Veterinarians recommend that clients bring in their pets at least once a year for a comprehensive physical exam, so maybe it’s time we practice what we preach. When was the last time you did a comprehensive review of your practice and its management?
Many practices schedule retreats around the beginning of the year, bringing the entire team together for a day or two to talk about the previous year’s successes and what they wish to accomplish in the new year. I think it’s a great idea.
Most veterinary practices did well in 2019. From what I ascertained in articles and reports, the average year-over-year increase in gross income in 2019 was 6% to 8%. At the practices I consult with, the average increase was closer to 14% to 18%, with many practices doing significantly better than that. If you would like to give your practice a health check, here are four things you need to monitor.
1. Your Practice’s Perception of Value
As you are well aware, clients determine the quality and value of your practice and its services based on what they see and observe. This perception of value occurs over a short period, thus the name “The Three-Minute Syndrome.” It states that clients determine the quality and value of a practice within three minutes of entering.
As part of your practice’s health check, take an objective look from your clients’ perspective and evaluate your practice’s three-minute syndrome. Look at the outside, meaning your sign, parking lot, landscaping and building. Next, go inside and evaluate the waiting room, reception desk and exam rooms. Is the time right for a new coat of paint or maybe a complete remodel? Fortune 500 companies remodel every five to seven years. When was the last time you remodeled or updated your clinic?
In today’s world, clients often determine whether to visit a practice long before they step foot in it. Online reviews, social media and your website will affect your practice’s perception of value.
A new study reported that 92% of consumers read online reviews for local businesses and that 88% of consumers trust online reviews as much as personal recommendations. These findings are chilling in that they show the impact that online reviews can have on your practice. This would be a great time for you to evaluate your practice’s online presence. Have you reviewed the reviews? Have you initiated a Google Alert using your hospital’s name and doctors’ names so that you are notified when something is posted online about your practice? When was the last time you updated your website, refreshed the pictures or changed the content?
2. Your Numbers
Now is a great time to look at all the numbers for your practice. Is gross income up or down, and by how much? Look at the 2019 net income. Did you take home more or less money as compared with 2018? I know of several practice owners who paid their associate veterinarians more than they compensated themselves.
How about your practice’s average client transaction (ACT)? Did it go up or down last year? If the cost of living rises about 3% for the year, you need at least a 3% increase in your ACT to stay at your current level. Any less and you might lose ground financially. How about the number of transactions and the number of new clients? New studies indicate that we are seeing fewer new clients. If you have an increase in invoices but a decrease in the ACT, you might be practicing harder instead of smarter.
Probably the most important financial indicator you can look at is your bonding rate, or the return of clients within 18 months of their last visit. This is your practice’s success factor. If clients come back, then they like you and they like your hospital. If they don’t, then maybe they aren’t having as great an experience as you hoped. We need to know about this before it’s too late. Your veterinary software program should be able to provide your practice’s bonding rate. Our profession’s average is 60%. If your bonding rate is lower than that, I suggest client surveys to find out why.
I also would review your doctors, their number of invoices and their professional client transactions (PCT). Did the number of professional invoices in your practice rise or fall? How about your doctors’ PCT? If one doctor has a PCT of $240 and another is at $280, why? The doctor with the lower PCT might be costing you $128,000 a year in lost revenue. Talking to your doctors and reviewing this information with them could be insightful.
3. Your Expenses
The two expense categories you can most control that will have the greatest impact on your bottom line are support staff and inventory. This would be a great time to review those expenses. I like to see support staff costs (W-2 wages and payroll taxes) of under 21%. I would compare this expense to the previous year’s. If the number is higher than 21%, then look at how you are scheduling employees and your overtime expense. The problem likely falls into one or both areas.
The other expense to watch and evaluate at year’s end is your inventory costs to gross. I like this expense to be below 18%, or maybe 19% but no higher. If you find your inventory costs to gross are too high, look at the shelf life. How long are products coming into your practice and sitting? Ideally, you should be able to turn over inventory in 30 to 60 days.
Remember that inventory is not an investment. Inventory is a means of making money by using or selling a product. Inventory sitting on the shelf is like you placing $100,000 in a desk drawer. Not only can’t you “sell” the money and make more money from it, but you are not getting any investment interest or return on the money.
This would be a great time for what I call the “red dot idea,” which involves having someone place a red dot on all your inventory products on one day, preferably the first day of the month. On the first day of the following month, see how many items still bear a red dot, then do the same thing 30 days later, and so on. You will be amazed at how many items carry a red dot this time next year. These items are costing you money. Can you instead have clients buy those items from your online pharmacy, or can you purchase them in smaller quantities? Shelf life, product duplication and inappropriate markups are the biggest reasons that inventory costs will be out of line with income.
4. Your Prices
When was the last time you updated your fee schedule? If it has been more than six months, I suggest you increase fees by at least twice the cost of living. With a professional service, I suggest rounding up the fee to the nearest 50 cents or dollar. I am driven crazy when I see a fee schedule that charges $65.03 for a comprehensive physical exam. Clients respond to such a number as if they are being nickeled and dimed, which leads to distrust of your fees.
Also, conduct a comprehensive inventory and check the results against your computer’s values. Hopefully, you will find yourself within at least 10%. If not, review your inventory controls. Evaluate your markups, minimum fees and dispensing fees to see if they need to be adjusted.
Lastly, review and update your employee handbook, if necessary. Over 30 major federal changes were enacted in employment law last year, not to mention all the changes in state laws.
The employee manual template I offer clients went through six revisions last year to help the practices stay current. You should review employee job descriptions, training programs and evaluation forms to make sure they are up to date.
February and March might be a slow time of the year for some practices, while other clinics will be busy and productive. Now is the time to get your house in order by fixing and updating things. By investing a little time, 2020 might turn out to be an even better year than last and a transformative moment for you and your practice.