Lowering Your Risks – Increasing Your Rewards

As a future or current owner, looking at a veterinary practice from a valuator’s perspective will enhance your chances of financial success during all stages of ownership. Thirteen assessment factors have been identified by the VetPartners Veterinary Valuations Resource Council (VVRC.) These factors are considered in determining how risky your practice may be as an investment. Some of those are in place and difficult, if not impossible, for you to change. Location, demographics, and competitive environment are just a few. Listed below are eight areas where you can create positive change that will result in real dollars and increased return on your investment everyday. The rewards will be especially gratifying when it comes time to sell your practice.

1. Revenue Growth. All things considered, nothing is more reassuring to an outsider, be it a buyer, a lender, or even your own financial advisor than seeing positive revenue growth trends. Certain economic and demographic factors place a ceiling on revenue growth based on fee increases alone (assuming you are doing regular fee increases.) But capitulation to a negative revenue trend based on what you can’t control is a sure sign of a failing business. Instead, focus on what you can control. Many of the additional factors below will help you address revenue growth.

2. Increasing Profitability. This should always follow revenue growth over the long term. Decreasing profitability often is the result of casual employee management, inattention to fees, and lack of business intelligence development. Attend seminars to learn how to measure profitability. Do a cost to benefit analysis of all major purchases and follow benchmarks closely, both published and those internally generated so you can stay tuned to the bottom line.

3. Effective Management Systems. This is where affecting outcome all starts and ends. At a minimum you need to have a user friendly and powerful in-house proprietary software program to not only track income and do reminders, but also track the number of transactions, client visits, new clients, doctor generated sales and services, non-doctor generated sales, accounts receivable and services by category. An in-house accounting system with an intelligent chart of accounts needs to be in place so you can easily and quickly generate profit and loss statements, accounts payable balances, and assess profit centers. Having CPA generated financial statements and an efficient and functional inventory control system resulting in frequent turnover of inventory also indicates good and effective management. Maintain and have reports readily available showing proof of compliance with safety, regulatory and tax requirements. The biggest failing in effective management systems is under-utilization of already existing in house capabilities.

4. Quality of Staff. Low turnover and high levels of competency and training are the hallmarks of a quality staff. Careful hiring, managing expectations, providing opportunities for advancement, training, and consistent, impartial management are the essential ingredients necessary to obtain and maintain a high quality staff. If frequent turnover is a problem consult with a veterinary human resources specialist and get the staff back on track.

5. Marketability and Desirability. As offbeat as it may sound practicing the type and level of medicine and surgery most common and desired provides you with the most opportunities for a successful outcome when it comes time to sell your practice. This is purely mathematical- there will be more buyers in the marketplace. A right blend of professional services, equipment and facility contribute to the marketability.

6. Ability to Effectively Transfer Practice Goodwill. We want to avoid being legends in our own minds. Instead, work to give the practice an identity that can stand alone without you! Dropping your name from the forefront of the practice name, rotating clients with multiple veterinarians, and having an empowered support staff that has significant contact with the clientele all help build goodwill that is most effectively transferred.

7. Facility. A modern floor plan with contemporary decorating and well kept landscaping goes a long way to project an image of a sound, progressive practice. But also paramount is the ability to expand if the facility is somewhat small, and having zoning that does not encumber the current use upon transfer to a new owner.

8. Practice Stability. Steady is good. Although you can’t change how long you have been in a particular location, you can work to improve the stability in revenue and profitability growth, reduce professional and support staff turnover, implement regular fee increases and maintain consistent bookkeeping practices.

Whether an owner, buyer, or prospective seller, knowing the risks associated with your practice as a financial investment has significant relevance in the real world. For developing a reasonable ongoing return, making the right investment, or receiving a just return at the time of the sale, having a management oriented valuation consultation can help you learn how to have a fiscally sound and rewarding practice ownership experience.

Fair winds and smooth sailing,

Jim Stephenson, DVM
Simmons Northeast

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