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Unearth your veterinary practice's financial problems
Buried beneath that pile of paperwork may lie a more profitable practice. Here's how to uncover it.
You don't need to dig deep to see the recession's effects: going-out-of-business sale signs, empty storefronts, maybe even your practice's sinking bottom line. While our profession seems to be more or less holding steady—80 to 90 percent of practices report that they're doing as well as, if not better than, last year—there are plenty of practice owners whose numbers are down. If your profits aren't as high as they've been, or if you're looking to increase your already healthy earnings, it's time to mine through your revenue rubble. If your income is six feet under and falling, this is how to get back on top soil.
First things first: How are you doing? To find out, analyze your year-to-date total income and compare it to the same time period of last year. Are you up or down—and by how much? Next, look at your net income. (See "Don't forget the expenses" to help accurately calculate your profits.) Is it up or down? If you're up in both those areas, open a bottle of wine and celebrate; otherwise, you'll need to examine several revenue sources.
HIT PAY DIRT, NOT ROCK BOTTOM
If your bottom line is flat, the culprit may be a stagnant department within your practice. Compile and print out your year-to-date income by department (surgery, anesthesia, pharmacy, laboratory, and so on) and compare it to the same period of last year. You can expect some correlations. If your surgery income slipped, anesthesia income should have also dropped. Next, check your pricing. For example, if you find that laboratory income fell, check to see that you updated your fee schedule, especially if you send out labs. The outside laboratory may have increased its fees.
If your fees are current, try looking at the number of procedures performed. Did you do fewer fecals, heartworm tests, or blood chemistries this year? To find out, compare last year's number of professional transactions—any transaction that requires a doctor to be involved in the delivery of the service—to this year's number. (Remember, the numbers need to be from the same period of each year.) Also compare last year's total client transactions—any purchase that occurs within the practice, including over-the-counter and food sales—to this year's to get the best picture. The industry average is 3,200 professional transactions and 5,500 total client transactions per full-time-equivalent veterinarian per year. But don't get too wrapped up in these numbers. While you should be aware of national averages, remember, they're averages. What's most important is that you compare your practice to itself.
Still can't spot the reason for your practice's economic slowdown? Take a closer peek at your average client transaction (any transaction in your practice) and your average professional transaction (any transaction requiring a doctor's involvement). Compared to last year's numbers-to-date, are these figures up or down? The national average for a client transaction is $110; a professional transaction averages $140—but I know of many practices that average $160 or more per professional transaction, so don't set the bar too low.
If your average client transaction is down, maybe your team needs to offer more of a full-service approach. When clients come in for rabies vaccinations, are team members talking to them about their pets' additional needs—heartworm checks, feline leukemia tests, and so on? Are they reviewing patients' medical records and asking clients to consider food and parasite preventive refills? I know a practice that suffered an $11 decrease in its average client transaction because—as its investigation revealed—one receptionist who followed up with clients on refills had left the practice.
While you're looking at average transaction amounts, take it a step further and examine how the doctors in your practice compare to one another. For example, if you have four doctors and three of them are doing $150 per professional transaction and the other one is doing $120, that can signify a problem, assuming they offer similar services. That $30 difference can account for a missed $96,000 by the end of the year.
Veterinarians often make excuses for their low professional transaction numbers—"I'm not board-certified like Dr. Smith"—but the most common reason that one doctor's average is lower than another's is fee sensitivity. Doctors don't offer services or products because they fear the client's reaction to a high bill. So they discount or give away services. To raise your numbers you'll need to require doctors to make their recommendations consistently and charge appropriately for services. You can also boost professional transaction figures by improving your marketing and communication skills.
STRIKE IT RICH
And finally, a no-brainer solution to increasing client transaction volume is to increase your number of clients. Look at the number of new clients coming in every month. While you're doing that, go ahead and compare it to last year's numbers, and set a goal of how many more clients you'd like to attract each month. Not sure what's a reasonable number? Our industry averages 25 to 30 new clients per full-time-equivalent veterinarian per month. Then develop a marketing plan to reach that goal. You might improve your Web site, design or update your hospital brochure, upgrade your practice signage, or start an ambassadorship program or a graduated "thank you for referring" program.
But don't stop there. To determine if your efforts were successful, be sure to evaluate your client retention rate—how many clients return to your practice after an initial visit. The industry average—defined as new clients who return within 18 months of their initial visit—is a 60 percent retention rate. If your retention rate is lower than that, it's time to find out why. Send a questionnaire to all new clients, hire a mystery shopper service, and call those clients who haven't returned to uncover the problem.
You don't have to perform a complete operational audit to identify income problems in your practice. Rather, you can follow these simple steps to get your practice out of the hole and on solid ground. Remember, you have a choice. You can blame the recession and try to ride it out as best you can. Or you can continue to grow and prosper—even in this economy.