The worst and best of times
Practices that conserve cash, champion job security and nurture clients will be ready to capitalize on an economic resurgence. When leadership takes care of the team, the team takes care of the business.
It became official June 8: The United States began its pandemic-fueled recession in February 2020 after experiencing the longest economic expansion in the nation’s history. The announcement was a bit difficult to reconcile because many veterinary practices are experiencing abnormally busy summers. However, as unemployment safety nets dissolve and consumer confidence erodes, hospital managers need to take the pulse of their clients’ individual economies and make smart decisions.
I joined my current practice in the middle of the Great Recession of 2007-2009 and helped navigate our business through its recovery. I learned a lot during those years as a novice manager and have spent the past decade preparing our practice’s finance and operational guidelines while keeping the next economic downturn in mind. That time is now. My best advice to younger colleagues is this: Prepare but don’t panic.
The best news about all economic recessions is that they eventually end and that the rebounds can deliver unprecedented gains when leveraged strategically. Since history shows that recessions occur on average every 5½ years, we can expect to face at least a few of them throughout our careers and hopefully become more skilled, confident and measured in handling each go-round.
I am by no means an economist, but here is what I learned in the trenches during the Great Recession and am applying during the current situation:
While allowing cash to sit in the bank doesn’t produce exciting investment returns, maintaining an adequate emergency fund provides necessary peace and confidence during economic uncertainty. When the business has plentiful cash on hand, management has the time and space to consider and test strategies for combating stagnant or falling revenue before having to jump to potentially harmful moves such as layoffs, payment deferrals and additional debt.
How much cash to keep on hand is an individual decision and will vary based on a practice’s debt load, rental agreement, risk tolerance and the anticipated handling of expenses should revenue significantly decline. For reference, our practice feels financially secure keeping a minimum of one month’s full expenses, about 85% of average monthly revenue, as cash on hand and has historically squirreled away up to three months’ expenses in preparation for an anticipated drop in demand, annual taxes, bonus payouts or debt-free capital expenditures. Interest rates on savings accounts are not appealing at the moment but in more prosperous times, storing emergency cash in a liquid money market account is one way to draw a small return on the asset.
During the last recession, we quickly realized we were wasting time and money during normal operations. Persistent economic pressure motivated us to weed out inefficiencies. Through continuous improvement, we worked to find ways to see more patients, serve more clients and earn more revenue without proportionally increasing staffing or becoming burned out.
A veterinary practice’s second-largest expense — the first being human resources — is inventory. Always, but particularly during a recession, you need to identify and minimize excessive, duplicate and unprofitable stock. If client buying patterns have changed, such as sales of food and preventive medications moving online, then inventory reorders and quantities should reflect that. As a rule, inventory should be sold to clients or consumed in-clinic before the vendor needs to be paid. If you can’t sell the bulk of your inventory within a month or two, you likely ordered too much and have tied up important cash reserves.
Additionally, to accelerate building a cash reserve, now may be the time to pause additional payments on your loan balances. Turn a deaf ear toward the idea of buying snazzy equipment that will take years to provide a return on investment or has the potential to quickly lose its luster. Identify and cancel where your marketing dollars are being spent if they are not drawing in and bonding clients at a profitable rate.
Care for Staff
The COVID-19 pandemic has been a roller coaster with no clear end in sight. Now, coupled with a recession, you can expect your team to be feeling exhausted and uneasy. During the Great Recession, I mishandled some aspects of staffing and communication and paid the emotional toll of losing rapport with the team. At the start of COVID-19, I had the redeeming pleasure of standing in front of the team and assuring everyone that regardless of a lack of government funding, clinic-closing illnesses or a drastic drop in client demand, we had cash reserves and backup plans that prioritized sustained job security. I believe that when leadership takes care of the team, the team takes care of the business.
A key strategy we use to provide steady job security despite stalling revenue is a bonus system instead of frequent raises and tying it to revenue growth. The team understands that if we fall on hard times, they likely will not earn a biannual bonus but will keep their hours and earn their regular pay for as long as possible. When the recession ends, we will have maintained our trained, loyal and grateful team and be ready to ratchet up to full capacity.
Here’s more good recession news: The pet care industry tends to fare well in tough economic times. Some call our field recession-proof. While that did not hold true for all practices and business models during the Great Recession, according to MarketWatch, the overall pet care industry grew by 17%. The statistics show that even when money is tight, pet care is of significant value to clients. Our job as managers is to determine how to best entice clients to spend their budgeted pet care dollars at our veterinary practices.
One way to capture a client’s attention and their spending is to appeal to the heart. Even when they cannot really afford it, pet owners spend on costumes, toys and premium food because it makes them feel good about how they care for their cat or dog.
I recommend rephrasing your wellness marketing efforts to include references to the human-animal bond and the excellent decision that pet owners make when they choose preventive medicine. Find ways to fluff up the veterinary experience, particularly when you work in a mask and practice social distancing, through the use of photos and other personal touches. Aim to have clients feel good about how they spend their limited income.
Lean Into Recovery
When and how the economy will grow again is anybody’s guess. However, when it happens, businesses that survived with their clients and skilled employees relatively intact will be in a better position to capture the increasing demand.
Economic recovery is the time to invest in added capacity, luxury services and tech-savvy conveniences that satisfy whatever future normal in which we will be living.
Take Charge columnist Abby Suiter is practice manager at Daniel Island Animal Hospital in Charleston, South Carolina.