AAHA. The AVMA. Private consultants. Various organizations provide different expenses-to-revenue ratios to live by. There are so many variations in methodology that it can be hard to compare these groups' formulas. When comparing your practice's financial data to published ratios, use these four tips to make sense out of a crowded field of potential resources:
1. Remember that these ratios are averages. Unless you're sure the ratios were developed using practices similar to yours in terms of size, location, sales and revenue, and intensity of competition, use them only as industry averages. You're not necessarily doing a bad job if your numbers don't match up perfectly.
2. Know what's included and excluded in the data. For example, when considering staffing expanses, has the source included payroll taxes? If not, are they included elsewhere? In drugs and medical supply costs, are radiography supplies included? How about cremation costs?
3. Check to see if the financial ratios of your chosen benchmarks have been watched and studied over time. There can be many reasons for swings in data that must be understood before taking, or not taking, action.
4. Understand where your practice is in its business life cycle. This will help you determine where your practice should fall within the average ranges. For example, if you're starting a new practice, your costs in comparison to your revenue will be higher than a mature practice of 20 years. The same holds true if you've changed locations or added a new service, a new technology, or a new associate that requires an investment in equipment, staff, or marketing. The Catch-22 is that part of achieving a million-dollar practice is effectively using "veterinary doctor extenders"—staff members or other doctors who allow you to work more efficiently—which in turn mean your salaries will exceed the "average" classifications.
Jan Miller is president of the consulting firm Veterinary Best Practices in Hillsboro, Ore.