Increasing practice value is very easy in most practices if there is understanding of how a practice value is determined and how changes in management will affect the bottom line.
Increasing practice value is very easy in most practices if there is understanding of how a practice value is determined and how changes in management will affect the bottom line. When the bottom line (also known as the earnings or practice profit on a cash basis) is increased, the practice value rises markedly. Today in most practices, for every additional dollar added to the cash basis bottom line, the practice value increases from $3 to $5. Therefore, if we set our goal to increase the practice value $100,000 in one year, all we have to do is manage the practice so within one years time there will be an additional $20,000 to $33,000 excess cash available beyond expenses and doctor compensation. This is an increase of only about $2,000 to $2,500 plus per month.
There are many ways to adjust pricing of individual items and to increase itemized billing or, more importantly, to increase the quality of medicine (and charging for all services provided) to affect the bottom line. In veterinary practice management, every practice is unique in its pricing and itemization needs, dependent on the style and quality of medicine that is practiced, coupled with the volume of practice cases seen and the overhead costs. The current fee schedule and invoice analysis is the starting place for finding needed adjustments. As the costs for facility, equipment and overhead increase, the costs of services will have to go up. So, every practice has different pricing adjustment needs to reach a desired goal to increase the practice value by a set amount.
This session will start with an overview of the concepts of a practice valuation (or appraisal) and the major issues that effect it. After the concepts are understood, some sample cash flow profit and loss statements will be shown to study the variation of pricing needs from different practices. Once there is understanding of the variability of individual practices, it becomes easier to understand how each practice must set their specific practice fees according to their costs to reach a preset desired bottom line or cash profit. The income in fees or itemization will determine the increase in the value of the practice.
Once the practice has fees and/or itemized pricing set to adequately cover the practice's costs, and result in a cash profit each and every month, it becomes easier to maintain the excess cash in the bottom line. Once the principles are understood, practice managers and owners can actually raise the value of a practice more than the above goal, by more frequently adjusting and itemizing fees to keep the practice value growing at a set goal.
The goal of this session is to illustrate and teach the management actions that must be used to raise and maintain a practice value, to allow for an owner to realize a profit and be able to have a practice with adequate value to be sold whenever retirement or a phase out of practice work is desired. If the above principles are not followed, the owners may find they have a practice that is not able to be sold for more than book value. This book value amount, without any good will value, is usually not sufficient for a practitioner to plan to retire or to send children to college. Therefore, the principles of this session are paramount to practitioners to understand to prevent professional burnout or exit.