'The Fever'

Dr. Allen Thomas walked swiftly through the hotel corridor. Above him a sign announced a gala event in Ballroom C for all registered veterinarians.

David M. Lane, DVM, MS

As he passed under the sign he spied a crowd milling in front of the exhibit hall. He knew that the exhibits would open at 9 a.m. but was surprised at the size of the knot of people pressing the entrance.

Allen adjusted the black bag given to him at registration as he walked into the throng. In a few short minutes the doors were opened, and the crowd quickly divided and dispersed into a dozen walkways lined with vendors.

The arcade was now swelling with noise as vendors pushed to entreat each veterinarian with the newest and greatest in the delivery of modern veterinary medicine.

'The dance' begins

Allen pulled out his wallet and found the business card crumpled underneath a Wal-Mart receipt. He unfolded it and looked at the business name: "Acme Equipment, John Wilson, Account Representative."

He checked the computer kiosk provided in the exhibit area and located "Acme Equipment" at Booth 323 on Aisle 12. Allen had met John Wilson at the coffee shop the previous evening, and John was telling him about the great deal his company had on lab equipment. Allen stuffed the card back in his wallet and pressed on to Booth 323.

John Wilson immediately recognized Dr. Thomas as he approached the booth. John gave Dr. Thomas a hearty handshake and proceeded to show him a dazzling array of surgical instruments. Allen absent-mindedly sifted though the shiny tools arranged neatly on the table and then coyly looked up and spied the object of his mission to Booth 323: an in- house blood chemistry machine. John took the cue immediately and walked over to show Dr. Thomas the benefits inherent in such a purchase. John opened a bright and shiny brochure with red check marks marking each and every tantalizing quality. The brochure also contained a sentence circled in red that clearly stated how this product was superior to other less advanced products being sold by competitors at Booth 456.

John turned the machine on and deftly pulled a box of supplies from under the apron of the table. In no time, the machine was cranking out blood results on an optional printer. In fact, it took less time than it took for Allen to eat four Hershey's kisses found in a bowl next to the display. Allen was impressed.

He then popped the big question. John was way ahead by now. John reached for yellow legal pad and started scribbling out numbers in a black felt marker. At the bottom he wrote the figure $15,000 plus tax and circled it with a red marker. John said that this was the show special and that this price would be good for the whole meeting. Allen could see at the top of the yellow pad that retail price was originally much higher but various rebates and discounts were factored in along with a free box of reagents and something called a starter kit.

John tore off the sheet and deftly produced another set of figures. This showed that by using this machine only once per day it would pay for itself in less than two years-everything after that would be pure profit. Allen was now boiling with "the fever" and had to walk away for a few moments to keep from signing every dotted line within reach. John was happy and gave him two more business cards.

Afterglow

Allen walked away swooning with the possibilities. He walked past scores of booths but showed only passing interest. He didn't really have $15,000 in the bank, and as a solo practitioner he wondered if this week away from patients would drain his bank account before he got back. His wife had come with him and was a little worried about the quarterly tax payment that would be due next week. He decided that he had to go to a lecture just to cool off.

Dr. Fancy Pants

Amy Thomas was sitting on the bed staring at the Oprah show when Allen arrived from the lower lobby. Her faced brightened as she asked him how the meeting was going. He had a funny sheepish look that Amy knew only too well.

"OK, Dr. Fancy Pants, what did you find down there to buy?" she giggled.

"A new lab machine that should raise our gross income," he replied.

"How much?"

"Fifteen thousand dollars-which is the meeting special which is quite a reduction."

Her face now grew somber. She could tell he had "the fever," and she had never found an antidote.

I would first of all like to point out that veterinarians are blessed to have first-rate companies that professionally and tirelessly serve this profession. The technology, quality and value that these companies bring to this profession are a legacy. This is true today and tomorrow's breakthroughs will likely be breathtaking.

I would also like to point out that blood chemistry machines have proven track records for bringing new income into the veterinary business environment

On the other hand, veterinary business owners seldom are able to make informed economic alternative decisions about newer and better technology in order to deliver the maximum benefit to clients and the practice. In every case somewhere among all the nation's veterinary hospitals, a need exists for every product or service available at conventions exhibit halls. However, in the end, it is up to the business owner to understand the difference between wants and needs and economic viability.

Payback scenario

Many vendors like to show veterinarians how long it will take to pay back their investment.

This payback scenario is seldom useful and will undervalue or over value the investment for one important reason: The vendor has no idea how much you are going to be able to use the equipment in question-only you do.

In Dr. Thomas' case, the account representative divided $15,000 by $40 per test and arrived at 375 tests to payout. At 24 tests per month that means the machine would "pay for itself" in a little over 15 months. However, the machine needs to be fed supplies and use labor in order to function. Therefore, we must try to look at the true payout over a reasonable period.

Before you succumb to the "fever," these things are vital for the buyer to know:

• Is this a new technology for your practice and can you, with certainty, know that you will be able to generate an income flow where none exists now?

• Will this equipment replace or enhance an existing cash flow?

• Will this piece of equipment be vital to patient care or will it be an expensive hobby?

• Will it increase productivity or add to the daily burden for staff?

• Will this new technology help me increase the number of procedures I am likely to do, or will I continue to practice as before but in high style?

Time for paper, pencil

You cannot reasonably know the answers unless you take the time for a little paper and pencil. Once you do that, one of the most important considerations in making a purchase decision will be the break-even point for operating a piece of equipment. This is not particularly difficult, but you must make some assumptions.

Assumptions we will make:

• If you borrow money, what is the likely interest rate? (We will use 5 percent.)

• Hourly rate of the average employee most likely to use the equipment (assume $12).

• How many tests or similar procedures do you now do per month?

• The equipment will not break down, or if it does will be repaired under warrantee in short order?

• The useful life of the equipment surpasses the loan.

• There are very few wasted tests.

• Time of the procedure will average 10 minutes.

• Gross marginal profit is the cash flow this piece of equipment generates beyond its true expense. (Note: This is not net profit. See sidebar, p. 22.)

Using these assumptions, refer to Table 1 in order to evaluate direct and variable costs for a veterinary office over a 36-month amortization for a loan for a $15,000 investment in blood chemistry equipment.

The decision

Now look at Table 3. As you can see, we are now only doing 17 tests per month. The break-even point is now above the $40 that you are charging for the test. This means that you will be running a negative cash flow.

Only two choices can be made now-you have to charge more (a lot more) or you must start to pressure your clients to let you perform more lab tests. Many opt to decrease the price thereby compounding the folly.

The decision to buy is based on the number of true anticipated procedures. If Allen can be assured that he will charge greater than $33 per test and do at least one test per day, the decision is yes. Under these circumstances the purchase of a blood chemistry machine will be a winner.

What about you?

If you are currently sending out blood chemistry panels, go to your computer and ask it for the number of chem panels sent out from your office last year and recorded in your database. Also look at the gross income from this testing. The important figure is the number of tests per month. Divide your yearly test number by 12 to arrive at your monthly testing rate. Use the monthly testing rate as a baseline for the purchase of the new piece of equipment. Some of you will be very surprised to realize that your monthly rate is lower than you thought. Can you increase your test rate simply by having a blood chemistry machine chairside in your office? In almost every case you can.

However, some equipment purchases may not be as likely to do so. Much of this is unknown. It makes good sense to try to analyze your current procedure rate for a number of procedures that you do in your office.

Improved productivity

Some purchases will also improve the productivity of the office. This is hard to quantify, so it is always a good idea for you to ask a vendor for names of other veterinarians using their equipment so you can call them and get a feel for how a particular piece of equipment fits into their workplace.

Be sure to call several practices for a variety of reasons. Some practitioners will exaggerate the value of purchased equipment to justify an ill-advised outlay of cash while others may undervalue a purchase or may be unhappy because they have a particular ax to grind.

Do your homework and remember a piece of paper, a pencil and some "brain-noodling" are very cheap insurance and will help you put something into your wallet other than crumpled business cards.