For many, the word “budget” is about as appealing as the word “diet”.
It seems to imply what you will go without, rather than what you will achieve.
To a successful practice owner, however, the word “budget” has a very different meaning.
It’s more like a map than a diet. It’s an outline of where you want to take the practice, and what you need to achieve to get there.
Running a veterinary practice without a budget is like a ship’s captain setting off on a voyage without a map. Sounds ridiculous, doesn’t it. Who would do that?!
Yet this is, figuratively speaking, what many practice owners do.
Successful practice owners, on the other hand, not only set clear targets and budgets each year, they monitor them closely each month, even each week, and adjust them as they go throughout the year.
Here are 3 compelling reasons your practice needs a budge, now:
One: If you don’t know where you’re going, how do you know you’re not already there?
If you’re not satisfied with how your veterinary practice is performing, unless you set clear goals for where you want to take it, it’s probably as good as it is ever going to get. At best, it will just meander along, subject to the whims and vagaries of the economy and general market conditions.
The good news is that your practice doesn’t need to meander along.
The first step in charting a clear course for growing and developing your practice is objectively measuring “where it’s at” right now.
And the numbers do tell a story.
For some, they act as a wake-up call. For others, they just confirm the journey’s starting point.
It’s paradoxical that a large part of the value in a veterinary practice budget is not in the numbers themselves. It’s in the realization and acceptance of where you are and where you want to be.
The numbers are just the signposts for the journey.
A factual look at the numbers that describe where your business is right now takes away all the subjectivity, opinions and “reasons” (often excuses, disguised as reasons).
This is the naked truth.
In fact, it is like standing on the scales, naked, looking at yourself in a full length mirror. That may or may not be a pretty sight!
For your practice, these factual numbers are the patient revenues, the variable cost of goods sold, gross margin, overhead, and, lastly, remaining profit. After all your work, this is the reward you’re left with.
Then comes the first of a series of “hard questions”…
- Are you happy with that profit?
- Is it worth it? Or are you dissatisfied? Then …
- What do you want those figures to look like?
Answer those questions, and you’ve just described where you want to be. Congratulations! You have charted your course, which is the first step to maximizing your veterinary practice financial success.
Two: What’s more important to treat? Symptoms or causes?
As you well know, revenues just don’t happen. Costs don’t just drop because you want them to. Revenues and costs are a result of other underlying factors. Put another way, they are symptoms of causes.
The practice budgeting process quantifies the symptoms, and by asking a series of “What leads to this number?” questions, it also identifies the underlying causes.
For example, underlying factors contributing to a patient revenue figure could include:
- the number of compliance reminder or follow-up calls made,
- the number of patients walking through the door,
- the percentage of conversions of telephone inquiries or walk-ins to sales,
- the dollar value of the average transaction (not my favorite KPI, but it’s a starting point), or simply
- where your marketing is targeted.
These factors above are all called drivers. The patient revenue figures are simply a result of these drivers. Costs are no different.
For example, the rent paid may be a result of the storage you need for your retail or pet food inventory or display. Wage costs may be out of line as a result of overtime paid but underlying that may be inefficient staff or management. Or a lack of clear processes. Or both.
So in reality, what came first was not the patient revenue or related costs, but their underlying drivers. The budgeting process forces you to name and to quantify these underlying drivers.
That’s one of the most valuable aspects of preparing your practice budget. Not the budget itself, per se, but identifying your practice’s drivers.
Because then you can focus on improving them.
That’s what will produce the improved results in your veterinary practice. No looking at last quarter’s figures. That’s history.
It’s more fun to create history. And that is, in essence, what you are doing when you are in your own practice. You are captain of your own destiny, and you can steer it in any direction you want.
Note that word … direction. A key point is to have one.
You will enjoy how effectively the budgeting and planning process will get you crystal clear on your direction.
Three: Budgeting is not about accounting. It’s about being accountable.
Once you are clear on the handful of drivers that creates your practice’s results, the next question is:
What are you going to do about it?
Your budget won’t just give you a monthly patient revenue target, for example, it will help you quantify the drivers that will produce the result.
For example, if next month’s patient revenue target is $120,000, that end-result figure is not your focus. Not on a day-to-day basis. Knowing the underlying drivers, your focus will instead become, for example:
- 25 compliance or follow-up calls per day (Driver No.1)
- At 80% conversion rate (Driver No.2), with
- Each customer buying an average of, for example, $250 worth of knowledge-based service, not products (Driver No. 3).
Now you and your staff have a clear focus and are 100% accountable.
That’s good for them, and good for you and your business.
Tip: People in any business want a clear scoreboard and a”game to play” so they know whether they are winning or not. Research has found that a lack of measurement in a job is demotivating to a staff member. See Patrick Lencioni’s books such as “3 Signs of a Miserable Job” for more information on this topic.
Knowing these drivers, and quantifying a target for each … you can ask questions like:
- Have the 25 calls been made today?
- If not, why not? Is the target realistic?
- Does the team need training?
- Do they need better telephone equipment or dialing software?
- Or just more focus?
- Or guidance on what their task and priorities should be?
- Or a combination of these?
- Are we being effective and converting 80% of the calls?
- Again, if not, why not?
You can then decide to improve skills, or systems, or attitude, or all three!
As you can see, the power of the budget is in the process of preparing it, and then the budget itself is a tool to hold you accountable to the measurable indicators you’ve chosen.
An added layer of accountability is… us.
We work with a number of clients where, on either a monthly or quarterly basis, we act as a sounding board and independent party to ask you the hard questions about the drivers and the results. This focuses your mind, allows you to form a clear Action Plan to improve results, and then increases your chances of success because you know you need to “report in” to us next time.
It’s a brilliant process that both we and our veterinary clients enjoy because it works!
To take more control of your practice and its performance, get in touch to make a time to come in and see us. Depending on the size of your practice, we might determine that a quarterly process might work best (and be the most cost-effective), or your practice might be at a point where monthly or even weekly guidance would be ideal.
Either way, we’ll outline your options and your costs so you know precisely what’s involved.
We look forward to helping you chart your course, helping to get a clear direction, and then keeping you and your practice on course.
After all, you won’t end up at the ideal destination by drifting …
Your next step … Call us at 781-489-6651 or email us at email@example.com to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.
Mark J. McGaunn, CPA/PFS, CFP® leads the veterinary/dental/financial planning divisions at McGaunn & Schwadron, CPA’s, LLC and can be reached via firstname.lastname@example.org or (781) 489-6651.