.
Don't know which of these 11 gems to tackle first? Start at the top of the list and work your way down—and take your time. You won't increase your practice's value overnight. But with a few slow and steady changes, you'll build practice worth and make your business an appealing investment for someone else down the road.