I often am reminded that there are definite, inviolate rules of productivity for all veterinary practitioners.
It's not like Mom saying not to swim until a couple of hours after eating; you can cheat on that and probably get away with
it if her back is turned. The key word is probably.
But even rules that, years ago, you considered silly and mean-spirited can be based on deadly consequences.
The clock on my wall presently reads 5 until 7, which reminds me that you violate the "5-to-7 rule" at your peril. In this
case, peril means headaches, gastric irritation followed by staff abandonment, maybe even bankruptcy. Even a popular liquid
antacid can't cover all of that, although its pink color does go well with the red ink. Five to seven is the ratio between your gross revenue and your paraprofessional payroll in dollars. (It is exactly the same
in yen, euros and pesos, for our international readers. Since DVM Newsmagazine went digital, I have as much correspondence from our colleagues in Europe as from the states.)
It means you must bring in at least $5 for every $1 paid out in salaries to receptionist, technicians and kennel staff. Less
than that brings about the rapid demise of the practice.
This is the absolute minimum for survival. We're not talking about productivity or profit here, just survival. Profit only
begins to whisper at 5.0. Many would need a hearing aid to detect it.
At six times payroll, one could expect to begin each new month with all bills paid. At anything over 6.0, the prospect of
eventual retirement rises out of the Twilight Zone. At 6.5, you come to the hospital smiling every day.
However, be warned that when you exceed 7.0, the reverse happens. You have more dollars coming in than staff to support the
medical needs of your patients, and the system will crash. Consider yourself the pilot of your practice aircraft and your
only safe-flying altitude is between 5,000 and 7,000 feet. Fly higher or lower at your own peril. The safety of all considered
is in your hands.
Staff costs today are obscenely complicated. They include dollars per hour, federal and state employment taxes, Medicare and
Social Security taxes, health insurance, continuing education, pet-care discounts, vacation pay, sick pay and more.
No two practices are exactly alike in the amount of employee benefits paid. Many pay unsustainable benefits and must, in the
current turbulence and the worse times yet to come, reduce their staff costs.
Where to find payroll costs
For purposes of the 5-to-7 ratio, we can talk only about the costs shown on your federal tax form 941. This quarterly form
includes all of the above except for the benefits — health insurance, continuing education, pet-care discounts, vacation pay
and sick pay. Your bookkeeper or accountant has a copy of these forms, so you don't have to look far. Just divide by 3 to
get your monthly costs.
You could also find the payroll costs in your monthly P&L, but there are two problems there. The first is that few practice
owners and/or managers actually get a monthly P&L, preferring either to ignore the facts or get them quarterly or even annually
from their tax preparer. The second is that few actually look at these expensively prepared reports if they do get them. This
may sound harsh, but the truth is the truth.
In the P&L, the numbers are disguised mathematically as percentages; 5 is cunningly presented as 20 percent, while 6 is represented
as one followed by a lot of 6's, as in 16.66666666666 percent, and 7 is 14.28 percent. These are percentages of your gross
revenues spent on salaries of your dedicated and hard-working receptionists, technicians and kennel staff.
The 5-to-7 ratio is so much easier to work with. But in the percentages game, the lower the number, the happier the bottom line (but remember that
too low is dangerous, too).
A happy bottom line is a happy practice.
Featuring Information from:
