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After a strong increase in revenue growth in May, growth in June 2022 was much lower.  The number of workdays in June 2022 was the same as in June 2021 so growth is less likely to have been influenced by the number of workdays and workhours between the two periods.

Patient visit numbers actually declined; this implies that the revenue growth is either due to fee increases or pet owners electing a broader spectrum of care. (Note that data from an earlier 2022 Insiders’ Insights report indicated much larger fee increases in 2022 than in previous years which may be one of the reasons for the increased revenue growth.)

It is very difficult to see a pattern in revenue and visit growth over the last year or so; growth figures bounce around a lot from month to month (see chart below.) The only consistent pattern is in new client numbers which continue to decline dramatically each month.

Another change that stood out in this month’s data was that related to the active and lapsing patient counts. An active patient is defined by VetSuccess as one who has had a medical service in the last 18 months. Active patients grew ~7-9% each month in 2020 and 2021 but growth has been less in 2022 with only a 4.4% growth seen in June 2022.

A lapsing patient is one whose last medical service was 14-18 months ago. These numbers grew about 2-6% from January 2020 through September 2021. Starting in October 2021, however, the number of lapsing patients grew at higher rates with May and June 2022 at 20%+!

I personally believe the cut off for lapsing patients should be 12 months since the wellness recommendations (vaccines, heartworm tests, etc.) most practices make are “once a year.” Using 14-18 months as the cutoff means there are really a larger number of “late” clients in practices than is shown in these numbers.

As noted last month, we don’t know for sure why this is happening, but some possibilities include:

• Some number of the clients who switched practices during the pandemic because they couldn’t get an appointment at the practice they normally visited have not stayed with the new practice
• Clients are concerned about the cost of veterinary care either due to the increases in this care specifically or because of the overall inflation impact on their household budgets and are postponing care
• The number of appointments available has declined possibly due to the difficulties in hiring

What does this all mean? It’s not clear where the “veterinary economy” is going but we do know the U.S. economy as a whole is having a bumpy ride. Opinions vary regarding the timing and magnitude of the next recession but there is likely going to be one in the next 1-2 years. Historically, veterinary medicine has been “recession proof;” however, we found out during the 2007-2009 Great Recession that this isn’t always true. Many practices, especially higher end general practices, emergency clinics and specialty practices saw significant revenue, caseload, and profit declines during this time. Veterinary medicine overall didn’t do as badly as other kinds of businesses but certainly wasn’t recession proof.

This is a good time for practices to prepare for more economic challenges.

What should be done to protect your business, both in the long and short term?

• Establish an emergency/rainy day fund; if the practice already has one, review it to see if it needs to be increased. How much to have in there depends on what expenses the fund might need to cover, your local economy and your risk tolerance. The most common recommendation is to have a fund that covers 3-6 months’ worth of expenses. Other factors to consider are the amount you think your revenue will decline, what expenses could you cut if needed and whether you have a line of credit or other similar way to obtain extra cash if needed. Remember that you should always have an emergency fund, even when times are good, but you can vary how much is in there depending on the circumstances. Keep your emergency fund in a separate account so you aren’t temped to dip into it or forget to take that money into account when you are planning your expenditures.
• Tighten up your spending or at least identify areas where spending could be reduced if things get worse. Focus on inventory control, overtime, and other large expense items. Take the money you save and put it into your emergency fund.
• Pay down debt. In addition to making your current loan payments, consider making additional principal payments. Don’t take on new debt. If you have some extra cash and the choice is between paying down an additional amount on your loans or putting it into an emergency fund, go with the second option until you are VERY comfortable with the size of your emergency fund. Once we are through the rocky economic period, you can take some of your emergency fund and pay off debt, but you can’t get that money back if you pay down the loans now and then need the cash. Consider any opportunities to convert credit card or other debt to very low or no interest loans if that is possible.
• If you don’t have a line of credit, see if you can get one. Try not to rely on credit cards for this; the interest rates are often a killer.
• Have a budget. If you don’t have one, this is a good time to start; if you do have one, review and update it if needed. This budget should focus on cash flow, not net income, or profitability. Make sure that items not typically included in your P&L but that are a use of cash are included in your budget. For example, only the interest portion of any loan payments would be included in the P&L, but the practice still has a large amount of cash going out the door each month to cover the principal portion of the loan payment.
• Put off large remodeling projects and non-essential equipment purchases if you are concerned about cash flow dropping.
• Take a good hard look at your efficiency and productivity and what can you do smarter, better, cheaper.
• Focus on the client experience; you can’t over communicate or provide too much quality service. Ask yourself, what can the practice do that the other local hospitals aren’t doing? Give value above and beyond what is the norm.
• Crack down on missed charges and random discounts. If you are going to add or keep a discount program in place, make sure it does what it needs to do—bring in more revenue, clients, and profits than you would have had without the discount.

The above are all sound financial strategies at any time but especially important when times are hard.

➤ Download Insiders' Insights - KPI, July 2022 Report

➤ VHMA Members can access the dashboard to drill down by region, species, and practice size filters, access the interactive KPI dashboard

Data review and commentary is provided by Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting, www.PantheraT.com.