Got a plan? Here are 15 points to consider

Got a plan? Here are 15 points to consider

Jan 01, 2002

Understanding that your practice is a significant investment is only a convenient starting point.

The obvious question is how to best capitalize on the substantial financial and time commitment made in your veterinary practice.

In our last article, the underlying assets of the practice operating entity were described, with explanation of valuation methods.

Strategic valuation of your practice is an excellent tool in identifying prime areas for improvement and proactive administration for changing things that need changed.

Weaknesses in practice systems can be identified through analytic review of a series of base years. Your goal is to strengthen the weak links in operations, so that the most value can be realized for the income generated.

Hand-in-hand with the goal of effective risk management, is the realization of more income through captured fees, new services, efficient staffing and successful marketing.

Streamline management

Streamlining management efforts of both assimilating and using financial data is essential. Your value in the examination room and at the surgery table is much greater than what occurs at the computer keyboard.

A good practice manager may be worth $12 or $15 per hour. As a veterinarian, you are worth $200 or more in the examination room.

Empowerment of employees to take over management duties, including budgeting and decisions on expenditures can liberate a veterinarian for time in the examination room, but the expense can be high.

People may make decisions in terms of profit margin expenditures, such as office supplies, drugs and equipment acquisitions. They may have the authority to buy drugs, but become enamored with a particular detail-oriented person and buy things that are based on affinity toward the person instead of cold, hard logic on the sensibility of the quantity ordered.

Do not mistake abdication of management responsibility for empowerment or delegation. Relinquishing total responsibility to a practice manager who lacks any oversight can be a deadly mistake. Fiduciary responsibility mandates you intelligently balance oversight and control with delegation and empowerment. Management has the ultimate burden of practice success or bankruptcy. An organized eye to monitoring the practice must remain clear.

Diligent oversight

Statistical analysis and periodic, monthly or quarterly reviews provide the means for management's diligent oversight.

It is fine to delegate and empower, but controls must be in place. By establishing a checklist of activities that must be completed by management at the end of each month and at the end of each quarter, it becomes easier to monitor parameters of practice health, keeping a pulse, so to speak, and making quick judgments about adjustments if deleterious changes occur.

What is the bare minimum of statistics that should be checked on a monthly basis? Consider a menu of options that exist.

1. Collect it

Fees charged versus fees collected. Review the total monthly amount collected as per your veterinary software program compared to the total deposits per the bank statement. These should always match.

2. Track income

A comparison of fees charged and collected against the same amounts for the previous year.

3. Count transactions

The number of transactions for this month compared to the previous month and the same month last quarter.

4. Tally discounts

Track the level of discounts given this month, versus last month, versus the same month of the previous year.

5. Adjustments report

A review of the adjustments report, indicating the level of written-off bad debt, manual adjustments to client fees, forgiven finance, billing charges, account transfers and so forth. As a note, be aware! Unauthorized access to the adjustment portion of your computer system is a dangerous power. Always demand that every employee who has access to this section (it should be a minimal number) initial off on the adjustment that has been made. It is easy then to question the party responsible for the manual adjustment.

6. Analyze income centers

Evaluate selected income centers for analysis. Target income centers for which you have budgeted increased numbers of transactions or revenue volumes.

7. Aging accounts receivable

Review aging accounts receivable. What is the change over the prior period? What are the average days in collections? What is the percentage distribution for each aging period? Sit down with your accounts receivable manager and plan a collections strategy for the coming month. Consider providing a copy of the aging accounts receivable report to each veterinarian in the practice so they are well aware of their individual clients who have been allowed to charge and have not come through with the cash.

The practice owner should be monitoring the bank reconciliation. It is fine to have the in-house bookkeeper or another employee complete the duty, but the practice owner should always open the sealed bank statement and review check endorsements and payees.

8. Income summaries

Take a look at individual employee income summaries, targeting employee veterinarians. Did they have a specific targeted income for the month established at the point salary negotiation occurred? If so, are they on cue? If not, some counseling and coaching may be in order. Pull some patient records from recent hospitalized and surgical cases and discuss how the cases may have better been handled or the opportunities for services that were missed. For doctors with only one, two, or three years experience, this becomes a much more critical issue.

Check notorious problem areas. Do you know "normal" percentages of gross income for expenses in your practice? Go home and examine your income statements to determine areas of expense that may be different. Try to determine why they are higher or lower than what you expect to occur.

On a monthly basis, take a look at the level of expense occurring and determine if closer monitoring is still necessary. Remember that the two biggest expense areas in the practice are payroll and drugs and professional supply cost. These are the most important areas to target if time is lacking for a more detailed look at month's end.

9. Hours worked

Determine the number of non-DVM employee hours worked. Also, request a run of total overtime hours worked. Mandate time-clock use by all employees.

On a quarterly basis, similar items can be checked, plus a few other ideas.

10. Back it up

Check with the office manager to make sure computer back-up copies are continuing to rotate out of the hospital. Also, question whether battery back-ups have been checked for their ability to function and that other equipment maintenance is up-to-date. A healthy, sound computer system depends on reliable and consistent hardware upkeep. In a veterinary hospital, it especially becomes crucial with the level of dog hair and other contaminants floating around.

11. Peruse quarterly statements

Quarterly in-house financial statements might be briefly perused. At month's end, a simple review of your computerized check writing software reports is probably more appropriate because of the fluctuation in expenses from period to period.

The percentages of gross income are not as reliable. However, on a quarterly basis a better reading can be gained. Here an in-house generated financial statement, in particular an income statement, may be helpful.

12. Compare budget to actual results

Compare quarterly budgeted amounts to the actual results of operations. A program like Quicken allows the budget to be input into the software program and comparative reports showing the actual cost to the budgeted cost can be printed.

13. What about marketing?

Establish the marketing program for the quarter. What was the percentage response time on the reminder system? If you are achieving better than 70 percent response rate by the third reminder, you are doing quite well. If the percentage is dropping, check with the reminder system manager to determine if a change in the format of reminders needs to be made.

14. Track your clients

What was the number of referrals from clients this quarter? What was the number of new clients gained and what was the number of patients lost through euthanasia or through the client moving? This is a more difficult number to track. Most of the computer systems are excellent at tracking new clients, but it is much more difficult to discern a lost client.

Establish the criteria by which the number of lost clients and pets can be measured on a regular basis. Again, it is not so much the level, as the trends. An increasing number of patient deaths or euthanasias and a decreasing number of new clients into the practice can indicate problems, even though revenues are increasing. Fee sensitivity may quickly ensue in the remaining existing client base.

15. Continuing education

Finally, determine the level of continuing education desired for the next quarter.

Evaluate the continuing education that occurred in the last quarter. Is there some way to measure the profits obtained from that quarter's investment? If a veterinarian or technician was sent to outside continuing education last quarter, is it possible for them to provide a continuing education seminar in-house to all the rest of the staff? This may be the best use of continuing education-invested dollars.

Check your list

Take this menu of monitoring devices and decide which fit best with your objectives.

Establish both a monthly and a quarterly checklist to be completed within the first 10 days of the end of the month or the quarter. The data required can be compiled by other personnel. Appropriate supporting documentation is a good idea.

For example, if you are examining the aging accounts receivable, you should request an exact copy of the end-of-month report to examine those balances.

Your staff can compile the numbers for you on a single piece of paper that has been previously designed, but the supporting documentation should be attached.

By having the information presented to you in a report format, it is easier for you as a practice administrator to comply with the duty of reviewing the information and making some decisions by the 10th day.

Learn finances

Practice financial management is not necessarily difficult; it can even be fun.

However, learning to use financial statements and the other transactional data generated by your computer can be intimidating.

Think of it much like learning an ovariohysterectomy. The first time you attempted the surgery, you were nervous, and all thumbs. It probably took a long time to begin feeling comfortable. The same is true with financial statement use and analysis. The first few times you try monthly analysis and budgeting, it may seem difficult and time consuming; however, as time goes on and you have completed the task successfully several times, it becomes quite easy and routine. Your efforts will reap the reward of increased practice profitability and value.