1. Financial
Management
Eye-Openers
for the 2010
Veterinary
Practice
(In other words, employ threat assessments and methods to
protect your veterinary practice from yourself and others so it can
grow and prosper financially. No Neapolitan Mastiff required)

2. Contact Information
Mark J. McGaunn, CPA/PFS, CFP®
Managing Member
McGaunn & Schwadron, CPA’s, LLC
75 2nd, Avenue, Suite 425
Needham Heights, MA 02494-2897
main (781) 489-6651
direct (781) 348-9227
e-fax (781) 479-5985
e-mail mark@mcgaunnschwadron.com
web: www.mcgaunnschwadron.com.com

3. Today’s Agenda
• Who to Blame
• Old Ways
• Basic Ways
• Key Performance Indicators
• Practice Dashboards
• Balanced Scorecards
• Financial Strength Index

4. The Great Number Deluge
How healthcare organizations use financial data
greatly affects current and future operational
and financial performance. Two schools of
thought:
• 1st school-Managers ask, “What’s the number?” If
bad, they ask “Whose fault?” Organization’s focus
only on bottom line.
• 2nd school-Leaders who say, “Now that we have the
number, what proactive ideas can we implement
based on it?”

5. Lots of Responsibility
Practice owners and managers responsible for
tracking projects, initiatives, clinical outcomes,
policies & procedures.
Data “deluge” -owners lose focus, fail to keep
strategic thinking aligned with practice's long-
term vision.
1. Great strides in information collection and
distribution, but
2. Significant improvements in decision-making
value still not realized.

6. Bad Tech Solutions Not Better…
• Technology often just delivers more
irrelevant or inappropriate data quicker.
• Great practices demand timely, relevant data.
• Jack Welch, former General Electric CEO, had
worldwide operating results by day 5 of each
month.
• Veterinary practices have trouble with 30 days.

7. Use Your Data
• Knowing how to read financial statements and
understand the information within them is often
the difference between prosperity and just
getting by.
• Time-honored question asked by every
healthcare professional is:
“Are we making money?”

8. Know Your Stuff
• Veterinarians who don't carefully read such
financial outcomes measurements run risks
much as they would in failing to read medical
outcomes carefully.
• Financial statements are key diagnostic tools for
managing the veterinary practice, tracking
revenues and expenses, identifying financial
problems, and ultimately increasing everyone’s
compensation.

9. Reporting Basics
You have to know the basics. The 3 financial
reports used to monitor an organization’s
financial health are:
1. Income statement-lists revenue, expenses, and
residual net income for period of time,
2. Cash flow statement-tracks operational,
investing, and financing cash flows
3. Balance sheet-indicates veterinary practice’s
degree of solvency & ownership equity

10. Basis of Accounting
• Most healthcare-practice CPA's utilize "cash
basis" method of accounting. Cash basis shows
what’s been collected and what’s been paid.
• “Accrual basis” presents income that’s earned
(not necessarily collected) and expenses
incurred (not necessarily paid).
• Both relevant for tax purposes. Accrual basis
must be used for practices where inventory is a
material income-producing factor.

11. Income Statements (P&L)
• Of the 3 financial reports, P&L most flexible
device for monitoring practice’s financial health.
• Practices should review P&L at least monthly.
• P&L reports patient income, employee costs,
and overhead
• Can even breakout incremental costs for various
ancillary services (QuickBooks class system).

12. Comparisons & Budgets?
• Income statements augmented by footnotes
can explain to practice owners major deviations
in revenue and expense vs. previous periods.
• Checking against a well laid out budget (that
already incorporates these timing issues) can
show that no extraordinary management is
needed.
• Budgets are not meant to be punitive tools.

13. Cost Structures
2 general cost categories:
• Fixed costs remain the same regardless of
volume (rent, insurance and utilities)
• Variable costs, such as medical supplies,
fluctuate with volume.

14. Variable Costs
Recognize, however, that variable costs
vary differently.
• i.e. medical supplies have a close
relationship to volume, but staffing may
vary in steps.
• Important to recognize in budgeting, as
well as in developing strategy.

15. Helpful Hint…
BEFORE printing out financial statements to
review:
1. Make sure all deposits, checks, and credit card
charges have been entered to month end, and
2. Make sure all checking and credit card
accounts have been reconciled
Then print out reports and use for analysis!
And it won’t mess with your tax planning!

16. Simple QuickBooks Format
• You should modify your QuickBooks® chart
of accounts to incorporate the AAHA chart
of accounts format. No longer sold in
healthcare version.
• Makes practice financials LOGICAL.

17. AAHA Chart of Accounts
Balance Sheet
• Assets-Current, Fixed & Other (100 Series)
• Liabilities-Current, Long-term (200 Series)
• Equity (300 Series)
-Corporations (C or S)
-Equity for Partnerships or LLC’s
-Proprietor’s Capital (Sole Proprietorship)
-Administrative Costs

18. AAHA Chart of Accounts
Income Statement
• Income (400 Series)
• Cost of Goods Sold (500 Series)
• Operating Expenses (600 and 700 Series)
-Staff Expenses
-Occupancy Costs
-Equipment Expenses
-Administrative Costs
• Other Income & Expenses (800 Series)
• Income Taxes (900 Series)

19. Benchmarking
Management must incorporate key factors in
developing measures that:
• Extend throughout entire practice..
• Tie into practice overall strategic plan.
• Have consensus as to relevant and appropriate
factors.
• Based on both internal and external factors.
• Empower employees, not stifle them.
• Allow systematic review, and
• Encompass each operating division in a
veterinary practice.

20. Benchmarking
• Franchisors have utilized benchmarks to highlight
financial strengths and weaknesses in store-to-
store and intra-store measurements.
• True progressives utilize intra-entity
benchmarking and metrics to measure their
progress (if already > average).
• Financial metrics are typically only a component.
• Customer Service s/b measured in all aspects.
• How can we be cutting edge?

21. Your Primary Competition Is..,
• Relevant benchmarking data available to
assess performance?
• Comparative benchmarking data crucial to
reporting system success.
• Ideally, practices should have some
comparative reference points to evaluate
how it is doing with respect to its primary
competitor-itself.

22. Key Performance Indicators
• Quantifiable measurements that reflect the
critical success factors of an
organization.
• They reveal a high-level snapshot of a
practice’s financial and operational status.

23. KPI
• Before Key Performance Indicators are selected,
vital to identify what the practice’s goals are,
which are in turn dependent upon its mission
and owners.
• KPIs act as a measure of progress towards
these goals.
• Whatever they may be, KPIs must be critical to
the success of the practice.

24. KPI
• Application of Key Performance Indicators
provides practice owners with a high-level,
real-time view of the progress of a practice.
• Combination of reports, spreadsheets and
charts.
• Revenue figures, trends, or any long-term
consideration which may be essential in
gauging the health of the practice.
• Should not only reflect the organizational
goals but also be quantifiable.

25. KPI
• To be valuable it must be accurately defined and
measured.
• A KPI may meet the criteria of reflecting the
organizational goal, which may for instance
pertain to being the most popular company.
• However, since a company’s popularity can not
be measured or compared to others, therefore
the KPI would be useless.

26. KPI
• Considerations regarding how a KPI is to be
measured should also be established in
advance.
• Definitions as to exactly how the indicator is to
be calculated and whether it is to be measured
in dollar amounts or units should also be
specified.
• Moreover, it is imperative that the organization
then sticks to these definitions from year to year
in order to allow for annual comparisons.

27. Potential KPI’s
Indicators can include:
• financial viability
• clinical outcomes
• patient safety
• quality of care
• marketing and development
• internal veterinary practice procedures; and
• employee, patient, and DVM satisfaction.

28. Underlying Principles
• The process of converting raw or
numerical tabular data into a graphical
depiction is known as “data visualization”.
• One of the main goals of data visualization
is to support decision-making through the
use of properly designed graphical
representations of information.

29. Visual Trends Inspire
• For most operations managers, trending data
and exceptions to those trends are much
easier to understand when they are
presented visually.
• Information presented in a visual format
allows decision-makers faster perception of
patterns or problems that they may not have
anticipated.
• Ultimately, they can make valuable
conclusions more readily.

30. KPI - Dentistry
0
50
100
150
200
250
300
350
NumberofVisits
Month
Patient Visits vs. Dental
Screenings

31. People Factor
Common approach to measuring financial
performance basically little change from capital-
intensive operating styles of 20th-century
industrial companies.
Old model doesn’t sufficiently account for the
contributions of talented, highly motivated
employees that more often than not, are the new
basic source of integral practice wealth.
Somehow, the component of “people” seems
lost in the healthcare practice equation.

32. Other Industries
Global management consultant McKinsey &
Company reports since 1997 30 largest
worldwide companies (market cap) have seen
their profits per employee rise dramatically.
5 year reward system trend in leading US
financial planning firms now centered on
fixed-based structures, leading away from
variable-based because return on labor
statistics were a wild card (IA Mag.)

33. Practices can redesign their own internal financial
performance approach and set goals for an
intrinsic return on intangibles by also
incorporating greater attention to both:
1. profit per full-time employee equivalent (FTE) &
2. the number of FTE employees
rather than placing an intense focus on profits,
returns on invested capital (ROIC), and return on
equity (ROE).
New Practice Metrics

34. Do Homework Before Move?
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
2006 2007 2008
Practice Profit
Owner Payroll
Staff Payroll
89% 68% 49%ROL
Client moved to new
practice building in
2007-staffed up for
expected demand

35. Other Uncommon Metrics
• Avg. Unit Cost per Visit
• Avg. Occupancy Cost per Visit
• Actual Profit Per
Active Client (not avg.)
Calculate
Financial
Impact
Of Negative
Variances
Examine
Numbers
Convert
Numbers
to Ratios
Observe
Trends
Compare to
Benchmarks

36. Examine
Numbers
Convert
Numbers to
Ratios
Observe
Trends
Compare w/
Internal
Benchmarks
Calculate
Financial
Impact

37. Boring But Effective
April 1-8 April 9-16 April 17-24
Pt. Visits 225 211 185
Surgeries 21 16 11
Payroll $10,492 $11,212 $10,222
Checking
Balance
$6,122 $18,225 $9,887
Complaints 4 2 0
New
Patients
7 11 8

38. Presenting Dashboard Data
• "Dashboard" reporting used more in all
industries to keep owners and managers
focused on critical areas that affect overall
performance of the organization.
• Dashboards effectively communicate your
philosophy to your entire practice.
• Low cost, strategic approach enables translation
of practice’s vision and strategy into
implementation.

39. • Can create visually interactive financial
scorecards to help you monitor both your key
financial and non-financial metrics and ratios.
• Help employees at all levels monitor individual
performances and align their performance
against practice goals.
• Instill a culture of responsibility and
accountability for results.
Dashboards

40. Practice Cockpit Indicator
Remember, it's that 15-year strategic
financial plan that serves as both the:
1. foundation for financial decision making
2. framework against which we measure our
financial performance.
We suggest developing a “one-sheeter”
Dashboard to organize pertinent practice
information to be reported on a minimum
monthly, and preferably weekly, basis.

41. Developing a Dashboard
Keep it concise and easy to use. Report can be
a combination of line and bar graphs, run
charts, instrument gauges, and diagrams.
A well-drawn Dashboard has basic guidelines:
1. The practice’s major critical success factors
should be included.
2. Comments should be used where necessary to
assist in interpreting the information.

42. Dashboard Keys
• Measures should be compared to targets.
• Look at and explain variances from targets.
• Use trend analysis so readers can visually see
long-term patterns.
• Clear definitions should be published.
• Visual appeal shouldn’t be a “bonus”.
• Proper use of color important function in well-
designed Dashboards.

43. Visual Symbols

44. 0
10
20
30
40
50
60
70
80
90
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Percentage of patients utilizing our
pharmacy service . Goal: 80%
0
10
20
30
40
50
60
70
80
90
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Percentage of patients who are
compliant with dentistry
recommendations. Goal: 85%
0
10
20
30
40
50
60
70
80
90
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Average time in minutes from
patient check-in to check-out.
Goal: 45 min.
0
20
40
60
80
100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Percentage of patients who
report being delighted with care
provided. Goal: 95%
4
5 5
6 6
8
5
7
9 9
11
9
0
2
4
6
8
10
12
14
16
18
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Number of Surgical Cases per Day
0
20
40
60
80
100
Dr. Dewey Dr. Cheatem Dr.Howe Dr. Shep
Percentage of patients who saw
their veterinarian at last
appointment. Goal: 90%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$65
$62
$58
$0
$10
$20
$30
$40
$50
$60
$70
$80
Baseline Current Goal
Overhead Cost per Visit
0
1
2
3
4
5
6
7
8
Our Practice Goal
FTE staff members per FTE veterinarian
0
10
20
30
40
50
60
70
80
90
Qtr 1 Qtr 2 Qtr 3 Qtr 4
Percentage of staff who recommend
our practice as a great place to
work. Goal: 100%
Practice Cockpit Indicator

45. As healthcare financial leaders, we can
perform key management tasks to assist in the
application and analysis of financial data:
• Get it right.
• Get it soon.
• Make it useful.
• Get it to decision makers.
• Make active decisions with the data.
Balanced Scorecard

46. Balanced Scorecard
• Robert Kaplan and David Norton developed in
1997.
• Process integrated strategy execution,
performance management, and facilitated
organization learning.
• Kaplan argued traditional benchmarking based
on production and financial indicators provided
limited insight into business’s key strategies and
that comparisons were generally made to the
average of a group of practices.

47. Balanced Scorecard
Balanced Scorecard approach helps practices
develop primary goals directly from a mission
statement, practice vision, and defined critical
business strategies to implement all 3.
Approach takes a pulse of:
– financial & non-financial measures of practice,
– its leading and lagging indicators,
– employee and patient satisfaction, and
– short- and long-term strategy.

48. Balanced Scorecard
• Kaplan utilizes a strategy map (Scorecard) to
develop a practice’s key strategies.
• Shows cause and effect linkages between
various parts of strategy.
• Represents attempt to enhance value of
information and exploit IT capability to deliver
true value to decision makers.
• Perfect for situations with lack of focus or
direction, a new strategy, or need to achieve
practice alignment to a common vision.

49. How Scorecards Help?
Balanced Scorecards state that:
• Reporting should be available on those key
performance indicators truly affecting
veterinary practice performance, and
• Data is irrelevant if it cannot be utilized to
improve veterinary practice performance.

50. Show Concepts Clearly
Balanced Scorecards present data in a visual
format, allowing both a:
• High level review of goal attainment and
• Drill down ability
to monitor status against predetermined practice
objectives.
You can incorporate your “15 year” strategic
plan to everyday practice operations
management.

51. The Four Views
Balanced Scorecards suggest we view a
practice from 4 perspectives, and develop
metrics, collect data, and analyze it relative to
each perspective:
1. Learning and growth perspective
2. Veterinary practice process perspective
3. Customer perspective
4. Financial perspective

52. Scorecard Framework

53. Scorecard Review
Balanced Scorecard Elements
Business Vision & Strategy
Strategic Themes
Four Business Perspectives
For each Perspective there are:
Objectives
Measures
Targets
Initiatives
Financial Perspective
Customer Perspective
Internal Process Perspective
Employee Growth Perspective
Revenue
Strategy
Productivity
Strategy
Compensation
Strategy
Operational
Excellence
Pet Need
Solutions
Client
Education
Operations
Efficiency
Marketing
DriveInnovation
Employee
Competencies
Technology
Infrastructure Responsibility
Practice Vision & Strategy

54. Blank Strategy Map
Balanced Scorecard
Strategic Theme:
Process Improvement
Customer Satisfaction
Financial Performance
Employee Satisfaction
Objectives Measurement Target Initiative
Statement of
what strategy
to achieve and
what’s critical
to its success.
How
success in
achieving
strategy will
be
measured
and tracked.
Level of
performance
needed.
Key action
programs
required to
achieve
objectives.

55. Customer Perspective
Objective
Key
Performance
Measure
Target Initiatives
Encourage
patient owner
compliance with
AAHA dental
screening
recommendations
over current 30%
standard
Percentage of
patients compliant
with semi-annual
screenings and
recommendations
100% DVM
recommended
follow through
(PMR review)
Compliance
Year 1-45%
Year 2-60%
Year 3-75%
-Implement
PetCare TV® &
dental education
in waiting areas
-Document!!!
-Develop staff
communication
plan (DVM, tech,
kennel, recept.,
other) & training

56. Internal Processes Perspective
Objective
Key
Performance
Measures
Target Initiatives
Develop
diagnostic and
therapy protocols
for practice to
ensure consistent
medical treatment
and care
# of Protocols
Written
# of Missed
Charges Found
on Random
Charge Audits
80% of all practice
visits covered by
formal written
protocol
Target Coverage
Month 1= 20%
Month 2-9=60%
Month 10-12=80%
-Functional areas
responsible for
part of each
protocol
-Training!!!
-Develop staff
communication
plan (DVM, tech,
kennel, recept.,
other) & training

57. The Result!
KPIs, Balanced Scorecards & Dashboards
measure and evaluate performance and pinpoint
veterinary practice successes or problems.
Saves valuable energy and efforts on coming to
such conclusions.
Practice owners can rely on that information about
practice operations and performance in order to act
correctly and make good decisions.
A special thanks to Elizabeth Bellavance, DVM
(Camlachie, Ontario) for her Balanced Scorecard expertise!

58. Financial Strength Index (FSI)
• Simple measure of human hospital financial health.
• Composite measure of 4 critical dimensions that
collectively determine hospital financial health.
• FSI implies hospitals with large profits, great
liquidity, low debt, and newer physical facilities are
in excellent financial condition.
• Conversely, hospitals with poor profitability, low
levels of liquidity, heavy debt, and aging physical
plants are in poor financial condition.
• I’ve seen it in action.

59. FSI
In a study of human hospitals, four key drivers
of financial strength were:
• profit (total margin),
• liquidity (days cash on hand),
• financial leverage (debt to total assets), and
• age of physical facilities (accum. depr. %)

60. FSI Critical Key Factor is…
Profitability strongest relationship to financial
strength.
• High-FSI hospitals had greater mix of surgical
patients.
• Pricing far more important than cost control as
a driver of financial strength.
• High-FSI hospital fees on avg. 13% higher but
costs that were only 2 % lower than those of
low-FSI hospitals.

61. FSI Calculation
FSI = [(Total Margin -
4.0) / 4.0] + [(Days
Cash on Hand - 50) /
50] + [(50 - Debt
Financing Percent) /
50] + [(9.0 - Average
Age of Plant) / 9.0]
FSI Score Financial
Health
>3 Excellent
0 - 3 Good
-2 to 0 Fair
<- 2 Poor

62. Other FSI Factors
• Liquidity. High-FSI hospitals had better
liquidity, higher values for cash on hand.
• Financial leverage. High-FSI hospitals had
lower debt.
• Age of facilities. High-FSI hospitals had
significantly newer facilities and greater rates of
investment.

63. In Closing
• Seek help from CPA or veterinary consultant
• Decide -number crunching or “big” picture ?
• Set short- and long-term goals for success.
• Well-developed financial plans merge strategy and
financial capability.
• Management mantra-"anticipation, attention, analysis,
and action."
• Financial performance-currency of an effective
competitor.

64. Thank You!
谢谢
Merci
Danke Schon
Grazie
ありがとう
당신을 감사하십시오
Obrigado
Gracias

65. Contact Information
Mark J. McGaunn, CPA/PFS, CFP®
Managing Member
McGaunn & Schwadron, CPA’s, LLC
75 2nd, Avenue, Suite 425
Needham Heights, MA 02494-2897
main (781) 489-6651
direct (781) 348-9227
e-fax (781) 479-5985
e-mail mark@mcgaunnschwadron.com
web: www.mcgaunnschwadron.com.com