Surviving a weak economy

There's an old axiom in the veterinary profession that the field essentially is recession-proof.

According to conventional wisdom, people will not refuse their pets needed medical attention regardless of the economy. But with a struggling stock market, housing foreclosures and even billionaire Warren Buffet saying he's feeling the pinch, is it possible for the veterinary profession to emerge unscathed?

The numbers say no.

Profit Profile Corp., a consulting firm in Knoxville, Tenn., that helps veterinarians improve the business side of their practices, released its yearly Bow Wow Jones index (like the Dow Jones, only for veterinarians), which tracks the economic health of the industry. The survey found that, since August 2007, revenue growth for veterinarians has declined sharply.

Jon Dittrich, Profit Profile's president, says the country has endured at least three recessions in the past 20 years, and each time total veterinary profession revenue dropped.

Although health care might not be affected as significantly as other economic sectors, Adolfo Laurenti, senior economist at Mesirow Financial in Chicago, says that veterinarians still will be impacted by the slowing economy.

"Over the past couple of months, there has been a very sudden and very deep worsening of economic conditions," Laurenti says. "I think the key, regardless of the business cycle, is to be very careful and very cautious about cash flow. That's like the Golden Rule for small businesses, especially at the time of a slow-down."

Heal thyself

Dr. Anthony J. DeCarlo, CEO of the Red Bank Veterinary Hospital in Tinton Falls, N.J., says that the effects of a recession on the veterinary business depend on how an individual practice is set up. Because DeCarlo opened his business during a recession in 1986, he made the decision not to offer products and services that were sensitive to economic trends. For instance, Red Bank does not sell non-prescription foods or offer boarding — services clients can cut out during economic downturns.

DeCarlo says 90 percent of his business is medical, and that doesn't tend to fluctuate. "You may hold off on routine things, but when your pet gets sick, you really can't put that off," DeCarlo says.

According to Dittrich of Profit Profile, veterinary revenue generally comes from discretionary spending, which is vulnerable to economic swings. "If your electric company is threatening to turn off your power because you haven't paid your bill, and it's time for Fluffy to get her annual physical, Fluffy's not getting it," Dittrich says.

The American Veterinary Medical Association's "U.S. Pet Ownership & Demographics Sourcebook," which surveyed nearly 48,000 households, supports this premise. Although veterinary expenditures still are climbing, the number of patient visits is on the decline, as reported in DVM Newsmagazine. A weak economy can lead clients to bypass elective surgeries or, in the case of more serious injuries, euthanize the pet because of costs.

Quick fix

Once veterinarians see a drop in client visits or stagnating sales, the first response usually is to do one of two things: discount fees or increase advertising. Unfortunately, neither of these is effective in a weak economy, Dittrich says.

Clients tend to be loyal to their veterinarians, which means it is much more difficult for competing practitioners to poach clients from neighboring practices through advertising. Therefore, a veterinarian's marketing strategy must be for the long-term effort, not simply a short-term panacea.

As for price discounting, Dittrich notes that the rising cost of technology, equipment and specialist salaries have caused overhead to increase in recent years, leading to narrower profit margins. According to Dittrich, if an average practice cuts fees by 10 percent, it would need to increase demand by 32 percent just to make the same profit.

"Ultimately, you end up working harder and not making any more money," Dittrich adds.

What can you do?

Don't panic. Recessions are natural, cyclical occurrences, and a practice with a consistently successful business plan doesn't have to blow itself up when the economy sours. DeCarlo says the best thing a DVM can do to protect his or her practice is to take care of clients and staff.

"I don't think you change what your principles are during a recession," he notes. "There are some things you can control and some you can't. You just bite the bullet and see it through, because what inevitably happens is your competitors may not do that, and then you pick up their clients."

Internal marketing — focusing on the clients already coming through the door — is one of the best ways to raise revenue in lean times. Dittrich says many DVMs cut expensive services, assuming their clients can no longer afford them. A practice always should offer the best medicine and a full complement of services. Also, cutting corners can have a dramatic effect on employee and client morale.

Still, in a weak economy, it's important to focus on the business side of the practice as well as the medicine.

"We tighten our belts," says Dr. James E. Hagedorn, owner of the Bramer Animal Hospital in Evanston, Ill. "We try to stay more attentive to our expenses and not take on significant debt."

Dr. Richard Johnson of the Animal Medical Center of East County, just outside San Diego, says he spends about 80 percent of his time focusing solely on the business. Johnson, who co-owns his practice with his wife, says most DVMs are embarrassed or reluctant to talk about their practice finances. Johnson's business has continued to grow, and he credits a portion of this to sharing best practices with other DVMs through the Veterinary Management Group — about 200 hospitals nationwide whose staff members gather twice a year to talk about their practices.

"To get together at that level and be able to share financial data is something I have found to be a huge benefit," Johnson says. "And you can debate a lot of these things. You know, 'What do I see in my practice? What have we done differently that is responsible for our growth?' "

The thing to remember, according to Dittrich, is that most recessions end in less than two years and are good for the economy in the long run. It is essentially economic Darwinism. When the economy is weaker, marginal practices tend to fold. When the recession ends, businesses that have taken steps to survive are healthier.

"I used to live in Africa, where, if you go to a game park that has no predators, you'll see some really sickly old animals," Dittrich says. "If you go to one that has predators, all you see are pristine, young, strong herds. The difference is, there's nothing to weed out the old and the sick animals. Well, that's what recessions do for our economy."

Cohen is a freelance journalist in Chicago.