The 5-to-7 ratio

I often am reminded that there are definite, inviolate rules of productivity for all veterinary practitioners.

It's not like Mom saying not to swim until a couple of hours after eating; you can cheat on that and probably get away with it if her back is turned. The key word is probably.

But even rules that, years ago, you considered silly and mean-spirited can be based on deadly consequences.

The clock on my wall presently reads 5 until 7, which reminds me that you violate the "5-to-7 rule" at your peril. In this case, peril means headaches, gastric irritation followed by staff abandonment, maybe even bankruptcy. Even a popular liquid antacid can't cover all of that, although its pink color does go well with the red ink.

Five to seven is the ratio between your gross revenue and your paraprofessional payroll in dollars. (It is exactly the same in yen, euros and pesos, for our international readers. Since DVM Newsmagazine went digital, I have as much correspondence from our colleagues in Europe as from the states.)

It means you must bring in at least $5 for every $1 paid out in salaries to receptionist, technicians and kennel staff. Less than that brings about the rapid demise of the practice.

This is the absolute minimum for survival. We're not talking about productivity or profit here, just survival. Profit only begins to whisper at 5.0. Many would need a hearing aid to detect it.

At six times payroll, one could expect to begin each new month with all bills paid. At anything over 6.0, the prospect of eventual retirement rises out of the Twilight Zone. At 6.5, you come to the hospital smiling every day.

However, be warned that when you exceed 7.0, the reverse happens. You have more dollars coming in than staff to support the medical needs of your patients, and the system will crash. Consider yourself the pilot of your practice aircraft and your only safe-flying altitude is between 5,000 and 7,000 feet. Fly higher or lower at your own peril. The safety of all considered is in your hands.

Staff costs today are obscenely complicated. They include dollars per hour, federal and state employment taxes, Medicare and Social Security taxes, health insurance, continuing education, pet-care discounts, vacation pay, sick pay and more.

No two practices are exactly alike in the amount of employee benefits paid. Many pay unsustainable benefits and must, in the current turbulence and the worse times yet to come, reduce their staff costs.

Where to find payroll costs

For purposes of the 5-to-7 ratio, we can talk only about the costs shown on your federal tax form 941. This quarterly form includes all of the above except for the benefits — health insurance, continuing education, pet-care discounts, vacation pay and sick pay. Your bookkeeper or accountant has a copy of these forms, so you don't have to look far. Just divide by 3 to get your monthly costs.

You could also find the payroll costs in your monthly P&L, but there are two problems there. The first is that few practice owners and/or managers actually get a monthly P&L, preferring either to ignore the facts or get them quarterly or even annually from their tax preparer. The second is that few actually look at these expensively prepared reports if they do get them. This may sound harsh, but the truth is the truth.

In the P&L, the numbers are disguised mathematically as percentages; 5 is cunningly presented as 20 percent, while 6 is represented as one followed by a lot of 6's, as in 16.66666666666 percent, and 7 is 14.28 percent. These are percentages of your gross revenues spent on salaries of your dedicated and hard-working receptionists, technicians and kennel staff.

The 5-to-7 ratio is so much easier to work with. But in the percentages game, the lower the number, the happier the bottom line (but remember that too low is dangerous, too).

A happy bottom line is a happy practice.

You might say that a 15 percent cost of staff is impossible for you, but I would seriously challenge you on that.

In every pharmacy, there is an aisle or two dedicated to irregularity problems. In every practice, there is "feast or famine." There are no "regular" days anymore. We lived on overbooking, or at least we did before 2008. If summers were fast, winters were slow. In Florida, practices borrowed in the summer and repaid in the winter. There was no regularity.

Each day is its own miracle of surprise or disappointment.

However, no matter how busy it got, no matter how high the tension, we always made it through the day — with the staff on hand. Our staff always is capable of more than what we consider average.

Did you ever notice that, when part of the staff was on vacation, the rest managed to get everything done by quitting time or a reasonable facsimile of that?

Rely on good staff members

You know that, if a valuable staff member told you that he or she needed surgery and couldn't return for eight to 10 weeks, you would not hire a replacement, would you? The rest of the staff would just cover his/her duties for that period. A few might complain, but nobody would be working overtime and clients' and patients' needs would be met.

Any practice with a revenues-to-941 ratio of below 5.0 is sick, and it would not take a great deal of intensive investigation to find the weakest link, would it?

Do it before the chain breaks and you are cast adrift, looking to find work.

Almost every practice has problem staff; the one who just doesn't get along with the others, the one who is always late or the one who never cleans up but leaves the mess for others. Perhaps all three of them are on your staff. Have you critically and constructively reviewed your staff lately? (A form that will help you do this is posted at www.vethelp.us.)

I guess you could try an alternative: You could, like some companies and many school systems, ask your staff to work a month without pay. If that works, please let me know.

You are not going to get through this long recession with a ratio below 5.0, and you will not be able to enjoy practice with a ratio of less than 6.0.

There are no exceptions.

There are, however, exceptional staff who will step up to the plate and pitch in to get the practice through these turbulent times.

So get your ratio in gear and shape up.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995; Vethelp@comcast.net; fax: (866) 908-6986.