Your veterinary practice is barely profitable?

Dr. Mark Jensen's practice—our theoretical case study—hasn't quite recovered from the recession, and net cash flow isn't what it used to be. His practice isn't in the wealthiest of neighborhoods, but there are practices in similar areas that have weathered the economic challenges, so he can't blame his practice location.

The problem

He's concerned he may have a No-Lo practice—a hospital with little to no profitability. As soon as his accountant completes his 2012 tax return, Dr. Jensen can calculate how profitable his practice is through his financial advisor or via the Profitability Estimator (ncvei.org) from VetPartners and the National Commission on Veterinary Economics Issues.

Dr. Jensen is particularly concerned about his inventory costs and decides to start there. He receives regular profit and loss statements from his accountant, and the cost of his drugs and medical supplies (including flea/tick and heartworm products) was about 18 percent of his gross revenue in 2012. He compares his figures to 2011 Benchmarks: A Study of Well-Managed Practices (dvm360.com/benchmarks) and discovers that practices like his in that study average about 14.5 percent for the same costs.

Why are his costs so high? Some of the questions to ask include:

> What is he paying for drugs and supplies?

> How much of each drug does he keep on the shelf?

> How is inventory monitored and controlled?

> Are clients charged for every item they take home?

> Is theft occurring?

The solution

Dr. Jensen decides he'll stop dispensing medications and products to the client in the exam room. If he needs to review a product with the client, he'll hand it to the technician who'll be responsible for bringing the products and prescriptions directly to the receptionist at check-out. The receptionist will then review the invoice with the client, confirming each item has been accounted for. As an added bonus, the receptionist can review the instructions for each item with the client.

Dr. Jensen assigns his receptionist the job of conducting 10 product dispensing audits each week to look for discrepancies. (Visit dvm360.com/proaudit to download a spreadsheet to help your practice with this process.) He sees how his behavior plays a role in his eroding profitability, and now Dr. Jensen is welcoming his team's help with open arms.

Next month, we'll look at his staff costs and determine whether they're too high.

Dr. Karen Felsted, CPA, MS, CVPM, is the president of Felsted Veterinary Consulting. Jessica Goodman Lee, CVPM, joined Brakke Consulting in 2011.