Feeling squeezed by expenses?

Feeling squeezed by expenses?

Take control of your practice's financial health, balance your cash flow, and create some more breathing room.
Dec 01, 2005

Are you feeling the pinch of not enough revenue and too much expense? Don't wait until you hear crunching bones to make a move. There's no better time than now to start charming your practice to better financial health.

The first step's a pretty easy one: As 2005 comes to a close, think about what you'd like to achieve next year. Then figure out how much it will cost to reach your goals.

The next step is finding a way to make it happen. Many of you likely use your income statements to track your practice's progress, which can leave you frustrated. Income statements can't measure cash flow—which is the lifeblood of a practice. Instead, we recommend using a more comprehensive tool, called a Management Statement, to measure cash flow and develop a practice budget.

Wait! Don't stop reading because I mentioned the b-word. A budget is simply another diagnostic tool that helps ensure practice health and success. Think of it as a treatment plan for the business side of your practice. Without it, you can't know when your practice's financial health is in jeopardy.

"A budget lets us quickly see when our expenses fall out of line," says Drs. Alex Byron and Michael Hood of Greenfield Animal Hospital in Southfield, Mich., "and helps us make educated decisions about the changes we need to institute."

Of course, great financial health affects every area of the practice. And when cash flow is healthy, "many other pieces—unrelated to finances—fall into place," Drs. Byron and Hood say.

Not sure where to start? First, simplify the budget process by creating a Management Statement, which will clearly show the sources and uses of cash in your practice. Once you organize your revenue and expense numbers, developing a budget will be much easier.

Tracking your sources and uses of cash

Figure 1. Tools to track cash flow
Figure 1 shows a sample Management Statement summary. Take these steps to develop your own summary.

1. List total practice revenue. If you operate a mixed animal practice, itemize revenue by companion animal, beef, dairy, and equine practice separately.

2. Group practice expenses into eight categories, defined by their impact on revenue:

  • Variable expenses—expenses directly affected by the number of patients seen, including drugs, supplies, lab fees, and vehicles.
  • Fixed expenses—expenses that exist regardless of the number of patients seen, including phone charges, consulting services, health insurance, and office supplies.
  • Staff compensation—Salaries, retirement contributions, and employer payroll taxes for nondoctor staff members.
  • Facility expenses—expenses to maintain your facility, such as utilities, repairs, and rent or mortgage payment if you're a sole proprietor.
  • Nonowner veterinarian compensation—salaries, retirement contributions, and employer payroll taxes for nonowner veterinarians.
  • Owner veterinarian compensation and owner management compensation—salaries, retirement contributions, and taxes for owner veterinarians and management compensation.
  • Reinvestment funds—money reinvested into medical equipment or other technologies.
  • Owner distributions—payments to owners, other than veterinarian and management compensation.