A seat-of-the-pants approach isn’t the way to run a practice. You need to construct a detailed strategic plan and then dedicate time to implementing it.
Daggers were shooting out of the eyes of the four veterinary hospital partners. You could have cut the tension with a butter knife. I was there as an impartial facilitator after the partners discovered through a professional valuation that the business representing their blood, sweat and tears was worth basically the ground it sat on and the tangible assets inside. Each blamed the other. Finally, with an exhausted gasp, the majority owner proclaimed: “I didn’t sign up for this. I just want to practice medicine and take care of my clients. The money is supposed to follow.”
As her remark settled in and the partners’ attitudes shifted from aggression to dismay, one of the veterinarians volunteered, “Flying by the seat of our pants as owners and managers obviously hasn’t been working, so now what?”
That was the million-dollar question, or in this case the $2.1 million question.
Practicing Practice Stewardship
Whether it’s practice owners with whom I’ve collaborated, questions I’ve fielded from aspiring practice owners as I taught at veterinary schools or wrestling with the concept early in my career at my practices, the temptation to fly by the seat of our pants and hope for the best is not a new one.
As the five of us sat in the room and debated next steps, the concept of management through Key Performance Indicators (KPIs) and not by the seat of the pants was cautiously floated. To some, KPIs and financial management are all about the money. To me, it’s about practice stewardship. As practice owners, we are ultimately responsible to our patients, clients, staff and their families, as well as to ourselves and those who depend on us.
Intentional practice management starts with identifying why we do what we do, then putting a plan in place to achieve it. It’s a process known as strategic planning, and if you’re not doing it you probably should be.
In January, a medical director, practice partner and I sat down and wrote a strategic plan for a hospital. This step might sound intimidating, but it needn’t be. If you haven’t written out your goals and a plan for achieving them, consider following these six steps:
- Identify your hospital’s mission and values. These will direct everything else you do.
- Review the year prior and perform an analysis to identify your practice’s strengths, weaknesses, opportunities and threats (SWOT).
- Identify what’s important. (See No. 1.)
- Define what you want to achieve.
- Determine who is accountable for each goal.
- Review consistently throughout the year.
After you determine where you are and where you want to go, it’s time to measure progress. I’m sure you’ve heard, “You can’t track what you don’t measure.” What practice owners track might vary based on their strategic plan, but most of us should at least include:
- Balance sheets.
- Profit and loss (P&L) statements.
- Practice information management system reports.
- Medical ratios.
Before we delve into each of these, you probably fall into one of two camps.
This group tends to consist of new practice owners who are so overwhelmed with all that ownership entails that they are busy working in the business and not on the business. Many seasoned practice owners fall into this camp. The four owners with whom I was in the room with pitched a tent here. These are the people who show up, practice medicine, oversee their staff and are content with the fact that money comes in, bills get paid and they pay themselves a reasonable salary.
Two groups are present here. The first is made up of individuals in Camp One who have a few more years of experience. They dream of retirement, sending their kids to college and traveling with grandkids. However, they neglected to manage their dreams with intention. The second group is a cross section of us all — those who realize that while we didn’t enter the profession to be small business owners, we are, in fact, just that, and our patients, clients, team and families depend on us to build a sustainable practice model.
Think about what sustainable practice profitability means. When I poll veterinarians, they usually connect practice profitability with:
- The ability to achieve their hospital’s mission: “No profit margin, no mission.”
- Patient care.
- Reinvestment into the clinic — equipment, hospital upgrades, continuing education.
- Debt service and compensation.
- Team compensation — “If you pay peanuts, you’ll get monkeys.”
But just as we must convey the value of what we recommend for a client’s pet, we must understand the value of monitoring the financial health of our practices. Only by doing this can we build a legacy we can be proud of and become the practice stewards we want to be.
Still not sure it’s worth it? Consider a report from the Bayer Veterinary Care Usage Study. It found that 62 percent of hospitals do not use financial concepts such as those mentioned above to manage their hospitals. Those that do earn two-thirds more than those that don’t.
I understand that some veterinarians worry about taking time out of the exam room or surgery suite to work on the business, but if we calculate the hourly value of that time, roughly $178 an hour, and compare it to knowing that our hospital could make two-thirds more if we work on the business and in the business, it becomes a no-brainer.
Driving practice success using KPIs incorporates a budget to complement the strategic plan. I’ve seen too many practice owners and managers buy a shiny new digital dental X-ray machine just because they wanted it. But they didn’t take the time to decide whether they could afford the machine.
If you’re not already leveraging a budget, I recommend pulling a monthly P&L report from QuickBooks or similar accounting software and adjusting for the upcoming year based on known costs, price increases and any major changes in revenue or expense. For example, a client’s hospital added health insurance and had to take the expense into account. Another hospital built a robust client rewards program that we anticipate will have a positive impact on revenue.
As with any financial tool, a budget is useful only if we know how to use it and regularly incorporate it into our management decisions.
In my next article, I’ll dive into profit and loss statements, balance sheet and KPIs.
VetPartners member Stith Keiser is CEO of Blue Heron Consulting.