The 'whether' report

It's a cloudy day for veterinary medicine.

The number of clients making appointments this fall will be unseasonably cold.

Those clients seeking care likely will resist all of your recommendations.

A high-pressure area will sit over staff labor costs, and it will make meeting practice expenses much more difficult.

How many practices will be able to weather this economic downturn?

Profit source

Few veterinary practices today operate as real businesses. Ask their accountants. Real businesses are able to survive recessions by laying off staff to lower operating costs. Real businesses operate with a 10 percent profit after paying all expenses, including stockholder dividends. Real businesses have prices set in concrete, with little or no haggling with customers. Sure, they have sales, but even a 40 percent off sale still allows them to cover all of their direct operating costs. Real businesses have stockholders who pressure management to achieve more for less cost and more profit.

If honesty ever became infectious, most businesses would have signs saying they are giving 50 percent off all the merchandise the prices of which they just doubled for this sale. However, there is little danger of that becoming sales policy.

Restaurants price their menus at 2.5 times the cost of the food served. When they are not sure what that food will cost them, they do not guess and put their guesses on paper. They just write in "market price."

I would guess that at least 20 percent of practices are in danger of bankruptcy at this moment because of their failure to use the concept of "market price." They will use fees from yesteryear for today's procedures. If the city closed their street down for sewer maintenance, they would be running to a not-so-receptive bank within a month. Veterinary practices, by and large, do not plan for contingencies. Reserves are non-existent, yet the need for these funds is paramount today.

In 1990, I was visited by a Midwestern veterinarian who wanted to take me to lunch, for no reason other than he said he enjoyed my writing. In fact, he wanted to write off his entire vacation by saying he came to (then Florida) for a business consultation.

He said that, some 25 years into practice, he was earning good money — taking home $75,000 before taxes at a time when the median veterinary pay was about $60,000.

I asked him how much he paid for rent. "I don't pay rent," he replied. "My building is free and clear."

Aren't rents about $12 a square foot in your area? I asked. He said that was about correct.

How big is your practice building?

"About 4,000 square feet."

Then I ungraciously told him that his building was earning 4,000 x $12, or $48,000 a year. So, if he was taking home $75,000, then only $27,000 was professional compensation, meaning he was actually being paid less than a new graduate. He choked on his chopped liver sandwich!

He was upset because he failed to understand the maxim that has stood the test of time: Pay yourself first. That's the only way you can judge your business's progress.

Setting realistic fees

Leftovers cause pancreatitis in dogs and business failures in veterinary practice.

Most of my on-site practice-management consultations are related to rapidly dropping owner compensation. This is inevitable in a profession where we let our competition dictate our fees.

Heaven forbid that our fee for anything be higher than that of another practice in our area.

It is like a foot race where the object is to come out last. Few will leave the starting line because they will elicit the enmity of other practices.

We accuse low-price practices of holding us back, yet we fail to realize that we are holding them back. Our failure to charge increased fees for increased services is the curse of the profession.

Many cannot understand when they hear or read about pet owners spending $6,000 or $8,000 or $10,000 on their animals. They must be from another galaxy.

You can bet that a $10,000 bill must have included some really expensive costs. The word overcharging does not even exist in the mind of most veterinarians.

However, the concept of discount and its various synonyms occupies 80 pages in many a practice's dictionary.

It is similar to the word vacation. For many, this is a concept that applies only to staff and associates but not to practice owners. Vacations associated with meetings cannot be classified as vacation.

Vacation is defined as a "period of time devoted to rest, travel or recreation. A scheduled period during which the activities of courts, schools or other regular business are suspended."

A private in the Army gets 30 days' vacation annually. A practice owner too often has zero true, relaxing and energizing vacation days simply because leftovers to not make vacations feasible — except, of course, for every-one else.

That's why the weather is intermittently nasty, and the long-term forecast calls for more of the same — unless you do something about it.

First, realize that only one out of seven families in your community actually contributes to your practice profits. Our clients come from only 36 percent of the population at large. Half of the 36 percent are minimalists. But the other half, despite the economy, can afford anything and everything you suggest. Realize that. Just simply realize that it will never change.

With these top clients lies your future. Ask your receptionist staff. These clients never question your fees and, in a sense, subsidize the rest. They pay higher tax rates to support the poor in our country.

Set your fees high enough that your average transaction provides you with a living.

Make it possible for clients to spread out the payments using whatever plan you wish, but leaving your fees lower than they need to be will, if they have not done so already, make you a non-profit institution without the implied tax breaks.

There will be fewer sunny days in your forecast unless you are fully prepared.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995; Vethelp@comcast.net; fax: (866) 908-6986. To read his previous columns, visit www.360.com.