Practice Managers: You hear it every day from your practice owners. Practice Owners: You say it every day to your Practice Manager. It’s the elephant in the room, yet nobody wants to do anything about it. What am I talking about? Your Practice Overhead expenses are too high!
The best managed practices keep overhead costs low and on a budget, so that when business slows down they can still function normally. Is your practice prepared?
Smart Practice Managers and Practice Owners Know Their Numbers
Every Practice Owner should know their numbers. Your accountant or hospital administrator should be providing you with timely financial reports. Think of checking your P&L like you think of checking the gas level in your car. You wouldn’t embark on a road trip without checking your gas gauge, and you shouldn’t run your practice without reading your P&L. Just as you won’t know you’re running out of gas if you don’t look at the gas gauge, you won’t know your practice is in trouble if you don’t look at your P&L.
How often do you receive your P&L Statement?
At a minimum, you should review your P&L Statement at least once per month. Knowing how your practice is doing on a monthly basis, as well as a Year to Date (YTD) basis can help you prevent shock at tax time, and can also help you identify trends before they become problems. For example, if your 50% off promotional pricing on your telephone service expires in April, and your P&L is prepared monthly, you’ll notice that jump of 100% when you look at April 2019 compared to April 2018, or April 2019 to March 2019. This gives you time to then shop your telephone service, and lock in a new promotional pricing term. If you had been reviewing P&Ls only quarterly or annually, you would have potentially paid 100% more for your phone service for several months before the trend was caught.
Don’t worry if you don’t pay close enough attention to the details. Lot’s of us do this, and have done this. But the best managed practices have practice owners who are on top of their numbers, or they employ someone who does for them.
Quick Aside: Who is in charge of the books?
Practice Owners, listen up. You need to be familiar with your bookkeeping, and you have a duty to institute appropriate financial oversight measures. You should know where all of your bank accounts are located, and you should have the bank statements sent to your home or an offsite location. You should also periodically “audit” the books and payroll records. Why? Because embezzlement is a disturbing trend in our industry, and smart practices will take adequate safeguards to prevent embezzlement. Learn more about best practices for financial controls in my article “Embezzlement: It Happened to Me, and Here’s How You Can Prevent It From Happening to You”.
I understand that you did not go to veterinary school to become a forensic auditor, which is why you should delegate the task of “auditing” to a trusted accountant or CPA. If your accountant handles your bookkeeping, you should find a third party (attorney, another CPA, or an unaffiliated financial advisor) to “audit” their work as well.
Back to the Topic: Are Expenses too High Because of Extravagance?
Some practices have granite countertops in the lobby, shimmering LED lights, and beautiful exam rooms, with the entire practice cooled to a perfect 70 degree temperature. I’m not saying these things are extravagant – in fact, our family practice is this way. However, you need to ask yourself is it worth it for your hospital to have the same features. I’m not saying these features in and among themselves are extravagant: for our veterinary practice, it’s expected based on our clientele. However, there may be ways for you to keep up the image, without running up the cost. In our clinic, we installed a WiFi based climate management system with room occupancy sensors, so that we only cool rooms that are occupied. Not only does cooling only spaces that are in use help the environment, our climate management system helps protect our P&L as well.
Do You Question Expenses Appropriately?
Many practices assume that their utility and inventory bills are what they are because they’re “just correct”. You may think your monthly Reference Lab and In-House Lab fees are the norm. You may think your practice is getting the “best deal” on internet because it is bundled with your phone line. You think you’re doing everything you can with technology and that further automation wouldn’t save money. Are you sure you’re right? You may be surprised to find out the answer, and your P&L will be glad you did.
Here are a few tips to check for money savings:
- Ask your utility provider for an energy audit. Many times these are free, and you may even get rebates on top of your standard tax deductions.
- Remember that Climate Management system we installed in our practice? It was tax deductible, and the balance was paid for via energy savings and rebates from our electrical company. A Win for Us, and a Win for our Work Atmosphere.
- Remember to renegotiate your IT, software support, and laboratory contracts whenever possible.
- Check with your current phone and internet vendor to see if you can get a better price by signing a new contract. When our hospital’s phone and internet was up for renewal, we took the price from $899 per month to $499 per month by getting rid of extra phone lines we never used, while increasing our internet speed to support our PACS.
What’s the end result from these audits and renegotiation? You’ll likely save money, and even if you don’t, you’ll at least make better use of your outside consultants than you did before.
Do you choose not to audit your expenses because “time constraints”?
Damn it Jim, you’re just a country doctor! You know that you should be re-negotiating key contracts, but just don’t have the time. You know you could be getting better pricing on your inventory if you joined a buying group, but that takes time. You’re sure that lab bill could be lowered by calling your lab’s competitor. Every day you try to be as productive and treat as many patients as possible. Sure, you could save a few hundred dollars by finding another dumpster and recycling provider. However, you may find that it is better for you to spend that time convincing Ms. Smith to perform a $2000 surgery on Sammy. And maybe you’re just worn out from the emotional requirements of veterinary medicine. That’s okay, and there’s no judgement. Just realize that this is your choice, and don’t be upset with your team for “high expenses” when your P&L reflects it.
Let’s Spring Clean Your Overhead Expenses
Things change. Your practice grows, it shrinks, you bring on new team members and new doctors, carry different products, and have different business goals. What your practice looked like five years ago bears no comparison to what it is today. Your overhead has changed too, and it likely has gotten higher than it should be. Don’t let it creep up without staying on top of your numbers. Because if your expenses get too high for too long, you’ll find yourself being forced to make changes that you weren’t expecting. Your expenses will always be higher than it should be. The trick is making sure it doesn’t blindside you.