Got a plan? Here are 15 points to consider


Understanding that your practice is a significant investment is only a convenient starting point.

Understanding that your practice is a significant investment is onlya convenient starting point.

The obvious question is how to best capitalize on the substantial financialand time commitment made in your veterinary practice.

In our last article, the underlying assets of the practice operatingentity were described, with explanation of valuation methods.

Strategic valuation of your practice is an excellent tool in identifyingprime areas for improvement and proactive administration for changing thingsthat need changed.

Weaknesses in practice systems can be identified through analytic reviewof a series of base years. Your goal is to strengthen the weak links inoperations, so that the most value can be realized for the income generated.

Hand-in-hand with the goal of effective risk management, is the realizationof more income through captured fees, new services, efficient staffing andsuccessful marketing.

Streamline management

Streamlining management efforts of both assimilating and using financialdata is essential. Your value in the examination room and at the surgerytable is much greater than what occurs at the computer keyboard.

A good practice manager may be worth $12 or $15 per hour. As a veterinarian,you are worth $200 or more in the examination room.

Empowerment of employees to take over management duties, including budgetingand decisions on expenditures can liberate a veterinarian for time in theexamination room, but the expense can be high.

People may make decisions in terms of profit margin expenditures, suchas office supplies, drugs and equipment acquisitions. They may have theauthority to buy drugs, but become enamored with a particular detail-orientedperson and buy things that are based on affinity toward the person insteadof cold, hard logic on the sensibility of the quantity ordered.

Do not mistake abdication of management responsibility for empowermentor delegation. Relinquishing total responsibility to a practice managerwho lacks any oversight can be a deadly mistake. Fiduciary responsibilitymandates you intelligently balance oversight and control with delegationand empowerment. Management has the ultimate burden of practice successor bankruptcy. An organized eye to monitoring the practice must remain clear.

Diligent oversight

Statistical analysis and periodic, monthly or quarterly reviews providethe means for management's diligent oversight.

It is fine to delegate and empower, but controls must be in place. Byestablishing a checklist of activities that must be completed by managementat the end of each month and at the end of each quarter, it becomes easierto monitor parameters of practice health, keeping a pulse, so to speak,and making quick judgments about adjustments if deleterious changes occur.

What is the bare minimum of statistics that should be checked on a monthlybasis? Consider a menu of options that exist.

1. Collect it

Fees charged versus fees collected. Review the total monthly amount collectedas per your veterinary software program compared to the total deposits perthe bank statement. These should always match.

2. Track income

A comparison of fees charged and collected against the same amounts forthe previous year.

3. Count transactions

The number of transactions for this month compared to the previous monthand the same month last quarter.

4. Tally discounts

Track the level of discounts given this month, versus last month, versusthe same month of the previous year.

5. Adjustments report

A review of the adjustments report, indicating the level of written-offbad debt, manual adjustments to client fees, forgiven finance, billing charges,account transfers and so forth. As a note, be aware! Unauthorized accessto the adjustment portion of your computer system is a dangerous power.Always demand that every employee who has access to this section (it shouldbe a minimal number) initial off on the adjustment that has been made. Itis easy then to question the party responsible for the manual adjustment.

6. Analyze income centers

Evaluate selected income centers for analysis. Target income centersfor which you have budgeted increased numbers of transactions or revenuevolumes.

7. Aging accounts receivable

Review aging accounts receivable. What is the change over the prior period?What are the average days in collections? What is the percentage distributionfor each aging period? Sit down with your accounts receivable manager andplan a collections strategy for the coming month. Consider providing a copyof the aging accounts receivable report to each veterinarian in the practiceso they are well aware of their individual clients who have been allowedto charge and have not come through with the cash.

The practice owner should be monitoring the bank reconciliation. It isfine to have the in-house bookkeeper or another employee complete the duty,but the practice owner should always open the sealed bank statement andreview check endorsements and payees.

8. Income summaries

Take a look at individual employee income summaries, targeting employeeveterinarians. Did they have a specific targeted income for the month establishedat the point salary negotiation occurred? If so, are they on cue? If not,some counseling and coaching may be in order. Pull some patient recordsfrom recent hospitalized and surgical cases and discuss how the cases mayhave better been handled or the opportunities for services that were missed.For doctors with only one, two, or three years experience, this becomesa much more critical issue.

Check notorious problem areas. Do you know "normal" percentagesof gross income for expenses in your practice? Go home and examine yourincome statements to determine areas of expense that may be different. Tryto determine why they are higher or lower than what you expect to occur.

On a monthly basis, take a look at the level of expense occurring anddetermine if closer monitoring is still necessary. Remember that the twobiggest expense areas in the practice are payroll and drugs and professionalsupply cost. These are the most important areas to target if time is lackingfor a more detailed look at month's end.

9. Hours worked

Determine the number of non-DVM employee hours worked. Also, requesta run of total overtime hours worked. Mandate time-clock use by all employees.

On a quarterly basis, similar items can be checked, plus a few otherideas.

10. Back it up

Check with the office manager to make sure computer back-up copies arecontinuing to rotate out of the hospital. Also, question whether batteryback-ups have been checked for their ability to function and that otherequipment maintenance is up-to-date. A healthy, sound computer system dependson reliable and consistent hardware upkeep. In a veterinary hospital, itespecially becomes crucial with the level of dog hair and other contaminantsfloating around.

11. Peruse quarterly statements

Quarterly in-house financial statements might be briefly perused. Atmonth's end, a simple review of your computerized check writing softwarereports is probably more appropriate because of the fluctuation in expensesfrom period to period.

The percentages of gross income are not as reliable. However, on a quarterlybasis a better reading can be gained. Here an in-house generated financialstatement, in particular an income statement, may be helpful.

12. Compare budget to actual results

Compare quarterly budgeted amounts to the actual results of operations.A program like Quicken allows the budget to be input into the software programand comparative reports showing the actual cost to the budgeted cost canbe printed.

13. What about marketing?

Establish the marketing program for the quarter. What was the percentageresponse time on the reminder system? If you are achieving better than 70percent response rate by the third reminder, you are doing quite well. Ifthe percentage is dropping, check with the reminder system manager to determineif a change in the format of reminders needs to be made.

14. Track your clients

What was the number of referrals from clients this quarter? What wasthe number of new clients gained and what was the number of patients lostthrough euthanasia or through the client moving? This is a more difficultnumber to track. Most of the computer systems are excellent at trackingnew clients, but it is much more difficult to discern a lost client.

Establish the criteria by which the number of lost clients and pets canbe measured on a regular basis. Again, it is not so much the level, as thetrends. An increasing number of patient deaths or euthanasias and a decreasingnumber of new clients into the practice can indicate problems, even thoughrevenues are increasing. Fee sensitivity may quickly ensue in the remainingexisting client base.

15. Continuing education

Finally, determine the level of continuing education desired for thenext quarter.

Evaluate the continuing education that occurred in the last quarter.Is there some way to measure the profits obtained from that quarter's investment?If a veterinarian or technician was sent to outside continuing educationlast quarter, is it possible for them to provide a continuing educationseminar in-house to all the rest of the staff? This may be the best useof continuing education-invested dollars.

Check your list

Take this menu of monitoring devices and decide which fit best with yourobjectives.

Establish both a monthly and a quarterly checklist to be completed withinthe first 10 days of the end of the month or the quarter. The data requiredcan be compiled by other personnel. Appropriate supporting documentationis a good idea.

For example, if you are examining the aging accounts receivable, youshould request an exact copy of the end-of-month report to examine thosebalances.

Your staff can compile the numbers for you on a single piece of paperthat has been previously designed, but the supporting documentation shouldbe attached.

By having the information presented to you in a report format, it iseasier for you as a practice administrator to comply with the duty of reviewingthe information and making some decisions by the 10th day.

Learn finances

Practice financial management is not necessarily difficult; it can evenbe fun.

However, learning to use financial statements and the other transactionaldata generated by your computer can be intimidating.

Think of it much like learning an ovariohysterectomy. The first timeyou attempted the surgery, you were nervous, and all thumbs. It probablytook a long time to begin feeling comfortable. The same is true with financialstatement use and analysis. The first few times you try monthly analysisand budgeting, it may seem difficult and time consuming; however, as timegoes on and you have completed the task successfully several times, it becomesquite easy and routine. Your efforts will reap the reward of increased practiceprofitability and value.

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