Cheat sheet: Should I buy new equipment for my veterinary hospital?
Brendan Howard, Business Channel Director
Brendan Howard oversees veterinary business, practice management and life-balance content for dvm360.com, dvm360 magazine, Firstline and Vetted, and plans the Practice Management track at all three Fetch dvm360 conferences.Brendan has proudly served under the Veterinary Economics and dvm360 banners for more than 10 years. Before that, he worked as a journalist, writer and editor at Entrepreneur magazine and a top filmed entertainment magazine in Southern California. Brendan received a Masters in English Literature from University of California, Riverside, in 1999.
Even if you dont run a payback period or breakeven analysis before you buy a new piece of equipment for your veterinary practice, you still need to (honestly) answer a few questions with your management team.
Sometimes you buy a piece of equipment to improve patient care. But sometimes, in addition to improving the quality of your medicine, you're looking to lower operating cost or improve revenue. One of dvm360's most trusted practice management gurus, Karen Felsted, CPA, MS, DVM, CVPM, CVA, explained to Fetch dvm360 Baltimore conference attendees a number of possible ways to financially analyze, with calculations, the wisdom of an equipment purchase for your veterinary hospital.
Data sneak peek
Dr. Felsted curated a few pieces of data from a big survey that she and long-time veterinary consultant John Volk are working on for dvm360 for a book due out this year. The dvm360 Decisions 2019 survey asked veterinary respondents about changes they've made in practice and whether those changes yielded results for them. Here are a few factoids Dr. Felsted shared in her session:
• In the past year, 51% said their practice made capital improvements or investments. A full 86% of those said the practice purchased new or replacement equipment.
• What results were they looking for? The top three answers were: 40% saw increased quality of medical care, 18% saw practice growth and 15% saw improved efficiency.
Source: dvm360 Decisions 2019 survey (to be released Q4 2019)
But let's say we cut to the chase and acknowledge that even if you skip the detailed calculations, you smart doctors, managers or team members should ask these questions before buying. Even if you don't run the numbers, you'll have thought through some of the bigger issues.
“We all hope a new piece of equipment will have financial advantages, but they don't always,” said Dr. Felsted in her session. “It's important that you go through and think about this part of it and do some of the analysis so your expectations are reasonable on how much profitability you can see.”
9 questions to ask before an equipment purchase (in no particular order, so don't get all freaked out)
1. What kinds of cases will benefit?
2. Are doctors committed to regularly using the equipment?
3. What training will be necessary to get veterinarians and veterinary technicians up to speed?
4. Will you need to hire additional support staff to use the equipment or add the service?
Coat racks and toys
Dr. Felsted says there are nonfinancial reasons (you know them) for buying "toys," pieces of equipment that don't get consistently used and aren't profitable but improve doctor satisfaction and improve patient care. “You feel good about providing them,” she says.
What you want to avoid are the “coat racks”: the little-used, unprofitable pieces of equipment that don't provide even the intangible benefit.
5. Diagnostics: Will outside interpretation of results be necessary for a period of time? Can you estimate how long?
6. How will you educate clients about the need for the improved care or new service? Do you know whether clients will be willing to pay more?
7. How is the equipment being paid for or financed? Will you be able to break even in a reasonable period of time?
8. How much will you charge clients for the improved or new service?
9. What's the total cost of equipment, including sticker price, training, staff hours, supplies, maintenance, upgrades and any interest with financing?
What it comes down to
If you're replacing a piece of equipment your team is already using, this is mostly a no-brainer. But if you're considering a particularly expensive new product or service (say, a CT scanner) or you need to choose between different equipment to buy at this moment, you may want to dive deeper to decide whether now is the time to buy, whether you have a plan in place to market it to clients and whether this is the best piece of equipment you could buy right now to improve your practice's revenue and patient care.
Dr. Felsted explained that, today, most pieces of equipment that used to be pricey considerations (digital radiography, ultrasound, therapy laser, surgical laser) are less expensive and more common, so you might not need to do a detailed calculation. But that doesn't mean you shouldn't pause and ask yourself the questions above to make sure your plan is a solid one.