Financial considerations critical component to successful merchandising - DVM
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Financial considerations critical component to successful merchandising


DVM Best Practices


A significant merchandising concern for veterinary practices is good systems forproduct receipt, storage and payment. Establish purchase order procedures, wherein the purchasing agent creates a sequentially numbered record for each order, including order date, item, quantity, price quotation, and vendor. A purchase order system helps prevent stock outages, tracks back orders, and controls costs through assuring agreement of quoted prices with actual invoiced amounts at a later date. Train staff in proper protocols for handling shipment receipts, such as comparing shipping documentation with items received, before they are placed in storage areas. For retail items, updated price tags must be affixed.

Establish protocols for rotating stored stock, updating listed computer prices for any increases since the last order, and identification of items near expiration. Damaged goods, and items returned from clients must also be controlled so that optimal credit can be obtained from manufacturers.

Notify bookkeepers of impending credits as soon as items are identified for vendor return. Too often, UPS pick-ups occur without bookkeeper awareness of the return. Without safeguards, the probability of lost vendor credits is very high, since the bookkeeper won't be watching for their presence (or omission) on later statements.

Bookkeeping systems A proper paper trail helps bookkeepers assure item payment is in accord with physical receipt and negotiated price. Here is where the purchase order system provides additional evidence when compared with shipping documents, credit memos, invoices and the final end-of-month statement.

Invest in software that can provide a clear trail of outstanding purchase orders, bills requiring payment, and due date alarms to obtain early payment discounts and mitigate finance and late payment charges.

Space consideration Many veterinary practices have limited space for merchandise storage. Periodically review items on hand to ascertain what can be consolidated. Obtain doctor agreement as to the items that should be used in routine patient treatment and to eliminate redundant product lines that accomplish the same purposes.

Evaluate storage area security. Large quantities of expensive product held for future dispensing represents a substantial liability in the event of theft. The more that is on hand, the higher the risk level for unobserved theft.

Practices with limited space tend to store products in every available nook and cranny. Outdated products, redundant ordering and superfluous items become par for the course, with fragmented storage schemes. Whenever possible, concentrate merchandise in a single central storage area that is easier to eyeball and secure.

Explore vendor options for "just-in-time" ordering systems. In a just-in-time system, the practice orders no more than what it needs for a short period of time, such as 30 days duration. Quantities can be kept low, but incoming shipments are frequent. Also be aware of new Web site ordering technologies that allow placement of an order and immediate shipping to the client. The practice gains space and saves money by eliminating the requirement to store certain product lines at all, such as dietary product or heartworm and flea preventative refills.

Invoicing Just as for services, lost income from missed merchandise sales is a common problem in veterinary practice. Evaluate the invoicing software, and monitor staff usage. Match historical invoices against patient records on a weekly test basis to keep staff sharp.

Train employees to invoice capture every dispensed item. Assure staff is well educated to recognize differences in size categories. Mistakenly selling a high cost item with a low price invoicing code is a sure way to devastate practice profit margin.

Watch profit margin Most practices have experienced tremendously increased cost of drugs, supplies, dietary product and ancillary product costs. Drug and medical supply cost as a percentage of gross income is commonly three to five percentage points higher than what it was 15 years ago.

The percentage increase is due to advanced pharmaceutical agents for arthritis control, holistic approaches in alternative medicine, flea control and heartworm preventative. These drugs have great benefit to animal welfare, but competitive retailing has kept markups relatively low.

By pure volume as compared to services within a practice, retailing results in a greater portion of revenues generated from lower profit margin segments. Without a doubt, the highest profit margins are found in veterinary service activities, particularly consultation and examination time.

Know where the practice's profit margin is through analysis of financial information on a regular basis. Watch for trends that indicate profit margin degradation. Be a leader by charging for everything that is done.

Before adding new merchandise lines, assure that all veterinary staff has a full and absolute belief in the validity and benefit of the items being vended.

Consider separate invoices for retail sales as compared to veterinary services. Two psychological benefits result. The first is that the client perceives a lower total invoice for the veterinary service component, when separately invoiced has been provided for things such as heartworm preventative, flea medication, and pet food.

Invoices could be formatted differently so that one conveys the professional services while the other represents the retail items.


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