The most common financial mistakes veterinarians make (Proceedings)

1) Many veterinarians pay their bills too quickly. When vendors provide you payment terms stick with them. If they offer discounts for early payment, make the payment early. However, if they do not, don't pay the bill until it is due. Normal credit terms provide you an ability to usually wait 20 to 30 days before payment is due. If there is not an incentive to pay early, don't. Use the "float" to work for you and invest the money through a sweep account at your bank which can earn interest. If you are fortunate enough to sell a product, before you have to pay for it, you are using others money to finance your practice operation. There is no better way to do business.

2) Many enter into leases for the purchase of equipment without considering other options. Leasing can be expensive and the imputed interest cost to a lease is not always easy to determine. Also don't be confused by the different types of leases that exist. Some generate better tax treatment than others. Consider other methods of payment besides leasing. Straight financing at the bank is usually less expensive than leasing and paying cash may be an option with no additional cost.

3) Many do not competitive price shop for products and services. Vendors will quote you a price for a product or a service but is it their best price. Many times you do not know unless you competitive price shop. Many times your best price is not your first. You may also not make price the final reason for doing business with a particular vendor, but it never hurts to get competitive prices before making a final decision. Price comparisons can be shopped for insurance, credit card services, telephone service, drugs and supplies, lab services, etc.

4) Owner veterinarians don't pay themselves on production. Owner veterinarians should pay themselves on production to hold them accountable to the practice for what they produce. The pay rate can be 21 to 22 percent of their professional collected production. Holding themselves accountable will remind owners of the way they practice and how it reflects in their earnings. They should also reward themselves a management pay. When you find out what is left over, you have a better idea of what the practice produces as excess earnings that will formulate the practice goodwill value. It also helps the practice determine available funds to pay the owner. Owners should pay themselves their pay for services and then their practice bills. Once what is leftover is known, it can be distributed to the owner(s) as a reward for the privilege of ownership.

5) Veterinarians don't plan their finances. They fail to budget. Use budgets to set the financial direction of the practice with an expected result. This way you have a better chance of meeting your goal. Once a budget is completed, input it into your accounting program and print monthly internal financial reports that can measure the budget against the actual result. If you are using QuickBooks, consider using the budget module already in the program. It works great and it's simple to use.

6) Many owners do not involve their associates in the finances of the practice. While I do not believe it necessary to share all information, I do believe it important to share the individual doctor production information, even if they are not paid on production and other hospital income information. As the owner of a hospital, you are the team coach. As part of your role as a coach, you have to share the playbook and let the team know how they are doing. You should also set an expectation for the results you expect. Most will comply with your request as long as you set reasonable expectations. Monthly monitoring should also be completed so you stay the course. Develop a monthly statistical report you can share with your staff and associates.

7) Many practices have the wrong or no retirement programs for their practice. Many also start these programs late. A retirement program is easy to implement, but implementing the right one may not be as easy. SIMPLE plans, 401k plans, Profit Sharing Plans, Defined Benefit plans, SEP plans. All of these different plans can come at you at once. All have different parameters for savings levels and those levels between you as the employer and what you have to give to an employee. Choose the right one by looking at your own retirement need first. Then consider your affordability factor and how much you should put away to meet your own retirement objective. Always ask your pension specialist to provide you with an illustration of what a particular plan might look like for you so you can see the impact on your cash flow and determine what tax savings will be created. Simple plans have deferral limits for 2008 of $10,500 with an extra $2,500 available for those ages 50 and over. 401k deferral limits for 2008 are $15,500 with an extra $5,000 for those ages 50 and over. With profit sharing plans you can put away up to $46,000 based upon $230,000 of compensation. Plans can be combined to provide larger deductions. For associates, participate at least up to the employer match. You are missing out on free match money if you do not. Consider the use of IRA accounts on top of maximum employer plans for additional contributions. Roth IRA contributions can be made, if single, up to $101,000 before phase out and for married individuals up to $159,000 before phase out.

8) Most do not plan for the right amount of life insurance and disability insurance. Not having the right amount of coverage can be devastating to your practice and your family. Work with a qualified financial planner, accountant and attorney who may guide you in advising you of the proper amount of coverage.

9) Many wait to long before considering an exit strategy and do not plan for the expected financial results that will drive their practice value. The type of tax entity may also impact the eventual sale. Discuss the importance of taxes related to a sale with your tax advisor 10 years before the sale especially if you are a "C" corporation. Exit strategies should be considered and started 5 years before an eventual sale. Who on your staff may be interested in purchasing your practice? How much is it worth? Will you sell your practice to a corporate owner of hospitals or through a practice broker? Have a practice valuation completed so you are aware of the practice value. Know what your practice return on investment (ROI) is and how it changes year to year so you can monitor the value of the practice. You can do this by computing the net income of the practice before the payment to owners. Then subtract payment to the owners for the performance of veterinary services and management fees. What is left is ROI. Have your accountant compute this for you each year. Based upon industry statistics in small animal practice, the ROI should approximate 11 to 13 percent of gross sales.

10) Many will not consider the purchase of a client list from a competing practice that may be closing. The attitude is to wait until they close and take what comes your way. Over and over again you will find it more financially rewarding to pay for a solidified client base stored in a computer system with reminders already set up and with medical records. Make sure you also take the practice phone number. If you feel uncertain about buying the whole client list at once, try to work out a purchase where you pay for only what you get and keep. It is a purchase made on a retainage basis.