28 Jan Fix the leaks in your bucket for a profitable and productive practice
Veterinary practice is a reactive business. As a result, life in practice can be chaotic, stressful and expensive, with many vets working far too hard for far too little return…
MOST VETS WORK far too hard, for far too long, for too little return. This happens in many sectors and the principal causes of this are shown in the “leaky bucket” (Figure 1).
The good news is we are not suggesting you get more clients, work harder or longer, or increase the caseload. All you have to do is plug some of the leaks to fill your bucket (Figure 2).
Cost and profit analysis is necessary for all the separate strategic business units in your practice – equine, small and farm practice; first opinion and referral practice; and hospital and branch practices. Analyse cost and cash flow to produce accurate monthly management accounts for each business unit to set accurate budget projections for the year, set quarterly planning and review meetings with the team, and focus on key cost areas (stock and debt control) for analysis and budget setting.
Debt and credit control
In veterinary practice, more time, effort, energy and heartache is spent on debt collection and getting the money in than any other activity. Debt and credit control is critical. If you’ve done the work, but the money is still in your clients’ bank accounts, you can’t spend it. Vet practices should not act as credit brokers.
Effective debt and credit management is about clear systems, protocols and policies that prevent outstanding debt occurring in the first place, rather than chasing debt after the event. Create a robust debt and credit policy incorporating clear estimates, fixed pricing, insurance and veterinary credit agencies.
Stock control (or inventory management) is a key element of practice financial control, accounting for 40 per cent of revenues on average and 30 per cent of costs (and nearly all the profit in some practices). It should be treated as a separate business and requires different management from the professional services provided by the practice. Stock control should generate a profit. For it to do that, you need to stock less, sell more and sell it quickly. The secret to efficient stock control is selling what you have bought before you have to pay for it. One (only one) suitable qualified person should look after all ordering, mark-up, stock holding and reporting, and have clear targets to achieve. If too many people are involved, it can lead to over-stocking, leakage, wastage and redundancy – a major drain on your profit.
Strategic pricing involves pricing your preventive health care, clinical care and drugs using separate pricing policies. Don’t regard vaccines, preventive health care products and neutering as clinical income generators. Instead, through bundled and discounted packages (wellness plans), they can be used as a marketing tool to attract and retain the best clients for the practice so you can practise better veterinary medicine. Packaged, priced and positioned properly, preventive health care can create a steady stream of bonded clients and profitable long-term fee generation as a well.
Drug and retail sales should be a simple and efficient process of buying sufficient products, marking them up and selling them on to make a profit. However, increasingly, these sales are under threat from internal and external pricing competition, regulation and retail and internet providers. Considering they constitute up to 40 per cent of practice income – and, in some cases, all of the profit – you need to consider shifting revenue and profit more towards professional fees. Given the investment in vets, staff and equipment, these professional fees should be priced profitably to cover costs and make a profit for the business to thrive. The reality is, in most practices, this is not the case.
Measuring and monitoring vets’ performance is the quickest and most efficient way to increase patient care and improve productivity. Examples of key performance indicators are:
- repeat consultation ratios C1:C2 > 100 per cent
- diagnostic ratios – lab, x-ray and U/S
- dentals compliance
- hospitalisation and treatment charges
- preventive health care compliance – vaccines, flea, worm and so on
For UK benchmark figures for these parameters, visit www.vetdynamics.co.uk/benchmarking
Your strategic intent in managing vet performance should not be driven primarily by profit, but by your desire to practise good veterinary medicine and set your standards of care as high as possible. But to achieve improved performance, you need to do three things:
- price your professional time profitably and agree that it is fair
- invoice correctly – just charge for what you actually do
- do the work that is put before us – practice to the standards that we have agreed
Pricing your professional time
The most significant leak from the bucket is vets’ failure to charge profitably for their professional time.
Reacting to a broad, ill-defined, demanding and fickle client base whose demands and motivation are only occasionally aligned with your desire to practise high-quality medicine and surgery, and run a proactive and profitable business, means many of you may be working reactively and inefficiently.
You may not know what your professional time is worth, except in terms of a variable consultation or surgical fee, and these are often determined by what other practices charge rather than based on the needs of your practice’s finances and profitability. Are your vets “giving away” time (the free consult) to appease clients, discounting professional time (the repeat consult) to appease themselves or missing real opportunities to sell their professional time through “being too busy” or “fear of selling”?
If so, they are failing to offer full compliance veterinary services to the client, and fulfilling their clients’ and patients’ needs. We suggest you index your professional pricing using average consultation fee and rate per hour.
A tremendous amount of your work just doesn’t end up on an invoice and, therefore, it’s not paid.
Correct invoicing is about setting and sharing standards of care based on the best medicine for the patient and clear information to the client. In many practices, if vets put on the invoices all the work they actually did, they would double or triple their profits overnight.
One way of achieving this quickly is to build fixed-price macros into your practice management system.
Remember, you don’t actually need any more clients – you simply need to do the work presented to you.
Proactive medicine is based on the standards of care your practice chooses to adopt. It will generate more income (profit) from each client transaction through taking up missed opportunities for professional services and encourage vets to see each client more frequently (more transactions). If you take up all the opportunities for professional services that are offered to you, invoice the work fully and collect the money invoiced, you could well improve your cash flow, income and profits overnight by 50 per cent – 100 per cent from the same number of clients.
Most vets work far too hard, for far too long, for too little return. Small incremental changes across these seven key areas of your business will help you plug the leaks in your profits and significantly improve your practice’s clinical standards, client experience and team harmony. What’s not to like?
By Alan Robinson