We know the real story, even though the pundits are telling us that the recession is over. Most of the experts assumed this
recession would be like the one in the early 1980s, but things are not going according to schedule. The dynamics of this business
cycle are different this time around, and we all know it. We've adjusted our staff, expenses, compensation packages, tuned
up our inventory, modified the business plan—so now what? It's BEP to the rescue. With the entire world trying to figure out
what to do, break-even points (BEPs) are one of the key elements to adjusting and adapting to the new economy, including those
of us in Main Street clinical veterinary medicine.
Look at the expenses
To get serious about our businesses, we need a method to address capitalization costs—nonrecurring expenses for things like
dental machines, ultrasound and training for those purchases. We need to understand the real cost of capital investments to
price their use. You can figure capital costs with the BEP formula: break-even point = Item to assess/1.00 – Variable percentage.
In previous columns, I've explained how to break up your profit and loss statement into expense categories: variable, fixed,
veterinary salaries and profits, including return-on-investment (ROI) items.
- Variable expenses are support staff labor and drugs and supplies.
- Fixed expenses are rent/facilities and other general expenses.
- Veterinary salaries include pay, benefits, taxes and associated fees.
- Profits pay for capital investments.