Practice Management News and Views from around the World – August 2009

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Adding value when asking for payment

by Caroline Johnson

Nowadays, there’s no such thing as a free service, yet why do so many veterinary practices find it difficult to ask for payment? Caroline Johnson continues her advice on adding value in the practice and explains how payment needn’t be such a grey area.

Talk through the bill

When giving the client the bill, talk through every item listed before presenting the total. That way, the client gets to see exactly what is involved in every procedure so that the pounds charged then appear good value for money.

For example, many clients will not understand that ‘running tests’ may consist of a general anaesthetic, X-ray, blood sampling and analysis, painkillers and so on. In talking through an itemised bill you will demonstrate the value of all you have done.

When you’ve given something extra tell them

When talking through the bill, give brief explanations where necessary. For example,”we’ve used a special anaesthetic to give added safety owing to Fido’s heart problems, hence the additional charge here on the bill”or “he may feel a little pain after the procedure, so to reduce his discomfort we have given him the latest painkillers”or “when dematting Charlie,we found a tick attached to him, so we’ve applied the latest in flea and tick control, which should keep him clear of parasites for the next month”.

Invest in training

From a clients’ perspective, the most important area of the practice is the bit they see and the people they meet. Ensure that reception staff are fully trained, comfortable with presenting bills and with taking a client through an itemised invoice in a way which demonstrates the value of your service. Role-plays with reception staff can be used to build confidence where appropriate.

An invoice speaks a thousand words

I once used a garage that had the slogan ‘big enough to cope, small enough to care’, and which was used on every piece of literature they produced. Succinctly summarise what your practice is about or what it offers and capture this is in a simple slogan and print your logo and your slogan on the bottom of every invoice. This means that the invoice will say more about you than what you charge! For an example of a slogan closer to home, the British Veterinary Association’s strap line is ‘Giving Vets a Voice’; short, sweet and brilliant.

Follow up

A visit to the hairdresser, dentist or chiropractor would not be complete without a request to book another appointment.The benefit to the business is clear, but since uptake is usually high, then there must also be benefits for those of us who make future bookings.Organise your practice so that you can book future appointments wherever posssible. Cats and dogs need to be wormed several times a year and, therefore, if you offer a ‘pill popping’ service then you could book the animal in with a nurse for the next wormer to be administered.What about the next health check and vaccination? The opportunities are endless. Select key services and take future appointment bookings.

You can click here to visit Caroline Johnsons website

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Using Metrics to Identify SWOT in Your Practice

by Jason Castner CPA, CVA and extracted from the VetPartners Economic Bulletin

Many practices are experiencing a drop in revenue this year for the first time in a long time (maybe ever). Even more are seeing a decline in the number of patient visits. Cash flow for the practice may not be as strong as in years past. Providing bonuses and/or annual pay increases may not be automatic any more.

Where can you go for guidance? Look within your practice’s Metrics or Key Performance Indicators (KPIs) for direction. By identifying which KPIs have the most impact on your practice’s profitability, you can focus on your Strengths and Opportunities while dealing with your Weaknesses and Threats (SWOT).

Here are three primary metrics on which you can focus.

Cost of Goods Sold (as a percentage of revenue)

Cost of Goods Sold (COGS) can be gleaned from your Income Statement (Profit and Loss Statement if you use QuickBooks for accounting.) Ideally, COGS is a separate section of your Income Statement located immediately after Revenue. AAHA’s Chart of Accounts is a vital resource to fully understand what is to be included in your COGS. Drugs, medical supplies, laboratory expenses, food, retail, boarding and grooming are all included as appropriate for your practice.

Even if you do not have this separate section on your income statement, you should be able to add up the components listed above and divide the sum by your practice’s total revenue. This will give you your Cost of Goods Sold percentage (COGS%). This percentage provides a great deal of information about what may be working very well (or not well at all) in your practice.

Because your practice is different from the one down the street, your goal for your COGS % may well be different from theirs. If they offer boarding and grooming, and you do not, their COGS % may well be lower than yours. Due to every practice being different, we will discuss a reasonable range for your goal COGS %. For most small animal practices, a reasonable range for your COGS % is between 19 and 23 percent. Adjustments to this goal may be needed depending on your practice’s offered products and services.

If your COGS % is above this goal range, something is out of line, and one or more of several areas need attention.

  • Is your pricing appropriate? This is a scary question in today’s economy to be sure, but your expenses have likely increased and your pricing must keep or exceed that pace. There are several sources for guidance on pricing including AAHA’s Veterinary Fee Reference. Match your pricing with your practice’s mission statement. If your mission statement describes your goal as “providing the highest level of medical care and service,” your pricing needs to be more in-line with the 75th percentile than the average.
  • Are you missing charges? This is one of the most common areas of lost revenue. Once your pricing issues are addressed, this often has the largest impact on profitability. Even in a one-doctor practice, the annual impact of missing one six-month pack of heartworm preventative on a client’s bill each day is tremendous. In a larger practice, with more traffic and staff handoffs, the opportunity for missed revenue is increased exponentially.
  • Are you discounting your way to the poor house? No one is saying you should stop providing services for the local shelter or SPCA. You should, however, understand how much discounted service and products your practice provides. Discounting $15 from a $100 bill does not sound like a big deal, does it? When done consistently, this type and amount of discount is the difference between a financially successful practice and you not sleeping the day before payroll!

If all of the above are being properly managed and your cost of goods is still not in the reasonable range, look closely at your inventory controls. You may have a problem with shrinkage (also known as employee theft). If this is a concern for your practice, consider daily count reconciliations on expensive and high-volume products (start with your Heartworm and Flea/Tick preventatives). Comparing food revenue to food costs is a way to identify if your inventory controls are working properly. Some practices have gone to having video on pharmacy and food areas of the hospital. Taking some of these steps will make it clear to everyone that you are paying attention to inventory and the related Cost of Goods Sold.

Average Transaction Charge by Doctor

Average Transaction Charge by Doctor (ATCD) is calculated by dividing a doctor’s production by the number of medical transactions on which that doctor worked. Where ATC for the hospital can be skewed by retail, boarding and prescription refill transactions, ATCD provides information specific to each doctor for whom it is tracked. This KPI provides valuable information that may support your findings from your COGS % metric. For instance, if the reason your Cost of Goods Sold is a high percentage of your revenue is due to significant charges being missed (not entered into your practice management software), your ATC by doctor is likely to be lower than it should.

In addition to the areas that may need attention identified above, a few new issues require further drill down:

  • Are your clients complying with your recommendations? A disconnect between your mission of “the highest quality care” and an ATCD far below the 75th percentile may well indicate client compliance much lower than you would like to believe.
  • In a multi-doctor practice, is there a significant difference between the ATCD for one doctor compared with another? Should there be? If one doctor does significantly more surgery than another, a difference is expected. If the doctors have the same mix of appointments and surgeries, the ACTD should be similar. If it is not, you may want to understand why not. If it is because there are different Standards of Care being adhered to depending on the doctor, you may again see a departure from your mission.

Cost of Staff (as a percentage of revenue)

Cost of Staff (or non-DVM labor) will ideally range from 19-23 percent. The range depends on how well your practice leverages your staff. If the doctors are inserting catheters, you want to be on the low end of this range. If the staff does everything except diagnose, prescribe and operate, the high side of the range can work financially.

This is a KPI that receives significant attention when revenues and patient visits decline. When visits decline and there is no change to your staffing schedule, the result can be idle time. This will cause the cost of staff percentage to be higher than in the past and quite possibly above the range provided.

If this is an issue for your practice, don’t panic! First identify available time and determine if it can be used to provide better service/medical care. Can your staff use the time to make reminder calls (in addition to the post cards and e-mail reminders you are already doing)? Can they help the doctors by making follow-up phone calls on negative lab results and surgery patients?

If you are doing all that can be done and simply have too much staff cost, is it because you have too many staff members? Divide your team into the groups that make up your practice (i.e. client care specialists, assistants, technicians, kennel) and grade them. If the person (or persons) on the bottom of each list were no longer at the practice, would your delivery of care suffer? If the answer is no, changes are in order.

Measuring and monitoring these metrics can help you identify many Weaknesses or Threats that face your practice. Instituting changes to address these issues can convert them into Strengths and Opportunities. As you consider changes to your practice, keep in mind, changes that increase revenue are much more powerful (and fun) than changes that reduce expenses.

Jason L. Castner, CPA, CVA, leads the veterinary consulting division of Lacher McDonald, & Co.

You can click here to visit the VetPartners website

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SPVS to inspire first-time managers

A one-day workshop is being held by the Society of Practising Veterinary Surgeons (SPVS) to help first-time managers excel in their new roles.

Topics under the spotlight at the event, which takes place on October 7th, will include how to manage projects and priorities, correcting problem behaviour and poor performance and self-management skills that win respect and practical ways to overcome supervisor-employee communication barriers.

Course organiser and SPVS President Elect Jacqui Molyneux, explained: “The workshop is aimed at any new manager within a practice and will provide an excellent grounding in some of the common issues faced when taking on managerial responsibilities.

“Even if your new practice manager or head nurse seems to be a natural in their new role, they will inevitably confront issues and problems that they haven’t faced before. This workshop will seek to equip them with the skills to be deal more effectively with these new challenges and excel in their new roles.”

The one-day course will take place on October 7th in Sheffield (venue tbc). The cost is £199 plus VAT for the first delegate and £179 plus VAT for a second delegate.

You can to visit the SPVS website for further details and to book your place

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our Practice Accounts – Cash versus Accrual

by Nicki Quenette CPA

For tax purposes most veterinary practices report on a cash basis of accounting. Using the cash basis, income is reported when money is collected and expenses are reported when money is paid.

For internal accounting purposes the accrual basis of accounting provides better information for making business decisions. Accrual based accounting recognizes income when it is earned and expenses when they are incurred.

Example: You purchase $30,000 worth of heartworm preventative in January when your vendor is running a promotion. You receive the bill in January and it is paid in February. Under the cash basis of accounting you would report the entire $30,000 as an expense in February when it was paid.

Using the accrual basis of accounting the $30,000 would be recorded as inventory in January (the date of the bill). You would then expense only the amount of heartworm preventative you sold each month. Say in February you sold $5,000 of the $30,000 worth of product. Then $5,000 would be the expense recorded in February — not the entire $30,000. Then say in March you sold another $7,500 worth of product. Your March expense would then be $7,500. Now let’s say your February revenue was $75,000 and all other expenses were $60,000.

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You can see how the basis of accounting you use can have a significant impact on net income results. In this example the cash method indicates a $15,000 loss in February. What it doesn’t tell you is that you have $25,000 worth of product still in your hospital.

Both the cash and accrual methods are acceptable methods of accounting. However when it comes to making business decisions it is better to rely on accrual based financial statements. This method matches the income that was generated with the expenses that were incurred to generate that income.

You can click here to visit Nikki Quenette’s website

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Australian Veterinary Business Association Ltd

The AVBA Veterinary Business Conference will be held in Launceston, Tasamania from 16th to 19th September 2009

Speakers will include:

Denise Tumblin. Denise is the co-creator of the “Well-Managed Practice Study” with her business partner Cynthia Wutchiett. Her management consulting firm provides management, valuation and acquisition services to practices throughout the United States. In addition to consulting with clients, she speaks regularly at national, regional & state association conferences & meetings as well as authoring articles for national publication, including Veterinary Economics & Trends magazines. Some of her sessions include: “Key Financial Strategies to Help Your Practice Weather the Storm”; “Flame Gone Out? How to Re-ignite your Tired Practice”; and Master Classes on Saturday for a limited number of attendees.

Karen Schmidt. Karen is an award winning speaker with a mission to refresh, re-ignite and engage practice teams for success. Her practical experience comes from hiring, firing, managing, coaching & training thousands of people across Australia. Karen delivers fast paced and entertaining presentations that will give audiences practical tips for engaging their teams.

Sue Crampton – Acknowledged as a leading facilitator & consultant throughout Australasia & UAE. Sue spends much of her time working with practice owners, managers & staff on business, personal & professional development systems.

Diederik Gelderman On graduation, Dick immediately commenced a two person mixed practice. He went on to design and build an ‘A’ class Hospital before obtaining his PennHip certification and completing his MVS. In the last 10 years Dick has become more and more focused on practice management and business management. He now practises only two days a week. The rest of his time is devoted to lecturing, holding workshops, coaching and consulting with businesses, both veterinary and non-veterinary, within Australia and overseas.

Jane Bindloss RVN Over the past 15 years, Jane has held a variety of executive and committee positions within the Veterinary Nurses Council of Australia and the National Industry Advisory Group for Veterinary Nurses. She sits on the Companion Animal Working Group for the DAFF-convened Australian Animal Welfare Strategy. Jane was a founding member of the AVPMA. She was finalist in the Telstra Business Women’s Awards and has received the BSAVA’s Veterinary Nursing Award and the AVA’s Meritorious Service Award.

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Cash flow Tips to Beat the Recession

extracts from the Dave Nicol Veterinary Services Blog

During the recession money is tight. Read on for my tips that will transform your cash flow inside of a month.

Bombing Out on Billing?

There is a very good chance that you are losing 10-50% of revenues each time you or an assistant invoices for work done. This is madness but in my opinion one of the biggest problems facing practices today. Do you have a set price list? Do you know what profit levels you are trying to achieve? Do you teach your assistants how to use it when they arrive at your practice? Be honest. If ‘no’ is the answer then there’s hope for you yet. Before you do anything else make sure you address your billing. Grab out a handful of invoices and see if your team are getting it right. If not, then it’s time for a retraining session.

Avoiding Debt

There is no point being busy if you’re not getting paid. You may be experiencing an increased demand for direct claims and payment plans from your clients right now. Your assistants are being bombarded by the same media messages as clients about how bad things are. Together they are conspiring to ruin your cash flow by creating more non-payment situations than previously. (Assistants are in general not good at standing up to such requests for credit). Make sure you reiterate and reinforce your policy on debt — avoiding it is a lot better than clawing it back. Teach your assistants how to say no gently when a client asks for credit.

Recovering Debt

I have seen practices adding tens of thousands of pounds of debt in the past two months. Small business cannot sustain this level of debt. Delegate the task of analysing your debt to a trusted team member. Split it into insured and uninsured. Also divide it into aged (over 30 days) and non-aged. Then start with the biggest outstanding aged accounts first and chew through them. Be relentless. If insurance is outstanding, call the company for an explanation and get them to commit to a time schedule — then hold them to it. Make sure you have a set policy for dealing with uninsured debt. I prefer a policy whereby it starts nice and escalates gradually towards a debt recovery firm.

Being Thrifty

You have bills to pay right? Drugs, staff, marketing, postage, overheads….my advice is to pay as little for everything as possible. (Note – that’s not the same as paying late) It is in everyone’s interest that your practice doesn’t go bust so lots of people will be willing to give you discounts. ‘Everything is negotiable’ is one of my mantras. Now is the time to hone your haggling skills. Upgrading equipment? – Haggle for a discount or see if the vendor will throw in a huge box of useful consumables for free. Running a marketing campaign? – Your suppliers will probably cover some or all of the costs. Lease up for renewal? — Many landlords are willing to renegotiate deals right now, or at least not put them up as much as usual. If you don’t ask you don’t get. Now is not the time to be shy!

Keeping control of cash flow will mean your business can continue to deliver pet care, employ local staff and keep money flowing through the supply chain. The more of us that achieve that, the sooner we’ll be through the recession!

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