Rat races are for rats

Since the beginning of the year, I am getting more and more calls from colleagues concerned about their financial stability, the erosion of their retirement funds and with the decline in client visits, the ability of their practice to weather this recession.

The promised economic upswing just isn't there and they are very, verynervous.

Economic factors can and do affect veterinary practices, but even intough times, well managed, well-staffed practices, with good people skillscan flourish. We actually have a recession-proof profession.

It's simple

The reason is simple. Veterinary practice is a commodity that peopleneed even more in rough times as they withdraw into the cocoon of familyand pets for their comfort.

No veterinarian should have to struggle with keeping the doors of thepractice open. The best way to illustrate this is with an example of anactual practice. The problems faced are the same for all practices and thesolutions equally apply.

Trouble in Ohio

I recall an Ohio solo practitioner, a single mother of two young childrenwith no retirement savings.

She was exhausted at the end of each day and took no real salary fromthe practice, but lived off what was left over at the end of the bills.When we met over dinner the night before the on-site practice analysis,she had trouble keeping her eyes open and she explained that three hoursof sleep was about all she could get because she took her management dutieshome with her to work on after the kids got to bed.

I studied her numbers and despite a $435,000 gross and 20-25 patientsa day, she was not generating enough net income. Her average transaction($66) was just more than double her office visit fee of $32. I explainedto her that 3.0 to 3.25 times the office visit was the proper goal. A demographicanalysis of her practice area supported that.

With 6,600 transactions per year at an additional $30 per transaction,(the difference between her actual ATF ($66) and three times her officevisit fee, ($96) amounted to $198,000 that she was using to subsidize hercommunity. Not that all of the $30 was profit. With most of her other expensesmet already, that amount would net an annual $140,000 to her bottom line. Working 60 hours a week or 2,400 hours a year, this was about $60 per hour,exactly what she was not receiving as proper compensation for her hard work.

First step

The first step was adjusting her surgical, medical and pharmacy feesto acceptable levels to attain our goal of a $96 ATF. We left the officevisit alone but increased most, but not all, of the non-shopped fees by15 percent overnight.

She thought I was crazy and was near panic with the first client of theday, but settled down when at the day's end, there had been only one complaintover the fact that the client was charged for a nail trim. Not how muchshe was charged, but that she was charged at all!

We held a staff meeting and told the staff that their continued employmentwas based on the viability of the practice and that, as they had experienced,there was no problem with the clients who received thorough caring servicesalbeit at a 15 percent higher fee level.

The break-even point was now, not the amount needed to pay the bills,but the amount needed to pay all the bills plus a fair salary for the owner.

Next step

The next step was bringing in a one-day-a-week bookkeeper to pay thebills and track the parameters that I needed to monitor the practice fromafar, not to mention adding a couple of hours sleep each night for thisoverburdened practitioner.

If you've done the math, you know that a 15 percent increase in a $66ATF only added $10/transaction or $5,500 a month in additional revenues.That was enough to pay the bookkeeper and provide a measly $3,000 in extratake home pay. Of course, that tripled her prior take home so she only hada mild case of paranoia at my requiring another 15 percent increase thenext month.

So it went until at the end of the third month, the ATF reached a hairunder $95. At that point, she was taking home a monthly check for $14,000.

A few months later, she was able to afford an associate who worked twoto three days a week with her for 25 percent of production.

Lesson learned

There are three lessons here.

First, establish a "breakeven point in gross production that meetsall your expenses and your salary needs. Divide that dollar amount by thetypical number of clients you see to get an average transaction that canbe monitored daily, weekly and monthly. Adjust your fees on a not-too-gradualbasis to meet the break-even point that you have established.

Second, post that breakeven ATF at important points in your practiceto keep it foremost in your mind. A great place is on the wall facing thetoilet at 36 inches from the floor.

Each time you sit down to contemplate your progress, or whatever, youwill be reminded that you did or did not meet the goal for that day, week,or month and adjustments need to be made.

I should note that I provided subgoals to help in the motivation. Labwas to exceed 15 percent of revenues. Radiology 5 percent, dentistry 4 percent,urinalysis 1.5 percent, and 90 percent of surgeries were to have pre-surgicallaboratory workups. These figures were collected at month's end by the bookkeeperand sent to me.

Third, make these goals paramount and invincible. Only if you are firmwill your staff follow and support you in your new direction. Few will followa wishy-washy leader.

Were these the right lessons for this practitioner? The statistics arethe proof of her success. Today, three veterinarians, all mothers with childrenat home, work as two full time equivalents in her practice. She takes homemore than $110,000 working four days a week. She has a retirement fund.The hospital ATF today is $128. Each veterinarian is seeing about 12 patientsper day comfortably and she sees more of her kids and she sleeps at night.