Your accounting system may be hiding opportunity
Dr. Matthew Salois worked in private industry, government and academia before joining the AVMA in 2018 as director of veterinary economics. From 2016 to 2018, he served as director of global scientific affairs and policy at Elanco Animal Health, supervising a team of scientists in veterinary medicine, human medicine, animal welfare, economics and sustainability. Before joining Elanco, Dr. Salois was chief economist with the Florida Department of Citrus, where he led economic and market research activities to drive industry growth and profitability for citrus growers. He previously served as an assistant professor at the University of Reading in the U.K., and also has held positions with the University of Florida and University of Central Florida. Dr. Salois earned his PhD in Food and Resource Economics from the University of Florida, and holds an MA in Applied Economics and a BS in Health Services Administration from the University of Central Florida.
Do you know where to look for efficiencies and new growth possibilities for your veterinary practice?
With a shifting veterinary landscape, practices need to be ready to embrace change and transform it into opportunity. That requires flexibility, innovation and creative thinking. It also requires something that may seem rather mundane: financial practicality and attention to detail.
Get the financial picture
Improving profitability necessitates having a clear vision of your financial picture. Knowing where you are positions you to envision the future clearly and build toward growth. That means being brave enough to know exactly where you stand financially and visionary enough to use that knowledge to transform how you work.
This is where your accounting system comes in. Your chart of accounts isn’t just a basic utility to track bills and payments. It can be much more. Used to its full potential, it’s a microscope that can help you identify opportunities for greater efficiency and economic sustainability. It’s a powerful tool that can help protect—and grow—your business.
To unlock the possibilities, you need first to be using the standard chart of accounts for veterinary practices. It’s called the American Animal Hospital Association/Veterinary Management Group (AAHA/VMG) Chart of Accounts, and it’s endorsed as the industry standard by the AVMA and the Veterinary Hospital Managers Association, among other organizations. It’s available free of charge to all practices (see avma.org/accounting), and using it opens up a world of useful information. What’s more, implementing the chart of accounts doesn’t have to be difficult or time-consuming.
What are the benefits?
The standard chart of accounts applies best-practice accounting standards for classifying revenue, expense and balance sheet accounts in your practice. Using it lets you better organize your finances and collect data you need to strengthen your operation. The benefits to your practice are powerful and wide-ranging:
- Measure your clinic against industry benchmarks.
- See where you excel and find opportunities to improve.
- Shed light on both income and expenses.
- Match specific revenue items with their associated expenses, and ensure they align correctly.
- Make budgeting easier.
- Simplify training of bookkeeping staff.
- Provide deeper and more detailed financial data to show the practice’s economic health to potential buyers.
A real-world example
What can you do with this new information? One practice that implemented the standard accounts chart used it to compare costs and revenue for therapeutic pet food. What they found was astonishing: The practice was actually paying more for therapeutic diets than it was collecting in revenue for those products. Seeing the costs and associated revenue together allowed the hospital to identify the problem, track down the underlying cause and implement a fix. Without seeing the detail in the standard chart of accounts, the practice didn't even know it had a problem.
This really happened, and it’s just one example of the kind of insight you can gain from implementing best-practice accounting.
Where to begin?
If you’re not currently using the AAHA/VMG Chart of Accounts, it’s relatively easy to make the switch. You can do it gradually or all at once, depending what seems right for your practice. You also can hire help. Your bookkeeping firm can typically do it for you in just a few days for a few hundred dollars.
A recent issue of JAVMA included a special report that can help you better understand and implement the standard chart of accounts.1 The report was developed jointly by AVMA and AAHA to help veterinary practices reap the rewards of standardization. It’s full of practical information, including:
- Standard definitions
- Step-by-step implementation plan
- Roles and responsibilities of team members
- Change management advice
- Case studies from hospitals using the chart of accounts
Once the system is in place
Knowledge is power, and standardized accounting reveals critical information that you can use to track business performance and make strategic decisions. Start by matching up your new accounting data with your practice’s key performance indicators. Whatever you’ve identified as your most important metrics, your accounting system can help benchmark current performance, track changes over time and monitor the effectiveness of new initiatives.
Focusing on financials can even identify opportunities to improve patient care. If your hospital is performing more surgeries, for example, you might also expect to be conducting more postoperative follow-up exams. If revenue for those exams isn’t tracking with your numbers for surgeries, that could be an opportunity to work with your veterinary team to increase the number of clients coming in for that all-important postsurgical checkup.
Another example: If you see average transaction amounts for exam fees falling, you can dig into the detail provided by the standard accounting chart to see if there’s a common thread. Are more medications being dispensed without exams? Are you seeing more ear infection cases without cytology? These can be opportunities to provide a higher level of patient care.
Why does profitability matter?
Profitability and economic sustainability matter, not only for financial reasons but also because people and patients are counting on our practices to thrive.
Profit fuels innovation and opens doors to growth and opportunity. It makes it possible to keep the clinic doors open and supply exam rooms and labs with state-of-the-art equipment for top-notch patient care. Without profit and without building practice value, it’s impossible to continue helping patients.
Both clients and veterinary team members depend on our practices to support them in the long term, and economic sustainability is directly connected to patient care. However much your clients value you, if your practice doesn't turn a healthy profit, it won't be sustainable.
The industry standard chart of accounts is available at avma.org/accounting.
Matthew Salois, PhD, is chief economist and director of the Veterinary Economics Division at the AVMA.
American Veterinary Medical Association/American Animal Hospital Association. Financial standardization. J Am Vet Med Assoc 2020;256(4 Suppl).