THE FINANCIAL "MAKE OR BREAK POINT" OF A VETERINARY PRACTICE

Every veterinary hospital has a financial make or break point.

This is the point, financially, where you are either making enough money to operate, pay yourself, your employees, all the basic operational cost, continuing education cost, and the utilities. Above this point you are making it. Below this point you are breaking it.

As a hospital owner it is one of the most important tasks you have to work out what the financial “make/break point” is for the hospital.

To do this take the following steps:

1. Take the last 3 months average of spending (include any amounts that are suppose to be covered that may not have been necessarily paid) and determine what your bottom line income needs to be to pay your basic bills (which, includes doctor and staff pay, utilities, bills, etc).

2. Compare this against the suggested ideal financial percentages of a veterinary hospital and determine where you are overspending.

It is important in managing the finances of your hospital to monitor on a regular basis how much you are spending in your various expense categories.  Even more important than watching the gross amount of each cost is keeping an eye on each category as a percent of your collections.  Below is a list of the main expense categories in a veterinary hospital and percentage ranges to provide some guidelines to help you evaluate your key expense categories:

Description	Percentage/Amount	Comments
Staff compensation	15-18%%	Excluding benefits and taxes.
Associate Salary	18-22 % of what he/she produces.	If you are paying medical insurance, malpractice and CE, then the percentage comes down.
Drugs and Professional Supplies	17-20%	Use comparative shopping to keep in lower range.
Laboratory	5%	Inhse 2.5 / outsourced 2.5
Office Supplies	1 – 2%
Rent	5-10 %
Utilities	1%
Promotion	2%	This includes your Yellow Pages bill.
Maintenance	1%	Includes any bld’g repairs
Continuing Education	2– 4%	Includes transportation and expenses for doctor and staff.
Accounting	< 1%	Accounting costs depend on how much you have the accountant do.  Use of a bookkeeper and/or accounting software helps keep this cost low.
Legal	$400-1,000 a year	The percentage would depend on the income of the hospital.
Doctor’s retirement and medical/hospitalization	3%

Heartworm Expense                 3.5% (minimum)

Flea/Tick                                  3.5% (minimum)

Pet Food                                  70% of what sold; at least 3.5% of total expenses or you’re not selling enough.

Medical Supplies, Other           12%

Office Expenses                        3%

In evaluating these percentages, you must realize, of course, that the higher the production level of a hospital, the lower some of these percentages will go.  A smaller hospital will have higher percentages because there is a minimum requirement to these costs just to open your doors.  As the hospital expands, these percentages can come down.

Monitoring these costs and percentages on a monthly basis will help you confront and stay in control of your financial planning.

3. While you work to increase your practice’s income, start planning, using an executive meeting (which I have laid out in a previous blog post), your weekly and monthly spending so that it is kept within your budget and the ideal percentages.

The office manager should be included so they understand the financial needs of the practice and can manage the practice correctly.

4. Once you have your “make/break point” financial target figured out implement a bonus system (profit sharing, which I have posted about earlier) that awards the staff a certain percentage of the income that is above the “make/break point”. The percentage would be set a side and paid out quarterly to help motivate your staff to make your “make/break point” financial targets and would give them great responsibility to increase their own income by increasing the practices income. 

Doing the above steps and using the suggested percentages as benchmarks for your practices financial health, will give you much greater control of your finances and assist you in achieving financial stability for your hospital.

Good luck!