Help your veterinary practice walk the financial tightrope

Article

You've got questions, we've got answers. Here's what you need to know to understand the business you work for.

You're in the business of animal health, and your training until now has probably been focused on providing patient care and offering stellar customer service. Yet understanding the financial side of the small business you work for can help you help your practice—and it's part of your job. Consider these common questions and learn more about the serious financial concerns your practice owner must balance every day to keep your practice afloat.

What's the difference between the practice's gross revenue and net profit?

While you watch the credit card machine spitting out slips and fill the cash drawer with checks, cash, and debit card receipts, it's easy to perceive this as pure profit for the practice. Firstline Editorial Advisory Board member Kyle Palmer, CVT, practice manager at Silver Creek Animal Clinic in Silverton, Ore., says team members often have the opportunity to see what the practice brings in during a day, month, or year, but you often don't have access to how this filters down to profit. "These are common misconceptions for anyone who has never run a small business," Palmer says. "You just don't automatically think about overhead."

Gross profit is that revenue the practice takes in during a period without respect to expenses, he says. Net profit is what is left over after the practice pays all operating expenses, or overhead.

Why do we charge so much?

To remain competitive, practices traditionally charge less money for things like physical examinations, spays, neuters, and all the procedures that are shopped, says Bash Halow, CVPM, LVT, a Firstline board member and the owner of Halow Consulting.

"To make up for the money they save clients in one area, they charge more money in others," Halow says. "No, it's not fair, but it's a pricing strategy that is designed to be most acceptable and appealing to our clients."

Think of it this way: Most practices incur a cost of somewhere between $3 and $6 every minute they're open for business, Halow says. Now imagine that an exam at your practice takes 15 to 20 minutes. To cover expenses, you should charge $90 to $120 for the exam. But your practice owners want to stay competitive, so they choose to charge only $50 for the exam, with the understanding that they'll provide other services that will make up the lost revenue.

"If you haven't been educated about pricing, you might think, 'Wow, $20 for a nail trim, that's a lot.' But you should also think, 'But it's only $50 for an exam. That's a deal,'" Halow says.

Why do I need to understand the practice's finances?

Actually, you don't. That's the job of the owner and the practice manager, Halow says. But you should participate fully in the management team's plan for the practice's financial success.

"I don't think it's so much a problem of employees not understanding or appreciating the importance of financial responsibility," Halow says. "Most employees are fully aware of the negative implications of excessive expenses. What team members don't understand is what they're supposed to do to help out the practice."

Too often, Halow says, he sees practice managers or owners mumbling unhappily about the practice's poor financial health. This is demoralizing and passively criticizes everyone's efforts. "Managers and owners are better off coming up with a clear, written plan to move out of the financial crisis and assign everyone on the team a specific role to help out," he says. "That strategy will not only have nearly immediate positive consequences on the bottom line, it will also boost morale and build your team."

How can I improve our finances?

The answer is simple: You must cultivate an ownership mentality, says Palmer. "I live and work in a state that doesn't allow non-DVM ownership," he says. "But I've always considered the practice to be my own and acted accordingly."

Palmer says this mindset extends to all areas of the practice, from such simple things as making sure sharps containers are completely filled and limiting waste to recouping a reasonable return on the practice's investment and satisfying customers.

"When employees at our practice adopt this mindset, they become vital to our practice and reap the rewards," Palmer says.

A critical point: For the team's efforts to be successful, Halow says everyone must be working toward common goals. For example, if Cindy decides she's going to promote anal gland expressions and charge for them, this goal needs to be part of the practice's plan. The whole team must believe in and recommend the service you offer. You need to have a strategy to market it. And it's something you'll need to measure.

"I think it's unrealistic to expect team members to come up with a plan to improve their practice's finances on their own," Halow says. "If Cindy wants to promote more anal gland expressions, that's all well and good. But I don't think you're going to make a lot of headway taking that route. You're better off running a compliance report on services your whole team believes in but recognizes you aren't successfully promoting." These services, he says, may include important practice initiatives, such as early detection blood profiles.

Halow recommends reaching out to trusted companies in the profession to help you out. Many will help you check your compliance free of charge. "Then talk to your team about the client experience from beginning to end and how each team member can contribute to clients' education—when they check in, when they enter the exam room, when they check out—even when they receive their reminder cards in the mail," Halow says. "Each step of the client experience is a chance for individual team members to make a unique client connection. This is the opportunity that all leaders should explore and the opportunity to help out that all team members should invest in."

Offering your best service and care for clients and patients is a clear service. And your attitude about your practice's plan is also important.

"If a practice owner or manager tells the team, 'You'd better straighten up because we're in financial trouble,' team members can't do anything with that information," Halow says.

Usually, he says, this is a symptom of a bigger disease: The practice doesn't have a long-term plan for growth. Practice managers can suggest to owners that they need to create a plan—and they can get help from the team. Once everyone has the strategies, managers and owners can empower team members to help reach goals and put the practice on sound financial footing.

To help develop your practice's plan, consider these questions:

  • Where are we now?

  • Where do we want to be?

Halow recommends performing a SWOT analysis to evaluate your practice's Strengths, Weaknesses, Opportunities, and Threats. From this, your team can develop a plan to move the practice forward.

"Managers and owners can be cost dictators and remind team members of the cost of the roll of paper towels to clean up a pee stain, but I think that's a long road to a little house," Halow says. "I think you're much better off coming up with a long-term plan about the practice's direction and planning how each team member figures into that goal."

Where does all the profit go?

Before you assume your practice owner is pocketing all the profits, Halow says it's important to understand a few of the expenses incurred in running a veterinary practice that most people don't think about. Employers have fewer visible costs, from professional dues and insurance expenses, such as:

> AVMA Professional Liability Insurance Trust (PLIT)

> registration with the Drug Enforcement Agency

> associate memberships in state and national veterinary associations

> and worker's compensation, to name a few.

Your vacation, sick days, holidays, and CE days are an additional expense for practice owners. After all, these are days they're paying you not to work.

What's more, whether the net profit might be $25,000, $50,000, or even $175,000, that remaining money only represents income to date. It doesn't mean the practice will make a profit tomorrow. If, for some reason, your practice owner wasn't able to come to work tomorrow, this could drastically affect the practice's income.

"That net number at the bottom of a profit-loss statement isn't a guaranteed thing. Every owner realizes the many things that challenge that number on a daily basis," Halow says. "The other consideration is that this income is matched against the enormous debt the veterinarian had to put take in order to get that income."

For example, Halow says he recently consulted with a practice just opening its doors, and it cost $800,000 to launch the business. The money left over at the end of the day is only a drop in the bucket compared to the enormous debt load—and the interest on the debt—that veterinarians shoulder to launch a business.

It's also important to note that this profit is the pool of money the practice owner pulls from to reinvest in the practice, from repaving the parking lot to new equipment purchases.

A final thought

Before you look at that dollar amount on the bottom line and say to yourself, "Wow, that's a lot," Halow says you need to remember that the real value of the practice is not how much money is left over as compared to the gross revenue, but how much money is left over compared to the investment or the value of the business.

"Those are two different things," Halow says. "A wise owner is not only trying to improve the bottom line for today, but trying to build a team, a client base, and systems to reliably produce revenue in the future. Running a business is wildly stressful. Owners have the responsibility for their business's mistakes, expenses, and accidents 24/7, 365 days a year."

To lighten their load, it's important to write a strategic plan for success. And you, as a team member, must offer your help in achieving the practice's goals, Halow says.

"That's the way everyone can get rich in the end—and not just monetarily," he says. "Working as a team to achieve business success is an experience you will remember and cherish your entire life. There's nothing else like it."

Portia Stewart is a freelance writer in Lenexa, Kan.

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