3 ways to stay profitable while being charitable

I recently consulted with a veterinary practice in the Northeast that had just moved into a newly renovated, 5,000-square-foot facility. The new building was beautiful and a major improvement from the previous location, which had been outdated and cramped. The practice owner, a solo veterinarian with two full-time associate doctors, was a great guy, an awesome veterinarian—and charitable to a fault.

Getty Images/Christopher Conrad

During my visit, the practice was presented with a litter of 11 kittens that the owner didn't want anymore. Add that to six other cats and four dogs being provided charity services at the hospital, and I started to wonder how this practice could stay in business. Turns out my fears weren't unfounded.

Mark Opperman

I discovered that the practice couldn't afford nice new chairs for the waiting room, the owner was dipping into his own retirement account to pay the mortgage, and employees who deserved raises and incentive bonuses weren't receiving them because the owner couldn't afford those payments. This hospital's kindness of heart was bringing about its own demise.

Now, I have nothing against a veterinary practice being charitable. In fact, I think we as a profession are obligated to give back to our communities by helping some of those clients and pets that need our assistance. But I also think there must be limits on our charitable endeavors. Here's how to make it work.

1 BUDGET YOUR CHARITY SERVICES

First, I suggest that you establish a budget and decide exactly how charitable you want to be. Maybe, for example, you decide to set aside 3 percent of your gross revenue every year for charitable services. When you provide these services, enter the codes into the computer as you normally would, charge normal fees, and "bill out" the charity organization within your hospital. This allows you to keep track of how much charity you're providing while still maintaining your budget.

Also, decide which organizations in your area you'll support. There might be a very good nonprofit spay and neuter program in your area or a rehab center you enjoy partnering with. Determine how much time and money you'll expend working with these organizations, and track these efforts in your books. It's wonderful to work with charitable groups, but remember that you're a for-profit business and have a responsibility to your partners, your employees, and, ultimately, the patients you care for.

2 ESTABLISH ASSOCIATE CHARITY ACCOUNTS

For your associate veterinarians, I have an awesome idea. I've been using this concept with practices for many years and it works great. First, set up an account in the computer for each of your associate doctors. Label it something like "Dr. Jane Smith: Charity Account." Then decide how much to fund the account with—I suggest $1,000 to $3,000 a year. Tell your associates that you've created these accounts and that they can use the funds however they wish. For example, if an emergency case comes in and the client says she can afford only $1,000 of the $1,500 estimated treatment costs, your associate can use his charity account to cover the other $500.

The associate doesn't have to ask permission or obtain approval from the owner or manager—he can do this totally on his own. But when the account is empty, so is his ability to offer charity services in the practice unless he pays for them with his own money. This strategy lets the associate have control over the offering of charity services but puts a cap on it. It says, yes, we want to be charitable, but we need to control it if we're going to continue to be a viable business.

I'll never forget one student who attended our VMC School of Veterinary Practice Management. She was the manager for a practice her father owned. During the program as we discussed charity accounts, I saw this young lady's eyes light up. I approached her during a break and asked why she'd been so excited about charity accounts. Well, it seems her dad was always "giving things away," and this was a big problem for the practice.

The manager decided to see if her dad was willing to set up a charity account for himself. He agreed, and they funded it with $30,000. The account was depleted in only three months! The owner was flabbergasted, saying there was no way he'd given away that much. But his daughter pulled all the fee exception reports charged to his account, and he verified each one. He finally had to admit that he'd indeed given away $30,000. Over the next 12 months, the practice almost doubled its gross income simply because the owner became aware of how much he was giving away and began to control it.

3 LOOK TO THE BANKS

Besides giving your services away through charity, there are other ways you can help your clients who struggle to pay. Think about this for a moment: Who owns the biggest buildings in your city? Probably the local banks. And how did those buildings get built? With money the banks made by loaning other people money. Loaning money is a very profitable business.

But for some reason, many veterinarians and veterinary hospitals are resistant to loaning money and creating accounts receivable. There's nothing wrong with loaning money. The problem comes when you loan money and don't get paid back. So instead of saying no to all accounts receivable, consider developing an effective credit policy that allows your good clients (the ones who've been coming to you for years) to charge for services rendered if necessary. For instance, you might take a small risk on an established client whose pet needs an orthopedic surgery but who can't afford it right now. Of course, you need to be smart and run a credit check. This is what banks do, and you can do it too.

In today's economic environment, many veterinary practices are loosening their credit policies, and it's working out great. They're allowing clients to pay their bills over several months, and it has allowed them to render services they wouldn't otherwise have been able to provide. Some practices are even making money on their money. I've found that most veterinary practices charge an interest rate of 1.5 percent per month with a minimum billing charge of $4.50 per month.

If you don't wish to become a bank, then use some of the services available to veterinarians to help their clients out. Third-party payment programs allow clients to apply for a line of credit and find out immediately if they qualify. If these clients are turned down, at least you'll know they aren't credit-worthy.

I also don't understand why more practices aren't encouraging veterinary pet insurance. In Europe, up to 40 percent of clients own an insurance policy on their pet. In the United States, less than half of 1 percent of pets are insured. Why is that? Pet insurance has been around for a long time and there are some excellent companies out there. Most of them offer indemnity insurance, which means that it works more like car insurance and won't lead us down the road of managed care. Because the policy is between the client and the insurance company, the veterinary hospital is technically not even involved.

If a client has pet insurance, he or she is more likely to comply with your optimum care recommendations since price is no longer an issue. Why then have we been so reluctant to promote it? A study in Europe found that clients with pet insurance will spend 58 percent more than clients who don't. Maybe it's past time to give pet insurance another look.

In conclusion, consider the many ways you can help out your clients without giving your services away. At the same time, know that there are some circumstances when you can and should give back to your clients and community through charity. Just don't give so much and so often that you harm your practice, employees, and future retirement.

Mark Opperman, CVPM, Veterinary Economics' Hospital Management Editor, owns veterinary consulting firm VMC Inc., in Evergreen, Colo. Please send questions and comments to ve@advanstar.com