Expected revenue growth

I'm considering building a facility. What average revenue growth can owners expect five and 10 years after building, adding onto, or remodeling a practice?

"Of course, you can't just consult a crystal ball to see your five- or 10-year outlook," says Roger Cummings, CVPM, a Veterinary Economics Editorial Advisory Board member and consultant with Brakke Consulting Inc. in Dallas. "Increasing costs of technology, medicine, building, and so on will all affect the picture. And assumptions are always dangerous."

For example, it's true, he says, that a new facility will often result in annual revenue increases of 20 percent the first few years. But most practices top out in terms of what they can physically produce in 10 years. "You want the facility to maintain value beyond its mortgage," he says.

In the end, Cummings says the question of whether you can pay for a facility—or whether the facility will pay for itself—is truly only answered by your management ability and the demographics of the area. "This means the best question is 'How will you manage your practice to pay for a new facility?'" Cummings says.

"Do you have management strategies in place that will drive revenue increases at least 7 percent to 10 percent above the rate of current inflation for 10 years? Do area demographics demonstrate sustainable growth in pet owners in the area? How will you attract and retain associates and develop a well-trained, well-leveraged staff that can produce revenues in excess of $500,000 per associate?"

Of course, costs do still matter. To estimate costs associated with building, Cummings compiled data from past Veterinary Economics Hospital Design Competition winners. (See Table 1.)

Table 1 Veterinary Economics Hospital Design Competition winners

To determine whether a practice could afford the facility, he used the projected loan amount to estimate the monthly payment. (See Table 2.) "Ideally the basic facility mortgage or rent, including insurance and taxes, would be 7 percent to 8 percent of total practice revenues," he says. Keep in mind, Cummings adds, the example in Table 2 doesn't include taxes and insurance, which often add 10 percent to 15 percent to the total monthly payment.

Roger Cummings, CVPM