Root out these four flaws in your practice's profitability

Root out these four flaws in your practice's profitability

Here are four possible flaws in your practice's profitability. Off with their heads!
Apr 01, 2010

"The time has come," the Walrus said, "to talk of many things: Of shoes?— and ships — and sealing wax, and economic things, Like why the staff who's poorly trained is costing you 'cha-Chings!'"

If the economics of today's veterinary practices were set to rhyme, the work would be titled Veterinarians in Wonderland. Readers would know it was fictional, of course. There's nothing wondrous about most practices' finances today. But just as Alice learned to manage the twists and turns of her adventure, so can veterinarians adjust to the realities of today's faltering economy with a little creative thinking. Cheshire Cat, here we come!

Retool staff training

The poisonous potion sickening many practices is poor staffing. Hospitals with low turnover of well-trained, well-compensated staff are few and far between. Even before the recession, about 80 percent of veterinary hospitals were understaffed. Bare-bones staffing is the new norm.

Practices that do keep the recommended three full-time staff per doctor may find that quantity doesn't make up for poor quality. Your team members may be nice but lack the training in such areas as products and client education. But I've also seen too many hospitals make the mistake of paying for staff members to study in animal hospital technical programs at nearby colleges and then see those trainees leave for greener pastures.

Your better bet is the in-clinic training programs offered by vendors today. Team members spend a couple hours each week honing skills at the convenience of the practice, and the DVDs and materials stay at your hospital.

Mind your net earnings

In the next few years, many practices will shrink away like Alice after eating a magical cake. Most of these closing clinics will be owned by veterinarians who mismanage their money. If an owner's net income has never exceeded 25 percent of his gross, he'll never find a buyer. Who'd pay good money to earn less as an owner than as an associate somewhere else? Doctor-owned practices should net at least 30 percent.

Consider this: For a practice owner who toils for 30 years, even a 5 percent loss of profit on $800,000 gross means a loss to the bottom line — and the retirement account — of $1.2 million. If our practice owner were lucky enough to find a sucker — oops! I mean buyer — he'd be out another $13,000 on the sale, as practices typically sell for less than a third of the last year's gross revenue. Of course, real estate and equipment have value. That is, unless the neighborhood has deteriorated, which brings us to ...

Look at your location

Alice was often in the wrong place at the wrong time (off with her head!). Another set of owners can relate. Their hospitals will close because they're in areas that never could or no longer can support a practice. Owners all have reasons for remaining in poor locations, but the reasons are economically unsound: the nostalgic "I grew up in this neighborhood," the altruistic "They need a veterinarian here, and no one else will come in" and the downright dumb "There are three other hospitals a few miles from here, so it must be a good area."

Supermarkets and drug stores chains spend thousands on research about predicted growth rate and traffic patterns from now into the next decade. They look at average household income and ethnic dietary preferences. Even then, when the neighborhood changes, they relocate — and fast!

Hospitals in bad locations may not have fared too poorly before. But in the third year of a recession, the burden is too much.

Evaluate your practice

Everything in Wonderland is not always what it seems. It's time to sit down with an accountant and see what your net percentage is as a veterinarian, and not as a real estate holder. If there is nothing left after paying yourself 35 percent of your gross earnings, you have a hobby, not a business. A business makes a profit after paying its staff. A business on the stock exchange averaging less than 10 percent profit does not remain long in business.

If you're lucky enough to find your net between 35 and 40 percent, then you have the money to upgrade your staff's veterinary IQ to help you stay that way. You can't continue a profitable business without providing its staff with proper training. This recession is at least five years from being over for our profession.

In addition, make sure you're putting funds away for retirement. A retirement plan with $1 million at 5 percent provides only $50,000 in retirement income per year. Where will you get your money for retirement? Will you be living on Social Security and the rent from your former veterinary facility? Will you be waving a sign "Will spay for food" on the street corner? Or will you sit down right now with your books to make sure you net at least 35 percent? Ostriches — like the ones in Alice's croquet games — don't really bury their heads in the sand, but some veterinarians do.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995;
; fax: (866) 908-6986.

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