Ten Tips For a More Profitable Veterinary Practice in 2011

Ten 2011 Steps for a More Profitable Practice!
© 2010 McGaunn & Schwadron, CPA’s, LLC

Presenter 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

Agenda
Basics
 What is Profit?
 Real Life Issues and Responses
 Financial Strength Index
 Profit Drives Your Practice
 Overhead is Really not Evil!
10 Key Fundamentals
 The Survival Guarantees

What’s Profit?
The making of gain in veterinary medicine for
the benefit of the practice owners. Comes from
Latin meaning "to make progress," with two
definitions:
– Economic profit is the wealth increase an investor
has from making an investment in a veterinary
practice, taking into consideration all costs
associated with that practice including the
opportunity cost of capital.
– Accounting profit is the difference between price
and the costs of bringing to market veterinary
services in terms of the component costs of
delivered goods and/or services and any operating
or other expenses.

Real Life Practice Issues
 “I can’t work any harder!” (So work smarter)
 “Breaking even is just a goal now!”
 “Pet owners won’t pay for it.”
 “Quality care and profit are incompatible”
 “Profit” is not a swear word
 “It seems like I go 2 steps forward, 3 back.”
 “That’s it, I’m getting a valuation, sell and
retire.”

Knee Jerk Responses
Reduce Expenses by:
 Reducing Overall Cash Outlay
 Put Capital Equipment Orders on Hold
 Eliminating Maintenance Contracts
 Staff Reduction-Layoff or empty slot
 Across-the-board wage reductions

Time-Tested “Magic” Formulas
Eat a
Healthy
Diet &
Exercise
Regularly
Increase
Practice
Revenues
and/or
Decrease
Expenses

Financial Strength Index (FSI)
Financial measure that reflects a healthcare
organization's overall financial condition.
Dimensions of Financial Strength measured by 4
ratios:
 Profits (Net margin %)
 Liquidity (Days cash on hand)
 Debt expense (Debt financing %)
 Age of physical facilities (Average facility age)

Each of the four measures "normalized" around
predefined average for each measure.
Adding four measures together creates composite
indicator of total financial strength.
FSI = [(Total Margin - 4.0) / 4.0] + [(Days Cash on
Hand - 50) / 50] + [(50 - Debt Financing Percent) /
50] + [(9.0 - Average Age of Facility) / 9.0]

Practices with high profit margins, lots of cash,
little debt, and new facilities are in better
financial condition and have higher FSI.
On the other hand, practices with losses, little
cash, lots of debt, and old practice facilities
have lower ratios.

FSI Rating Index
Score Financial Health
Greater Than 3 Excellent
0 to 3 Good
-2 to 0 Fair
Less than -2 Poor

FSI Rating Engine
If one area of your practice's finances improves
but others regress, the FSI will properly reflect
the tradeoff.
 If practices increase cash simply by borrowing
more debt, improvement in days cash on hand
offset by increase in debt financing %.
No single financial measure is capable of
assessing the financial health of your veterinary
practice.

FSI Keys
Profitability is the 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.

Overhead is not the Enemy
Management guru Tom Peters:
•Your ability to cut costs is limited, but your
ability to increase revenue is UNLIMITED.
•Almost any practice in degree of financial
distress can trace it back to REVENUE problem,
not an overhead problem.

I Choose Both, But…
“Closed” System:
Generate more revenue from existing patient
base
“Open” System:
Increase the (1) number and (2) complexity of
patient encounters from new patients

Profit Doesn’t Happen Overnight
Pay attention to profit instead of overhead (look at
the glass half-full instead of half-empty)
Veterinarians must work on increasing profit by:
Monitoring overhead and inventory,
Negotiating better associate contracts (for both
parties) and staff pay policies, and
Developing services that generate additional
revenue.
Don’t miss billing for services.

The 10 Steps
1. Communicate
2. Patient Profiling
3. Capture All Business
4. Focus on Referrals
5. Craft Your Message
6. Maximize Your Reach
7. Develop Loyalty
8. Reassess Practice Model
9. Demonstrate Leadership
10.Expand Emotional
Spectrum
1. Here’s what you should
do now…
General Thoughts The Specifics

1. Consider Pay for Performance
Not all production-based compensation but a higher standard
of pay tied to:
Clinical Performance
Champion of a Department (Dentistry, Ultrasound, etc.)
Management Duties
Practice Marketing & Networking
Association Involvement
Pro-bono/volunteer Work
Conformance to Practice Values/Mission
360° Evaluations
Will reduce waste & increase volume = higher margin.

2. Improve the Patient Experience
There are economic and patient-outcome benefits to improved
performance. You could offer:
Free Starbucks coffee with milk in waiting area
Free wi-fi access
Automated check-in
Reminders via email, text messaging and phone
Follow-up phone calls on every appointment
Automated prescription and food refill service
Pharmacy Drive-though
Date-night pet sitting
Practices should be more convenient & pleasant for patients.
Better compliance = happier patients = more revenue.

3. Educate Your Audience.
Another path to revenue is developing new or better
methods for telling patients what you do.
New patients pay better than established patients,
and promote gradual practice growth vs. stagnation.
•An awesome practice sign
•Pet Care TV or Pet Health Network kiosks
•A wrapped vehicle from Turtle Transit
•A vastly improved website
•Open house events w/bring a friend
•Pet agility events and breed shows
•Reward staff if 24/7 practice marketers

4. Don’t go too far.
 Labs, imaging & lasers popular ways to increase
revenue, but should be done carefully.
 Important that ancillary services dovetail with
your practice’s current services,
 Need systems and people in place to handle
added business.
 Whatever it is that you do, you want to be
fantastic at it.
 Must have a passion in new service.

Popular Physician Ancillary Services
 Physiatrist (Rehabilitation Medicine)
 Nephrologist (Dialysis facility)
 Radiologist (MRI facility)
 Anesthesiologist (Pain Management Clinic)
 Alternative Therapies (homeopathy, chiropractic,
acupuncture, massage, kinesiology)
 Dermatopathology (Nail fungus analysis)
 Dermatology (Moh’s surgery fellowship training)

5. Raise Your Staff/DVM ratio
The most profitable medical practices tend to have higher-
than-average staff-doctor ratios (despite what some say).
The practice’s highest-paid employees ought to be spending
as much time as possible on the thing that actually earns the
practice money: patient care.
All levels of care providers need to take on the work they can
do most efficiently.
Rather 60 percent overhead w/ $1.5 million revenue than
practice with 50 percent overhead w/ $1 million revenue.

6. Warm Up Reception Process
Revenue Process starts with the very 1st patient phone call.
Getting all the information is so important: Verify all
information and then update it at each subsequent
encounter. Seems basic wrong data is common.
Need to eliminate front desk turnover & add superstar
training.
Reconfigure the front desk so that check-in, scheduling,
refills, billing, collections and check-out are done with
minimal interruption and maximum privacy.

7. Shore Up Billing Procedures
Staff may fail to enter a charge for every service.
Make sure you have 2 people checking charges-could even
be the receptionist who knows your protocols by heart.
Pre-counsel pet owners on pricier services (don’t wait until
they are at the payment counter).
Collections procedures need to be formalized in writing so
they aren’t lost when key staff members leave.
EMR can help!!

8. Engage EMR System
Biggest challenges facing all veterinary practices.
Potential benefits far outweigh any challenges.
I’ve seen the benefits & efficiencies (I’m paperless!)
Business emphasis moves from a concentration on
record management to a focus on medicine.
Integrated lab work and radiological test results.
Getting everyone in practice to actually use EMR.
Designate/pay a veterinarian to be EMR “champion”.

9. Be Your Marketing Plan
What marketing plan?
Herding new pet owners in the
front door will not take place on
its own-
You need the web, direct mail,
email, television, signs, videos,
well-trained employees and
anything else to catch the all-
too- fleeting consumer attention
span. But it has to be
coordinated.

10. Know Your Costs and their Relation
to Your Fees!!!!!
Are you updating your fees more often than annually?
You should be.
Global consultant McKinsey & Co. says to monitor not
just your overall profitability, but your individual
customer profitability as averages just don’t cut the
mustard anymore. Which means you need to know how
much it costs to provide each service pet owners need.

Free # 11. Hug Your Major Vendors
 They provide invaluable business support
 They know your business
 It’s not just free pizza and brochures
 The keep you updated on the industry, and
 They are your spy satellite on the competition

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

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