12 May 2017
If early results from the SPVS Practice Profitability Survey are truly representative, many practices are not being run as efficiently or profitably as they could be. John Sheridan discusses.
John Sheridan
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IMAGE: © Folker_Gratz/Fotolia.
For many years SPVS has been running its fees and salary survey and leading veterinary accountants regularly benchmark the top achieving practices. However, what has been missing is an easily available snapshot of the current state of practice profitability and an easy way to benchmark your own performance against it.
Submitting practice data online is very easy and the required information can be pulled from your business accounts or PMS. Practice results, compared with quartile data from all the other participating practices, are usually available online in a few days and take the form of five headline figures. When these five figures are combined they can show you how your practice is performing overall and which areas you need to concentrate on to improve profitability. They are:
This is your turnover divided by your average transaction value divided by the number of full-time equivalent vets divided by 365 (days/year) and is a surprisingly accurate and consistent measure of demand or “busy-ness”.
Essentially, the cost of goods sold as a percentage of revenue.
The percentage of revenue,
including a notional allowance for partners, calculated as the average salary paid to employee vets in that practice.
The percentage of revenue of all the remaining costs, including those relating to the practice premises, and all the overheads, including finance costs and depreciation.
As a percentage of revenue.
To date, 140 practices have completed the survey and the results do not make for comfortable reading. Only 31% showed profits that were “good” (more than 15%) or “excellent” (more than 18%); around 14% were scored as “average” (between 12% and 15%), leaving the majority showing profits that were “below average” or “poor” (less than 12%). The median profit for all the participating practices is just 10.6%, but, for 22 practices, the margin is negative.
If these early results were replicated across the profession, it would suggest more than 450 practices across the UK, between them employing more than 2,500 vets, could be running at a loss. Practices running at a loss will not be able to afford to invest in their business or their people.
That’s the bad news.
The good news is veterinary practice can be very profitable. Yes, the UK pet population is in decline (Pet Food Manufacturing Association figures suggest a drop from 65 million in 2010 to 58 million in 2015), but consumer spend per pet has risen more than 25% in the same period to £4.6 billion in 2015 (Euromonitor).
If some vet practices are cashing in on this and making healthy profits, this would suggest others could learn from them and turn their finances around.
The first step is to understand your figures and recognise where you can best invest time and effort in improvement. Which brings us back to the five figures in the SPVS survey. These offer a very quick health check.
If your profits are below average, but your “busy-ness” is high then you need to understand why this is not translating to your bottom line. There is probably not much you can do about your overheads, but there are several “quick fixes” you can apply to your cost of drugs and supplies as a percentage of turnover:
The SPVS survey showed the cost of people as a percentage of turnover varied from just over 34.4% at the lower quartile to 42.8% at the upper.
Remember, costs are reported as a percentage of revenue, so an important management task is to decide whether high people costs are the result of, for example, over-staffing or paying too much, or because your people are generating an inadequate practice income.
You may want to consider whether you are using your team as effectively and efficiently as you could be and if you are charging their time out accurately. This is more important than ever at a time when experienced vets and nurses are in short supply.
There really should be no reason why the owners of those practices unhappy with their financial performance, can’t substantially improve profitability with some of these simple steps. However, it gets harder once you have put your management systems in place to manage costs, reviewed your prices and squeezed the pips out of your suppliers.
But, by this stage, you should hopefully be making some money to reinvest in the business so the main question is how?
You may want to look at how you can add medical value to your practice – that is increase the specification, range and quality of what you can offer and charge accordingly.
This is the point where you need to spend some time on a business plan and involve the whole team in a discussion about what makes your practice special and what direction you want to go.
Adding medical value might be as simple as firming up on protocols so every vet works up cases in the same way, or it might mean employing a certificate holder, training a vet to carry out laparoscopic surgery or investing in a CT scanner.
A business plan will require you to consider all the costs associated with the investment, develop a strategy and timeline for paying it back and create a budget for the first 12 months of a three to five-year plan.
If you have read this far then take the next step – complete the SPVS Profitability Survey. It is not only good for you personally, but the more veterinary practices share their statistics, the more accurate they are and everyone benefits.
You might also want to attend the SPVS/VPMA Focus on Practice Finance day, supported by VBJ, on 21 June in Leicester for a more detailed examination of how you can make 2017 the year you move your practice profitability to the next level.
