Take control of your expenses

Take control of your expenses

The new economy places new stresses on veterinary practices
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Feb 01, 2010

In this economy, we could all stand to hear what financial thinker Gregory Berns says about fear: "Think of fear like alcohol. It impairs judgment. You shouldn't make any decisions while under its influence."

This recession has created a new economic reality, and we as practice owners need to fearlessly prepare for this new era. It's true that American consumers are saving more and spending less, but more than 100 million of them are still working, and their animals still need care. The challenge for us is to look at the short- and long-term economic landscape and adjust our business plans accordingly.

Let's begin by looking at fixed expenses, starting with rent.

Rent

I've seen some practice rents or mortgages eat up 15 percent of a practice's budget. That's too high. Rent should be in the 5 percent range.

If your real-estate costs are too high, now is the time to renegotiate or spread out payments.

Other general expenses

Consider these fixed-expense cost-cutting measures:

> Replace filters, install smart thermostats and don't skimp on preventive maintenance. Consider what your staff members can do rather than hiring outside help.

> Set the hot water heater to a lower setting. Wrap the hot water tank with an insulation blanket.

> Look at your bank fees to see what could be adjusted or reduced, and watch for hidden or excessive fees. Last month, I found a new "coin and currency" fee on our bank statement. For what? Our deposits had too much "cash." We stopped that fee.

> Monitor the closing dates, interest rates and fees on your credit cards. Encourage your clients to use debit cards to cut costs.

> Look at your insurance to see whether higher deductibles would work for you.

In short, go line by line though this section of your profit and loss statement, and consider each item for adjustment or change. General fixed expenses should be roughly 11 percent of your budget.

Next, let's look at such variable expenses as labor, drugs and supplies.

Drugs and supplies

For most general practices, this category should be at 15 percent. When it comes to tracking and monitoring supplies, the trick is to make sure that everything used on a patient is charged to that patient. I think all of us can decrease our drug and supplies costs by 15 percent with judicious use and always charging for items used.

How do you do it? Ensure you're using current supplies, limit out-of-date losses and charge appropriately for all supplies used.

Support-staff labor

Take a look at these facets of support-staff costs:

> Charge appropriate fees for inpatient services. Do not try to subsidize other areas of the practice with high vaccine fees. An upside-down practice is one where outpatient services are too expensive and inpatient services aren't inexpensive enough. Make sure the fees you collect actually pay for the cost of labor to perform these duties.

> Monitor your benefits package, but be aware that reductions in benefits are usually bad for morale.

> Limit overtime to essential patient-care services. If overhead is more than 1 percent of total staff expense, you'll need to change work patterns, schedules, floor leadership or duties.

Support-staff cost can be 15 percent to 35 percent depending on practice management and the team's skills. Try to hit a 40 percent to 50 percent level when you add professional labor to support-staff labor on your budget.

If you're not close to those numbers, carefully assess support-staff skills, address work patterns and seek employees' input. You can trim labor costs by 10 percent without affecting morale, mission or productivity.