The 2 management keys most often neglected

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Feb 01, 2008

A man flying in a hot-air balloon realized he was lost. Reducing altitude, he spotted a fellow on the ground and descended to shouting range.

"Excuse me!" he yelled. "Can you help me? I promised my friend I would meet him a half-hour ago, but I don't know where I am."

The man below responded: "Yes, you are in a hot-air balloon, hovering about 30 feet above this field. You are between 40 degrees and 42 degrees north latitude, and between 58 degrees and 60 degrees west longitude."

"You must be an engineer," responded the balloonist.

"I am," the man replied. "How did you know?"

"Well," said the balloonist, "everything you have told me is technically correct, but I have no idea what to make of your information, and the fact remains I still am lost."

Whereupon the man on the ground responded, "You must be a manager."

"That I am," replied the balloonist, "but how did you know?"

"Well," said the man, "you don't know where you are, or where you're going. You have made a promise you have no idea how to keep, and you expect me to solve your problem. The fact is, you are in the exact same position you were before we met, but now it is somehow my fault."

Like the balloonist, many veterinary-practice owners find themselves lost and call on a management consultant for help. My job, then, is to take what is and make it into what you need it to be. In most cases, that means producing more dollars that are profitable. Non-profitable dollars are in abundant supply. No one needs more of them! There are many million-dollar practices unable to pay their bills today. They have the dollars, but need the profits.

1 BREAK-EVEN POINT

All dollars are not equal. In the million-dollar practice, the first $2,145 collected each day goes entirely to rent, payroll, supplies, utilities and taxes. In other words, these first dollars are 100 percent overhead.

The first dollar of profit does not come in until after 3 p.m. in most practices. That's when the daily break-even point usually is reached — the point at which income from sale of products or services equals the invested costs, resulting in neither profit nor loss; the stage at which income equals expenditures.

At that moment the glorious event occurs. Profit starts accumulating. Break-even points are different for every practice and change frequently. Just lease another piece of diagnostic equipment and watch your break-even point increase by the amount of your daily amortized portion of your monthly payment.

Do you know your break-even point? You really should.

There is an easy formula for it: It is related to the Henderson-Hasselbach formula for determining the pH of your practice. Unless calculus is exciting for you, pick up the phone and ask your accountant. Then divide the number by 306, the number of days you practice each year, and you will find out how many dollars of pure overhead you have to accumulate before the profit tide rolls in.

2 DETERMINING YOUR ATP

I find the average transaction profit (ATP) to be more motivating and a lot easier to figure out than the break-even point.

Dr. Busy has been a solo practitioner for 10 years, earning $90,000. He works 55 hours a week and feels that he cannot charge his clients more than his current fees.

He grosses $600,000 and has 6,000 transactions per year. Obviously, his average transaction is $600,000/6,000 = $100. He earns $90,000, so his expenses are $510,000 or 85 percent of his gross.