Ten Tips For a More Profitable Veterinary Practice in 2011


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This powerpoint presentation by Mark J. McGaunn, CPA (of McGaunn & Schwadron, CPA’s, LLC) addresses how to best manage a Veterinary Practice to maximize profitability in 2011. Specifically covers best financial and management strategies and ten tips to follow for a successful vet practice.

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Ten Tips For a More Profitable Veterinary Practice in 2011

  1. 1. Ten 2011 Steps for a More Profitable Practice! © 2010 McGaunn & Schwadron, CPA’s, LLC
  2. 2. 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
  3. 3. 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
  4. 4. 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.
  5. 5. 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.”
  6. 6. 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
  7. 7. Time-Tested “Magic” Formulas Eat a Healthy Diet & Exercise Regularly Increase Practice Revenues and/or Decrease Expenses
  8. 8. 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)
  9. 9. Financial Strength Index (FSI) 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]
  10. 10. Financial Strength Index (FSI) 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.
  11. 11. FSI Rating Index Score Financial Health Greater Than 3 Excellent 0 to 3 Good -2 to 0 Fair Less than -2 Poor
  12. 12. 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.
  13. 13. 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.
  14. 14. 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.
  15. 15. 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
  16. 16. 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.
  17. 17. 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
  18. 18. 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.
  19. 19. 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.
  20. 20. 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
  21. 21. 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.
  22. 22. 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)
  23. 23. 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.
  24. 24. 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.
  25. 25. 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!!
  26. 26. 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”.
  27. 27. 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.
  28. 28. 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.
  29. 29. 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
  30. 30. Thank You! 谢谢 Merci Danke Schon Grazie ありがとう 당신을 감사하십시오 Obrigado Gracias
  31. 31. 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