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Congratulations! Your taxes are filed, and you—and your practice manager—can finally breathe a sigh of relief. You may be tempted to take this time to refocus your attention solely on the day-to-day operation of your practice. But, alas, the most successful veterinary practices are implementing one crucial follow-up step that you might be overlooking: the annual spring cleaning of your books.
With your tax returns complete, you have the most timely and accurate snapshot of your practice’s revenues and expenses all in one place. That makes right now the optimal time to review and refine your books and clear away the figurative cobwebs that could be costing your practice in terms of profitability, as well as short-term and long-term salability.
It’s important to note that the profit shown on your tax returns is not the same as your practice’s true profit. However, your tax return as a whole will provide a good starting point as you take the following 3 steps to spring clean your practice’s finances.
Why it matters: It’s rare to find a business owner who does not run some personal expenses through their business. With guidance from an experienced accountant or financial advisor—and perhaps some personal creativity—many practice owners do just that to avoid excessive tax burdens. However, when you are rounding the corner toward your ownership exit, this can become more of a liability than a relief and, often, cost you more in the sale of your practice than you would have paid in taxes to the federal government.
Recommendation: Any discretionary spending (i.e., personal/familial expenses) should be well documented and identifiable as a non-recurring expense so it can be easily filtered out during valuation, which should ideally occur every 3 to 5 years. If, for example, your family’s cell phone service or health insurance are paid for by the practice, it would be beneficial to identify in QuickBooks when the payment is recorded the amounts attributed to personal (versus practice –related) expenses. If you’re within two to three years of your target sale date, to ensure you maximize value, it’s best to cease discretionary expenses altogether. Two to three years is the typical time frame considered by buyers and lenders to determine practice value and financeability.
Spring Cleaning Your Real Estate
Perhaps just as important as the financial checkup is the physical review of your veterinary practice, whether you lease or own the real estate. Take time to walk through the front doors and view your practice through the eyes of your clients. Use the following checklist to identify areas that need attention.
Why it matters: Your fee structure is one of the greatest indicators of your profitability. If your fees are too high, you’ll lose out on business to other veterinary practices in your area. If your fees are too low, your profits will diminish as other expenses rise based on higher production costs. If you’re not reviewing your fees—alongside managing supplies and costs of goods sold (COGS)—you might have a problem and not even realize it. Just because your revenues allow you to comfortably cover your expenses with money to spare doesn’t mean your practice is profitable enough for a buyer to obtain financing and meet their personal financial needs.
Recommendation: Identify your most commonly shopped services and designate someone to call your competitors to discover what they charge for the same services. This will help you gauge whether your services are sufficiently priced or require adjustments. Ideally fees are regularly assessed and minor adjustments made periodically rather than large increases all at once so as not to blindside your clients.
Why it matters: The costs associated with running a veterinary practice continue to rise, mirroring an overall increase in the cost of living in North America. In the U.S., as increased tariffs on imported goods potentially take effect, the cost of COGS and other supplies will compound the issue. It’s more important now than ever to have a clear picture of what your practice is using, how much it costs per use, and how you can make adjustments to lower your operational expenses.
Recommendation: Take a careful look at your distributor costs and try to negotiate better terms. Alternatively, consider shifting your business to a different vendor who can offer lower prices. Resources like Vetcove simplify this process, as you can compare supplier costs at a glance, free of charge to veterinary clinics and nonprofits.
Whether you are a practice owner nearing retirement or you’re fresh on the ownership train, it’s essential that you continually assess your operational strategies and their impact on your practice’s bottom line. Together with regular practice valuations by an experienced veterinary practice appraiser, a financial spring clean will help you cultivate an efficient and profitable practice that creates and retains value for years to come.
