Dispelling the three greatest practice management lies

We all probably know the colorful humor that starts out with "What are the three greatest lies ever told?" To me they relate to the current misconceptions about the future of our profession.

Pants on fire: Veterinarians can learn a lot from the most commonly told lies. (PHOTO: SPIKE MAFFORD/GETTY IMAGES)

The first is that, "it is easy to make a great living once you have that degree, DVM or even VMD." Today, throughout the country, the economy is frustrating upstanding, moral practice owners. They hired young graduates, expecting them to mature in their experience and buy into the practice. Now, too many are forced to reverse their position, cutting the associates' hours and compensation. Instead of a future where the associate would take over for the owner at retirement, they are now searching for alternative employment. Every day, I deal with requests from associates with perhaps three- to five-years experience working at a practice who want help finding a viable location just outside their covenant not to compete, out of the necessity to support their families. The economy has turned colleagues into competitors. And it is not going to end soon!

At the same time, bottom lines are suffering because practitioners are afraid to increase their fees consistent with inflation (that will ratchet up to 10 percent a year). Despite rising costs, no one wants to be the highest-priced practice in the area, so each holds the rest of the herd back and profits dwindle.

Another lie that comes across my desk is that the opportunity for new practices is great. That's a half lie according to where you live. The facts are quite different based on your location. If you live north of a great line stretched from San Francisco across our country to Charlotte N.C., the likelihood is that the population has lost its growth. Most of these areas are shrinking as families continue a national migration out of the north into southern and western states. A suburb losing 5 percent of its population over the next five years is not fertile ground for new practices because existing practices will tighten up their management practices. Staff benefits shrink accordingly. Most practices now have freezes on hiring and benefits as they attempt to hold on to a precarious bottom line.

As associates are phased out due to dwindling caseloads, fewer support staff is needed to run the practice. Practice owners, comfortable with working fewer hours and letting associates take up the slack, are jumping (or perhaps creaking) back in the saddle and working five to 10 more hours a week. We have watched workloads of 15 to 18 client visits per day per veterinarian drop by half. And ... it's not just the economy's fault.

Our revered alma matae continue to bring forth newly polished gems despite an alarming decrease in the number of new pets coming into society. One startling statistic is that in the first two decades of the 21st century, the number of practicing veterinarians is expected to climb 48 percent to care for only 10 percent more pets. Anyone believing that all these veterinarians will be absorbed by food-animal practices or the Department of Homeland Security opportunities should seek counseling immediately!

Female graduates, attending to the every bit as important working requirements of family, work about a third less hours at veterinary practices, and help defray the excess capacity in our workforce. But there are still too many of us.

Another extraordinary effect here is that some 40 percent of new graduates are opting for post-graduate education. How rational is this? Do we expect huge future requirements for superbly trained supervets?

Will this add another 20 to 50 percent to the total indebtedness of the graduate, once having left academia and tried to enter the working market? Isn't the average school debt unsupportable now? Doesn't academia understand that the economy will not absorb these graduates? Is there any indication that 2010 to 2012 will provide more opportunities than 2009?

Eventually, like those who did not go on for advanced education but found that the existing job market provided much less opportunity than expected, these newly minted professionals will strike out on their own. The question is ... where?

If they open in the right place, with the right management, there are bright futures available. They must find a locale that is not already saturated with all the professionals that the populace can support. One extra mouth to feed denies sustenance to all. There are at least a half dozen consultants who can help them find their niche. This is not a decision that can be made by guesswork. Mistakes can be fatal.

There are two avenues to pursue that ideal location.

The first is called a feasibility study and projects what a practice created at a specific location can be expected to produce in professional income five years into the future. This is based on the demographics of the surrounding community. These demographics allow a projection of the number of likely pets multiplied by the likely future average transaction divided by the number of practitioners serving the area. This is based on known usage levels but does not take into account the less professional services of boarding or grooming. The study will very accurately (± 5 percent) generate expected annual revenues per veterinarian and the effect of other practices opening after your practice does.

A preferred method is a location study. This looks at the demographics of a larger area and maps the best locations based on:

1 A population forecast showing adequate current population and significant growth and potential for new clients.

2 Family incomes capable of supporting an average hospital transaction for quality diagnostic and surgical procedures.

3 Discretionary income as measured by greater-than-average dining outside of the home.

4 Current per capita expenditure for pets consistent with expectation of veterinary utilization.

5 Total consumer purchasing indicative of quality-minded clients.

But if you find your location, you must not make the greatest error of them all. That is failing to create fees commensurate with your operating costs. You need to make a profit to sustain your staff and your family. Therefore Taj Mahal Syndrome can be fatal.

So many facilities built for a half-dozen practitioners are now being used by just one or two. Remember that the overhead and maintenance needs to continue, further eroding the bottom line. There are million-dollar facilities held just short of foreclosure simply because an empty building produced nothing but extra tax burdens for the bank that financed the construction. A million-dollar facility needs to produce close to $1.8 million in revenues annually to break even. Anyone planning a new facility should think "expandable." Anything else is an overhead dragon.

If a budding practice owner wants to rent a building, he or she needs to be able to produce 13 times the rent paid. With a rent of $2,000 a month, the feasibility study needs to show a likely annual revenue of $312,000 before that practice can begin to show a profit.

Today's new practice needs to be conservative in construction frills as the current client attitudes are equally conservative. There are lots of opportunities out there but only for those who recognize the realities of our times and act swiftly enough to make meaningful changes.

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.

For a complete list of articles by Dr. Snyder, visit dvm360.com/Snyder.