How to Better Manage Your Veterinary Practice Finances

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1. Mark J. McGaunn, CPA/PFS, CFPPresident
MJM Financial Advisors, LLC114 Turnpike Road, Suite 107Westborough, MA 01581-2861 phone:(978) 405-3133e-fax:(978) 776-2609e-mail:mark@mjmfa.com
web:www.mjmfa.com
New Ways to Manage Your Veterinary Practice with Financials
2. Todays Agenda
Who to Blame
Old Ways
Basic Ways
Key Performance Indicators
Practice Dashboards
Balanced Scorecards
Financial Strength Index
3. The Great Number Deluge
How healthcare organizations use financial data greatly affects current and future operational and financial performance. Two schools of thought:
1st school-Managers ask, Whats the number? If bad, they ask Whose fault? Organizations focus only on bottom line.
2nd more successful school led by Leaders who say, Now that we have the number, what proactive ideas can we implement based on it?
4. Lots of Responsibility
Veterinary practice owners and managers responsible for tracking projects, initiatives, clinical outcomes, policies, and procedures.
Data deluge causes owners to lose focus and fail to keep strategic thinking aligned with their veterinary practice's long-term vision.
Great strides in information collection and distribution, but
Significant improvements in decision-making value of that information not realized.
5. Bad Tech Solutions Not Better
Technology often just simply delivers more, irrelevant or inappropriate data quicker.
Great practices demand timely, relevant data.
Jack Welch, former General Electric CEO, had worldwide operating results delivered to his desk by day 5 of each month.
Much smaller businesses have trouble with 30 days.
6. Use Your Data
Knowing how to read financial statements and understand the information within them is often the difference between prosperity and just getting by.
Time-honored question asked by every healthcare professional is:
Are we making money?
7. Know Your Stuff
Veterinarians who don't carefully read such financial outcomes measurements run risks much as they would in failing to read medical outcomes carefully.
Your financial statements are key diagnostic tools for managing the veterinary practice, tracking revenues and expenses, identifying financial problems, and ultimately increasing everyones compensation.
8. Reporting Basics
You have to know the basics. The 3 financial reports used to monitor an organizations financial health are:
Income statement-lists revenue, expenses, and residual net income for specified period of time,
Cash flow statement-tracks operational, investing, and financing cash flows, and
Balance sheet-indicates veterinary practices degree of solvency and ownership equity
9. Basis of Accounting
Most healthcare-practice CPA's utilize "cash basis" method of accounting. Cash basis shows whats been collected and whats been paid.
Accrual basis presents income thats earned (not necessarily collected) and expenses incurred (not necessarily paid).
Both relevant for tax purposes. Accrual basis must be used for those practices where inventory a material income-producing factor.
10. Income Statements (P&L)
Of the three financial statements, P&L most adept and flexible device for monitoring practices financial health.
Most practices should review P&L review these at least monthly.
In addition to reporting patient income, employee costs, and overhead (office and medical expenses), income statements can even breakout incremental costs for various ancillary services (QuickBooks class system).
11. Comparisons & Budgets?
Income statements augmented by footnotes can explain to practice owners major deviations in revenue and expenses compared to previous periods.
Checking against a well laid out budget (that already incorporates these timing issues) can show that no extraordinary management is needed.
Budgets are not meant to be punitive tools.
12. Cost Structures
When studying your costs, remember that there are two general categories: fixed or variable.
Fixed costs remain the same regardless of volume. They include rent, insurance and utilities.
Variable costs, such as medical supplies, fluctuate with volume.
13. Variable Costs
Recognize, however, that variable costs vary differently.
i.e. medical supplies have a close relationship to volume, but staffing may vary in steps.
Important to recognize in budgeting, as well as in developing strategy.
14. Helpful Hint
BEFORE printing out financial statements to review:
Make sure all deposits, checks, and credit card charges have been entered to month end, and
Make sure all checking and credit card accounts have been reconciled
Then print out reports and use for analysis!
And it wont mess with your tax planning!
15. Simple QuickBooks Format
You should modify your QuickBooks chart of accounts to incorporate the AAHA chart of accounts format. No longer sold in healthcare version.
Makes practice to practice comparison easier.
It is not necessary for you to re-create the wheel in your endeavors of practice-to-practice uniformity.
16. AAHA Chart of AccountsBalance Sheet
Assets-Current, Fixed & Other (100 Series)
Liabilities-Current, Long-term (200 Series)
Equity (300 Series)
-Corporations (C or S)
-Equity for Partnerships or LLCs
-Proprietors Capital (Sole Proprietorship)
-Administrative Costs
17. AAHA Chart of AccountsIncome Statement
Income (400 Series)
Cost of Goods Sold (500 Series)
Operating Expenses (600 and 700 Series)
-Staff Expenses
-Occupancy Costs
-Equipment Expenses
-Administrative Costs
Other Income & Expenses (800 Series)
Income Taxes (900 Series)
18. Benchmarking
Measurement must incorporate key factors in developing measures that:
Extend throughout entire practice..
Tie into practice overall strategic plan.
Have consensus as to relevant and appropriate factors.
Based on both internal and external factors.
Empower employees, not stifle them.
Allow systematic review, and
Encompass each operating division in a veterinary practice.
19. Benchmarking
Franchisors have utilized benchmarks to highlight financial strengths and weaknesses in store-to-store and intra-store measurements.
True progressives utilize intra-entity benchmarking and metrics to measure their progress (if already > average).
Financial metrics are typically only a component.
Customer Service s/b measured in all aspects.
How can we be cutting edge?
20. Your Primary Competition Is..,
What relevant benchmarking data are available to assess performance?
Comparative benchmarking data are crucial to the success of any reporting systems.
Ideally, a practice should have some comparative reference points to evaluate how it is doing with respect to its primary competitor-itself.
21. Key Performance Indicators
Quantifiable measurements that reflect the critical success factors of an organization.
They reveal a high-level snapshot of a practices financial and operational status.
22. KPI
Before Key Performance Indicators are selected, vital to identify what the practices goals are, which are in turn dependent upon its mission and owners.
KPIs act as a measure of progress towards these goals.
Whatever they may be, KPIs must be critical to the success of the practice.
23. KPI
Application of Key Performance Indicators provides practice owners with a high-level, real-time view of the progress of a practice.
Combination of reports, spreadsheets and charts.
Revenue figures, trends, or any long-term consideration which may be essential in gauging the health of the practice.
Should not only reflect the organizational goals but also be quantifiable.
24. KPI
To be valuable it must be accurately defined and measured.
A KPI may meet the criteria of reflecting the organizational goal, which may for instance pertain to being the most popular company.
However, since a companys popularity can not be measured or compared to others, therefore the KPI would be useless.
25. KPI
Considerations regarding how a KPI is to be measured should also be established in advance.
Definitions as to exactly how the indicator is to be calculated and whether it is to be measured in dollar amounts or units should also be specified.
Moreover, it is imperative that the organization then sticks to these definitions from year to year in order to allow for annual comparisons.
26. Potential KPIs
Indicators can include:
financial viability
clinical outcomes
patient safety
quality of care
marketing and development
internal veterinary practice procedures; and
employee, patient, and DVM satisfaction.
27. Underlying Principles
The process of converting raw or numerical tabular data into a graphical depiction is known as data visualization.
One of the main goals of data visualization is to support decision-making through the use of properly designed graphical representations of information.
28. Visual Trends Inspire
For most operations managers, trending data and exceptions to those trends are much easier to understand when they are presented visually.
Information presented in a visual format allows decision-makers faster perception of patterns or problems that they may not have anticipated.
Ultimately, they can make valuable conclusions more readily.
29. KPI - Dentistry
30. People Factor
Common approach to measuring financial performance basically little change from capital-intensive operating styles of 20th-century industrial companies.
Old model doesnt sufficiently account for the contributions of talented, highly motivated employees that more often than not, are the new basic source of integral practice wealth.
Somehow, the component of people seems lost in the healthcare practice equation.
31. Other Industries
Global management consultant McKinsey & Company reports since 1997 30 largest worldwide companies (market cap) have seen their profits per employee rise dramatically.
5 year reward system trend in leading US financial planning firms now centered on fixed-based structures, leading away from variable-based because return on labor statistics were a wild card (IA Mag.)
32. Practices can redesign their own internal financial performance approach and set goals for an intrinsic return on intangibles by also incorporating greater attention to both:
profit per full-time employee equivalent (FTE) &
the number of FTE employees
rather than placing an intense focus on profits, returns on invested capital (ROIC), and return on equity (ROE).
New Practice Metrics
33. Do Homework Before Move?
Client moved to new practice building in 2005-staffed up for expected demand
89%
49%
ROL
68%
34. Other Uncommon Metrics
Avg. Unit Cost per Visit
Avg. Occupancy Cost per Visit
Actual Profit Per Active Client (not avg.)
Convert Numbers
to Ratios
Examine
Numbers
Calculate Financial Impact
Of Negative Variances
Observe
Trends
Compare to
Benchmarks
35. Boring But Effective
36. Presenting Dashboard Data
"Dashboard" reporting used more in all industries to keep owners and managers focused on critical areas that affect overall performance of the organization.
Dashboards allow you to effectively communicate your philosophy to your entire practice.
Low cost, strategic approach enables you to translate a practices vision and strategy into implementation.
37. Can create visually interactive financial scorecards to help you monitor both your key financial and non-financial metrics and ratios.
Help employees at all levels monitor individual performances and align their performance against practice goals.
Instill a culture of responsibility and accountability for results.
Dashboards
38. Practice Cockpit Indicator
Remember, it's that 15-year strategic financial plan that serves as both the:
foundation for financial decision making
framework against which we measure our financial performance.
We suggest developing a one-sheeter Dashboard to organize pertinent practice information to be reported on a minimum monthly, and preferably weekly, basis.
39. Developing a Dashboard
Keep it conc...