The R word: Recession

It's all over the news. It's on the tip of everyone's tongue. The economic slowdown. The possible recession. Americans are losing their homes, their jobs, and the greenbacks that were fattening their wallets just months ago. The Federal Reserve has dropped interest rates in an attempt to reverse the troubles, but consumer confidence is down and unemployment is up.

Photo by Mark McDonald

At press time, financial experts still couldn't agree whether the United States was in a recession, headed for a recession, or just suffering a little punishment because too many people got loans for homes they couldn't afford. Whatever they call it—the "R" word or not—it's going to hit your practice sooner or later. The timing depends on where you work—it will spread region by region, state by state, neighborhood by neighborhood.

For now, veterinarians' stories vary. Near Detroit, where people have been losing jobs and homes for years as a result of the faltering U.S. auto industry, Dr. Claude Curry is experiencing a revenue decline—and may be seeing what his colleagues around the country will face in coming months. Two of Dr. Curry's four practices are in established suburbs, and for the past six or seven years the income at these practices has dropped off; they've seen fewer new clients and client visits. And in the past six months, his practices in newer areas have seen less growth than in previous years. Dr. Curry closes two practices one day a week on a rotating schedule to save on staff costs.

Across the country, in South Miami, Fla., home prices skyrocketed for years and are now falling almost as fast. Associate Dr. Patty Khuly says business is as strong as ever—though Miami pet owners (even the well-off ones) are still slow to accept wellness recommendations.

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 Dr. Karen Blakeley owns a practice in Macomb, Ill., and many of her clients are cash-strapped students attending Western Illinois University. Despite the changing economic environment, Dr. Blakeley says the percentage of her clients who accept the highest level of care and those who do nothing but emergency care is holding steady.

The economic situation has hit Dr. Dennis Chmiel hard. His Merrimack, N.H., practice is nestled in a suburban nook where housing prices have fallen. "Our revenue has stagnated," he says. "Based on conversations I've had, I think other practices in the area are equally affected—except maybe newer practices in growing areas."

These state-by-state disparities don't surprise economist  Dan North ,who predicted this slowdown back in March 2007. North says that national recessions start regionally and spread nationally. "We're going to see job losses that aren't just regional, and we'll see economic growth slow across the country," he says. In other words, this downturn is just getting started.

A strong history—but an uncertain present

That's not to say it's time to panic. Traditionally, veterinarians have weathered tough times pretty well. Through five recessions in the past 30 years, spending on veterinary care has remained steady or grown . But Ryan Daniels ,a principal analyst at William Blair & Co. who follows the veterinary industry for investors, says this doesn't mean individual practitioners aren't affected by recession. Lots of businesspeople—maybe you—have seen slower growth or no growth in their area.

Veterinarians affected by the slowdown say their clients are coming in less for preventive care or are waiting longer to have dental and other wellness care performed. New Hampshire's Dr. Chmiel says his clients seem to be staying away if they're struggling financially. "They hold off on procedures if possible," he says.

Dont panic!

When Dr. Chmiel took over in 2003 as medical director at Merrimack Veterinary Hospital, he made changes that helped monthly revenue jump 10 to 20 percent compared with the same month in the previous year. But in 2006, revenue dropped off, and the five-doctor practice became a four-doctor practice in anticipation of further revenue shortfalls.

More than 700 miles away, Dr. Jeff Rothstein has been feeling Dr. Chmiel's pain for seven years. "We've been in a recession in the Detroit area since 9/11," Dr. Rothstein says. A high-spirited veterinarian from Southern California visited Dr. Rothstein a few months ago and told him how great things were there. All Dr. Rothstein could do was shrug. But that doesn't mean he's giving up. Revenue may be flat, but even so, not one of the nine clinics in his Progressive Pet Animal Hospitals group has closed.

The bond won't dissolve

What veterinarians need to remember, experts say, is that the bond between people and pets doesn't go away when hard times hit. Certified financial planner Fritz Wood, CPA , in Lake Quivira, Kan., says three demographic groups will help veterinarians weather the economic downturn. First are the empty nesters with disposable income at hand who treat their pets like children. Then there are younger, dual-income households without children who do the same thing. And finally, single professionals with discretionary income but little time are a boon to veterinarians nationwide—especially those with boarding facilities.

The question, then, is not whether clients are out there or whether they're bonded to their pets. The question is, what kind of bond do you have with your clients?

When money gets tight, clients of all stripes will question their relationship with anybody they pay—including you, says Gary I. Glassman, CPA , a Veterinary Economics Editorial Advisory Board member and partner with Burzenski and Co. in East Haven, Conn. "People act on emotion during an economic downturn," Glassman says. "If their bond with you isn't strong, they'll use money as an excuse to go somewhere else."

To measure up to this increased scrutiny, you must excel at customer service, says—including you, says Denise Tumblin, CPA , another Editorial Advisory Board member and president of Wutchiett Tumblin and Associates in Columbus, Ohio. "Go above and beyond so that clients actively choose to spend money at your practice," she says.

Best medicine is the way

Experts agree that an economic slowdown is the worst time to stop recommending your best medicine. Keep offering the care patients need and deserve, and educate clients so they can make informed decisions. "If clients say they can't afford it, then give them other options—whatever is in your medical comfort zone," Tumblin says.

Veterinary spending through the years

While the temptation may be stronger than ever to X-ray clients' wallets andassume they won't go for top care, if you bring in second-tier choices too early, they may think they can make the decision on cost alone. For example, if you make a snap decision that a client can't afford radiographs and downplay their importance in the diagnostic process, you do the client, the pet, and your practice a disservice.

At the same time, your best recommendations should be coupled with a compassionate understanding that some clients simply can't afford top-level care. Communication skills are more important than ever during tough financial times. If a client wants to make good decisions for her pet but is struggling to pay the bills at home, a condemning attitude—even a whiff of it—can send her down the road to another practice or, worse, cause her to avoid veterinary care altogether. Times like these are perfect for recommending financial alternatives such as third-party payment plans or pet insurance for future needs. (See "Covering cats and dogs" for advice on how to promote pet insurance.)

And don't forget that clients can surprise you. In Sacramento, Calif., where housing prices are falling, a client attended a free spay day at Arden Animal Hospital, bringing in a kitten with fused eyelids and perpetual ocular discharge. "We explained that the eyelids were growing inside the eyeball, and the woman said she'd pay for surgery to fix it," says owner Dr. Tom Kendall. The kitten was just as blind afterward, but she was spayed—and her eyes were healthy.

Looking at practice finances

Rather than getting discouraged by your profit and loss statement, look at this period as an opportunity to create new strategies for building profit. "Look to better compliance and improved services," says John Volk, a senior consultant with Brakke Consulting in Chicago (see "Pretend It's a Slow Season").

Pretend its a slow season

This is exactly what Dr. Chmiel did in 2006 when Hurricane Katrina and the resulting spike in gas prices touched off his practice's struggles. He began emphasizing senior wellness blood testing, fecal exams (increasing fecal compliance almost 50 percent through focused staff training), and endoscopic procedures. This year the practice is highlighting junior wellness blood testing and has added an in-house ultrasound.

"We've also worked hard on our client message points in regard to anesthesia, pain management, and dentistry to improve compliance in these areas," Dr. Chmiel says. "I think we'd be in a lot worse shape had we not stepped it up with our training and communication strategies."

If you're wondering how you can afford to launch new programs when revenue is flat, Glassman says you may need to invest a greater chunk of profits back into the practice. This may mean taking a hard look at your own compensation and taking a pay cut to free up cash for new equipment and staff compensation. "You can't stop giving your staff their yearly raise just because we're in a recession," Glassman says (see "The Power of Hope").

Take some of that money and boost cash reserves, too. "We're a fixed-cost business," Glassman says. "To cover costs when revenue drops, we need to fall back on cash reserves—which usually come out of the owner's pocket—and lending institutions."

That's right. You may need to take out a loan. "Debt is not bad," Glassman continues. "It just needs to be managed. It's not scary to take out a loan during a recession to manage your cash flow. What's scary is losing money with no reserves and having those losses continue for an extended period. Without the ability to generate a profit that's invested back into the practice, there's no way to pay down debt."

Keep in mind that lenders are tightening up their credit terms, so they won't lend freely, even to veterinarians. Expect to be asked for a lot of information, and know that banks will take a much closer look at your financial affairs before approving your loan.

In the end, your practice depends not on the economy but on you. The key? Don't talk yourself into a recession. "You can't stop and get depressed about it," Dr. Chmiel says. "You have to keep improving yourself and your staff so your practice will be at the top of its game when the economy finally does improve."

Tumblin agrees. "You can control your expenses, bring in more revenue, and increase profitability all the time," she says. "Don't look at the national news. Look at your own business."

Keeping pace in a slowdown

You may need to change some business strategies in this shifting economic climate.

Fees

Regular year. Across-the-board fee increases are the easiest way to boost your revenue without getting into the nitty-gritty of shopped-for and not-shopped-for products and services.

Hard decisions: Even clients who are deeply bonded to their pets may be weighing the cost of veterinary care.

Recession year. In a region hard-hit by a slowdown, broad-spectrum fee increases may not be tenable. If your local clientele is bemoaning the state of the economy and telling tales of lost jobs, foreclosed homes, and general malaise, consider implementing targeted increases rather than a hefty hike on everything.

Personnel management

Regular year. When growth in veterinary practice is good, bonuses, merit raises, and cost-of-living salary increases are the cost of doing business.

Recession year. When growth slows, should raises disappear? Will customer service still be stellar if inflation starts taking a bite out of your team's paychecks? Laying off team members, letting attrition shrink your staff, or holding off on raises may seem like good short-term financial decisions. But in the long run, a small, overworked, demoralized team can lead to a downward spiral of frazzled nerves, poor customer service—and fewer new clients. "Cutting wages is suicide to your overall mission," says Dr. Andy Anderson, DACVS, MBA, founder of Veterinary Wealth Management in San Antonio. If at all possible, keep your team happy and intact to fight another day.

Medical recommendations

Regular year. Recommend the best medicine. You're the pet's advocate, and you offer the best medical options to clients, regardless of cost.

Recession year. If clients balk at price, do you stop offering the Cadillac and opt for the Yugo? Never stop giving clients your well-informed recommendation for a pet's well-being. Learn to balance your strong recommendations with compassion for clients who can't afford them, but don't become discouraged if compliance falters. "Promote the value of your services like crazy," says Dr. Dennis Chmiel. "Take more time to explain why preanesthetic blood work and pain management are all worth paying for."

Customer service

Regular year. Excel at client service. With revenue going gangbusters, it's easy to be upbeat.

Recession year. When things take a turn for the worse, so might your practice. New clients stop showing up, regular clients hold off on procedures, and everyone feels the pain of higher prices. Who has time to make sure customer service is perfect? You do. Experts agree that veterinarians and their teams who excel at providing a great experience, from phone call to exiting the exam room, will remain strong businesses even in a slowdown. "Twenty percent of our best clients account for most of our gross income," says Dr. Claude Curry. Keep them coming in by providing the best clinic experience around.

Time management

Regular year. When growth is great, there's often money for clinic-wide CE and staff training—but little time.

Recession year. When client visits are down, guess what? You've got more time. Launch new services, explain those services and their importance to your team, and make sure everyone in the clinic is promoting them.

Selling a practice

Regular year. In boom times, your revenue is good, your team is strong, and your neighborhood is growing—great for practice value and attractive to buyers.

Recession year. In lean times, your team is still strong, but the numbers aren't as good. That could be a problem if your clinic's sale price is based on cash flow numbers. If you can afford to wait a year or two, hold off until your practice is growing again.

Compliance

Regular year. You recommend a dental for the client's dog, and he agrees after you do a great job of convincing him of the dangers of periodontal disease.

Recession year. The same client may say he has to hold off. That's a lost opportunity for good medicine, right? Wrong. Make sure to document your recommendations in the patient's chart, and send a reminder to the client in a few months.