The following notable tips and articles were compiled by Carol Hart, JD, DVM.
In this issue, you will learn how to:
1.) Keep inventory costs from negatively impacting your profitability
2.) Compare the two major practice online pharmacies
3.) Grow your business
4.) Calculate EBITA for your practice
5.) Monitor discounting in your practice
6.) Empower your team to discuss finances with clients
Profitability and drug costs: “The Not So Free Yeti Cooler. . . How Drug Costs Can Kill Your Profit & Veterinary Practice Value” by Wilson McManus II, DVM, CVPM and Kris Smith, CVPM and featured in the Simmons Veterinary Practice Sales & Appraisals email Newsletter on May 9, 2018.
This article offers advice on increasing practice profitability and value. The authors note that the cost of goods should represent 20-22 percent of total income and that this figure can be high in practices that succumb to bulk purchase “deals.” These “deals,”–which often come with an incentive such as that free Yeti cooler–only help the vendor move product from their shelves to yours and ultimately take a bite out of practice profitability.
The authors of this article suggest that practices keep only a seven to ten day supply of inventory on hand and set a weekly budget for inventory orders of no more than 10 percent of the revenue seen by the practice in the preceding week. Short reorder points can be set by reviewing transaction reports. Look at how much you sold of an item the previous month and divide that by three. If you keep large stores of product on hand, it is much easier for product to disappear because thieves assume no one will notice that it’s missing. In addition to controlling expenditures, your practice needs to apply adequate mark-ups. Selling at too low a margin can result in low profitability and a poor practice valuation, even if revenue appears strong.
The author of this article outlines the differences between the two major practice online pharmacy providers: Vets First Choice and Vetsource. Both allow a practice to control the pricing and products offered, both offer compounding services, both sell preventatives in individual doses, both carry generic medications and both offer e-merchant services security. Where these online pharmacies differ, however, is in how they integrate with practice software, on when their customer service call centers are open and in how long products take to ship. Currently, only Vets First Choice offers prescription compliance reports.
Growing your practice: “9 Things You MUST Do Today to Grow Your Small Business” by Jeff Charles and appearing in Small Business Trends on April 29, 2018.
1.) The author states that you must understand your customers so you can develop services that fit their needs.
2.) He recommends a focus on quality customer service by letting your customers know that they are valued. Small businesses can learn their customers’ wants and needs by using social media to listen to them and engage with them.
3.) Small businesses need to encourage customer loyalty. One way to attain this is through offering rewards and promotions.
4.) Your practice needs to harness the power of social media.
5.) Every small business needs to build an effective team. This means investing in the professional development of your staff.
6.) It is essential to extend your networks. Networking with other small businesses is too often neglected.
7.) Create a unique brand perspective for your business by supporting causes that emotionally connect clients with your business.
8.) Obtain funding through small business loans such as those offered with the SBA.
9.) Finally, determine tactics that work and repeat them if necessary to encourage business growth.
Financial management: “EBITDA . . . FTW!” by Katie Adams and appearing in dvm360 Firstline on April 19, 2018.
The author explains a critical accounting term all practice owners and their managers should understand. EBITDA is an acronym that stands for earnings before interest, taxes, depreciation and amortization. This roughly may be calculated by subtracting expenses (cost of goods sold, payroll, payroll taxes, payroll benefits, facility and equipment repair and maintenance costs, general and administrative costs, marketing and fee income expenses such as merchant service charges, bank charges and collection fees, etc.) from gross revenue and dividing that figure by gross revenue x 100.
The author observes that successful practices have an EBITDA of 12 percent or greater. Many practices, however, have an EBITDA of only five to eight percent and thus are essentially breaking even. To avoid being in the breakeven boat, practices should track finances monthly and work to increase income as well as trim expenses.
Excessive discounting: “Too much discounting going on? Time to run this report” by Mark Opperman, BS, CVPM, Sheila Grosdidler, RVT and Brendon Howard, Business Channel Director and appearing in Veterinary Economics on June 1, 2018.
The authors suggest that practice owners should run a fee exception report in their practice software to determine when fees have been adjusted in the system. Reviewing an accounting of fees that have been changed will keep owners aware of trends. Some discounts may be appropriate, but owners should fully understand and appreciate how discounting affects the bottom line.
Discussing costs with clients: “Talk money without ticking off pet owners” by Naomi Strollo, RVT and appearing in dvm360 Firstline on June 5, 2018.
The author addresses the best ways to communicate with clients regarding finances without appearing money-hungry, and advises them that timing and approach are critical when having these discussions. First, it’s important not to lead with money. Instead, it is best to begin with great customer service and a display of genuine concern for the well-being of the pet. Then, the medical staff can review the treatment plan with the customer.
Practices can empower the support team to discuss the treatment plan by providing them with the knowledge base to explain services and why they are of value. The author provides the following tips for cost conversations:
1.) Explain what you want to do.
2.) Don’t assume price is the problem.
3.) Focus on consent, not cost.
4.) Be careful if they can’t afford it.
5.) Offer alternative options.
She also discusses how to manage cost conversations in emergency situations, as well.