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The name of the game is profit


How much profit did your practice make in 2001? Do you know? Why not?

The selling price of your practice will be a function of its bottom line profit, not the gross. If you are anywhere near retirement, you had best be looking at these numbers at least three years in advance, because sure as chickens don't come with the parts labelled, any buyer is going to want your production figures for the three years prior to purchase.

Net profit

Calculating your practice's monthly and annual net profit will take youjust a few minutes each month.

Here's an example:

Solo practitioner G.I.M. Bushed, who considers himself a successfulpractitioner, grossed $350,000 in 2000. His overhead before his salary was$230,000. He drew $10,000/month as salary, leaving nothing in the corporationto pay taxes on.

His practice real estate is worth $300,000 and he has paid off his mortgage.His personal production as a veterinarian was 80 percent of the gross or$280,000. He did not pay himself a rent check, to avoid a rental tax, butjust included it in his $10,000/month draw.

Calculating the practice's net profit is relatively easy.

The practice Yr 2000 gross was $350,000

The practice corporation will pay him 25% of his personal production 280,000 x .25 = - $70,000

Fair and industry standard compensation as a manager is 10% of thegross = - $35,000

Practice overhead was - $230,000

Fair rent (15%) on 300,000 property = - $45,000

Net loss to his practice was 8.6% -$30,000

Should this hardworking doctor continue in this low practice net situation,his practice is unlikely to sell for much more than the real estate. *

If he can increase his gross by about 15 percent to $400,000, while keepinghis expenses under control, he is somewhat better off than before, but reallynot enough.

New practice Yr 2001 gross was $400,000

The practice corporation will pay 25% of his personal production or $320,000 x .25 = - $80,000

Compensation for management (10%) = -$40,000

Practice overhead was - $238,000

Fair rent (15%) on 300,000 property = - $45,000

Net loss to practice about 1% -$3,000

A 1 percent loss where 10 percent profit was the goal is not going tomake anybody happy!

This practice will sell for approximately $185,000.

If he or she can increase his gross by another 25 percent to $500,000while keeping his expenses under control, he or she will retire a somewhatmore comfortable person. Let's look at an example:

New practice Yr gross was $500,000

The practice corporation will pay 25% of his personal production or $400,000x .25 = -$100,000

Compensation for management (10%)= -$50,000

Practice overhead was - $250,000*

Fair rent (15%) on 300,000 property = - $45,000

Net profit to practice (11%) $55,000

Their profit is now 11 percent where a minimum of 10 percent is the goal.This practice will sell for approximately $525,000 (plus real estate andequipment.)

What to note

Note that the additional revenues were made with the same staff costsand a 15 percent of additional gross addition for drugs and supplies. Thisis entirely attainable. Staff costs in each example were estimated at 20percent of gross. Efficient staff usage is essential to bottom line success.

If you still have a mortgage, the annual sum of rental paid to yourselfand that to the bank should equal 15 percent of the current appraisal value.

If you do not know the current value, that's easy to remedy. Any realtorcan give you the value of "comparable" real estate sold recentlyin your area. If no buildings have been sold, they can certainly tell youwhat the property is worth per square foot and you can add $80/square footfor the cost of replacing your current structure. Just add in the equipmentand, voila, you have a current appraisal estimate.

Mission impossible?

Now some astute readers might note that they feel that it is impossibleto increase their earnings 15 pecent and then another 25 percent as shownin the examples used. For some, that might be true. Some practices, butvery few, have locked themselves into communities with average householdincomes of less than $40,000. That means that they will not be able to chargethe community as a whole more than $21 or so for an office consultationfee. Their average client charge is unlikely to exceed $65 or about 80 percentof the national pitiful average.

I know that you selected that area because you grew up there, has a greatclimate, has super fishing, diving, skiing and other superlatives. Whatthat community does not have is clients capable of supporting modern veterinarymedical miracles of care. If I have described your practice, I want youto listen very carefully to my words. "Hope is not an effective strategyfor retirement sustinence." On the other hand if you can hunt and fishto your heart's content, you won't starve and burial in the deep woods Iam given to understand costs no more than the price of a good shovel.

*The selling price of a profitable veterinary practice paying itselfan appropriate rent, is, for practical purposes, roughly but effectivelyestimated by adding the amount equal to management compensation to the netprofit and multiplying the result by 5.0.


Dr. Snyder, a well-known consultant, publishes theSnyder Advisory Letter, a newsletter for practice productivity and is availablefor in-practice consultation. He can be reached at 2895 SW Bear Paw Trail,Palm City, FL 34990; (800) 292-7995; vethelp@bellsouth.net; FAX (561) 220-4355.

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