Examining struggling practices: How the recession has affected these real-life practices

It's scary to think that your hospital could succumb to the recession, but for these two real-life practitioners, that nightmare could become a reality. Few veterinary practices have been completely immune from the recession, and specialty practices have been hit especially hard. Clients are taking their pets to general practices less often, leaving fewer opportunities for referrals, and they're opting for fewer specialty services.

Tom McFerson, CPA, ABV, a partner with Gatto McFerson in Santa Monica, Calif., presents the cases of Dr. Susan Burns*, whose emergency clinic has seen revenue plummet; and Dr. David Larson, whose small animal practice is in danger of going under. Both have been rocked financially, and must now refocus their efforts—or risk losing their practices.

*Names have been changed.

Case study no. 1

Emergency clinic faces more competition

Dr. Susan Burns owns an emergency clinic in a highly populated area. The practice has been in business for more than a decade, used to face virtually no competition, and built an excellent relationship with its neighboring small animal practices and referral base.

ABOUT THE PRACTICE

> The clinic works hard to provide top customer service and communicate well with referring doctors.

> Prices are on the high side.

> The facility is newly remodeled, with state-of-the-art medical and computer equipment.

> The practice had been enjoying annual revenue growth of at least 10 percent over the last five years.

> Dr. Burns noticed a precipitous drop in revenue at the beginning of the year.

WHAT CAUSED THE DROP?

> Three of Dr. Burns' top 10 referring practices began offering extended hours during the week. In the past, a pet owner might call one of these practices at 7 p.m. and get a message that referred him or her to the emergency clinic. Now these practices are still open, and team members encourage the pet owner to come in.

> Four other smaller referring practices in the area began taking emergencies during the evening. These doctors are now taking calls even in the wee hours, and they decide whether they want to take the case or refer it elsewhere.

> Pet owners have been opting not to proceed with high-risk procedures because of the costs involved. Before the recession, most clients would spend whatever it took to save their pet. Now they're making tough financial choices.

WHAT DOES IT MEAN?

> Since January, the practice's gross revenue has declined almost 15 percent.

> Friction has developed between the emergency clinic and many of the referring veterinarians. Dr. Burns likens it to a shrinking water hole in the desert: More and more animals are trying to drink from a smaller pond.

> For the first time in the practice's history, Dr. Burns was forced to lay off several employees, including an associate. Her own personal income is down 45 percent since January.

> Staff morale has taken a beating. Not only is job security an issue, but a sense of dread hangs in the air. Also, far too often, clients bring in their pet days too late or choose not to proceed with a procedure that could save the pet's life. This means more euthanasia, which, for a staff of true pet lovers, is taking an emotional toll.

Dr. Burns is hopeful that her business will slowly regain its footing. June was the closest the practice had come to matching 2008 numbers since the year began. Her staff is now lean and focused on improving customer service and patching up relations with her referral base.

Case study no. 2

General practice hurt by housing bust

Dr. David Larson opened his practice three years ago in a new, fast-growing community. The practice earned a reputation as the place to go for high-quality medicine, and its location in the middle of several new housing developments gave Dr. Larson hope for future growth. Revenue and net income exceeded Dr. Larson's expectations right out of the gate.

ABOUT THE PRACTICE

> Because of the incredible growth in the community, new-client statistics were extremely positive. This allowed the practice to exceed all budgeted revenue numbers during its first two years of business.

> Because it was a start-up, the practice carried a tremendous amount of debt.

> The break-even point was $70,000, a revenue number they began to hit consistently in 2008.

> The practice first saw a steep revenue drop in October 2008.

WHAT CAUSED THE DROP?

> New housing in the area attracted first-time buyers, many of whom had to stretch to make their home purchase. Many of these people bought at the top of the market, and they were the first to either walk away from their homes or face foreclosure. Many of Dr. Larson's clients were there one day and gone the next.

> Unlike a few of the more established practices in the area, Dr. Larson's practice had no long-term, reliable client base. In fact, only half of his clients had been to the practice more than two times. When times got tough, Dr. Larson couldn't rely on his revenue base.

> As the economy got worse, some of Dr. Larson's competitors began slashing prices and offering ridiculously low specials, something he was unwilling to do.

> As at Dr. Burns' emergency clinic, pet owners were opting against high-cost procedures. Even in serious situations, some pet owners were forced to consider euthanasia.

WHAT DOES IT MEAN?

> This year, gross revenue has declined more than 31 percent.

> Prospects for recovery are not good. The surrounding community has been decimated, so it could be years before the area returns to life. Dr. Larson is unable and unwilling to hang on that long.

> Dr. Larson has been forced to lay off multiple staff members, and his personal income is down to almost nothing. Fortunately, his spouse works and the couple has been able to keep their house.

> Like at Dr. Burns' emergency clinic, team members are seeing clients bring in their pets too late or decline medical care that could save the pet's life. This affects the morale of everyone at the practice.

Dr. Larson sees the writing on the wall. With a heavy debt load and a client list that is going in the wrong direction, the doctor is weighing his options.