Feeling cramped?

YOUR FACILITY IS THE FIRST AND LAST thing clients see when they visit your practice. Imagine their impression if your hospital feels cramped. Do they stand in the waiting room, shuffling side to side as clients and animals sidestep their toes? Do they wait longer than they need to because there aren't enough exam rooms available? If your growing practice has your facility splitting at the seams, it's time to make a change.

Expanding or remodeling your facility is one way to accommodate growth and help increase your revenue. And more than a third of the practices surveyed for the 2005 Well-Managed Practice Study are planning facility renovations or new buildings. But building a bigger and better facility isn't the only way to grow. Consider these options before you think about knocking down the walls. Then decide whether major reconstruction is the remedy for your cramped conditions.

Increasing hours and adding appointments

If you're short on funds for remodeling, renovating, or relocating, consider extending your hours and scheduling in more appointments. One caution with this approach: Make sure you're adding client activity—not just stretching out appointment times or creating gaps in the workday.

Technology tools

Answer these questions to determine whether you have excess or untapped client demand: Are appointments booked two to three weeks out? Do you frequently ask clients to admit their pets for the day because you don't have appointment times available? Do your front-office staff members routinely squeeze extra appointments in to satisfy patients' needs—causing the doctors to run late? If you answered yes, then this strategy might be right for you.

Adding staff members

To extend your hours and add appointments, you may need a boost in staffing support. Then again, maybe you're already pushing your staffing coverage to the limits.

Do you delay necessary medical services like radiographs or laboratory testing because you don't have enough time to complete the diagnostics? Does necessary medical care fall through the cracks because everyone on the team's too busy to think about making the recommendation and educating the client? These situations could indicate a need for additional doctors and/or staff members. And with the additional help, you'd grow practice revenue and use your existing space better.

Maximizing your current space

You may find physical ways to use your space more efficiently, too. Look at the layout of your practice. Do you see opportunities to take back areas that have been overtaken? For example, is file storage consuming too much room? Decide what you really need on-site and move the rest to an off-site location. Maybe you could recover enough square footage to add that extra exam room without any major renovations.

Revamping your facility

Of course, sometimes the space needs remodeling or an addition to make it usable. Dr. Bill Skaer and his daughter Dr. Christen Skaer of Skaer Veterinary Clinic in Wichita, Kan., realized that if they limited boarding, they'd create enough space to add a fifth exam room. With the improved client flow and efficiency, as well as the potential to add client services, the fifth exam room would generate more revenue than the boarding cages.

Figure 1 Funding an expansion

"Our two-doctor practice fully utilizes all four exam rooms, and clients often have to wait for a room to open," says Dr. Christen Skaer. "We're also researching areas where we can increase patient care such as acupuncture and expanded behavioral consultation so this fifth exam room will help. We plan to make the space more comfortable so we can also use it as a grieving room."

Figure 2 Increasing fees to support growth

Funding a remodel, expansion, or new facility

If you do decide to remodel, expand, or build a new facility, you should start planning about five years before you want to make a move so you can determine how much more revenue you'll need to support the growth. To do this, first look at your current financial picture, and then project how the expenses will change in the new, bigger space. Then you'll know how much your revenue and transaction numbers must grow to support the added expense, and you can estimate the number of years it will take to return to your current profit levels.

Figure 3 Increasing fees and patient activity to support growth

Dr. Gina Paul, owner of the 2,400-square-foot Paul Veterinary Hospital, knows what it's like to outgrow a facility. (Dr. Paul is a fictional practitioner based on real practice owners.) Poor traffic flow, a shortage of exam rooms and treatment space, and a lack of office space are impacting patient care and creating stress for her, her team members, and clients. Her dream is to add 3,600 square feet. And while she has room to expand on her existing lot, she's not sure she can afford the preliminary estimate of $540,000 for the construction.

The hospital's current operating expenses are very well-managed. The veterinarians generate 6,400 transactions per year with an average charge per transaction of $128. The projections for the new facility given in Figure 1 on page 54 assume:

• Variable expenses will continue to represent 23 percent of total practice revenue.

• Fixed expenses will increase by 20 percent in the new space.

• Staff compensation will continue to represent 24 percent of total practice revenue.

• Fair market rent for the current space is $49,000; fair market rent for the added space is $65,000, or 12 percent of the total project cost. E

• Facility expenses other than rent will increase dollar for dollar based on the increase in square feet. This includes housekeeping, property taxes, repairs and maintenance, utilities, and property insurance. The current rate is $8 per square foot and will remain the same for future use.

• Veterinary compensation will continue to represent 21 percent of medical revenue. All additional revenue is medical revenue.

• Management compensation will represent 3 percent of total revenue.

Benchmarks

Historical perspective

Assuming there's no increase in patient activity, revenue needs to grow by $143,000 to cover the additional operating expenses and veterinary and management compensation. By raising fees 4 percent per year, in addition to fee increases required to cover cost-of-living changes in operating expenses, Dr. Paul will return to her current profit levels in four years. (See Figure 2)

Of course, Dr. Paul's intention is to grow revenue through increased patient activity, not just fee increases. So she also looked at how the revenue and expenses might change with a combination of fee increases and activity increases. Here's the additional projected expense for Year 3, as shown in Figure 3

Assuming an increase in patient activity, revenue must grow by $218,000 to cover the increased operating expenses and veterinary and management compensation. By increasing both fees and client activity by 4 percent per year, Dr. Paul will return to her current profit levels in three years.

Based on the projections, Dr. Paul feels comfortable moving forward with the expansion of her facility. She and her staff will continue to work with a consultant to refine the hospital's plan for achieving the required revenue growth. And everyone's excited to know that soon they'll have a facility that truly reflects the professionalism and quality of care that Paul Veterinary Hospital provides.

You, too, can match your facility to the level of care your practice provides. Think about your current resources to see if you can accommodate growth without kicking up dust. If not, then you can expand your facility knowing that you've wisely considered all the options and developed a clear plan to support your growth.

Denise L. Tumblin, CPA

Denise L. Tumblin, CPA, is co-owner and vice president of Wutchiett Tumblin and Associates in Columbus, Ohio. ve@advanstar.com