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The softening in revenue growth continues in October. Revenue growth in October of 2022 compared to October 2021 wasn’t as strong as in August or September, although the decline in growth was less in October than in September. Remember, however, that August 2022 had an extra day in it compared to August 2021 so the higher growth in that month was somewhat driven by that additional workday. The number of workdays in October 2022 and October 2021 was the same. Growth for VHMA practices in October 2022 was 4.7% which is definitely less than the average over the last 12 months of 6.6%. 

Lapsing patient numbers (defined here as those patients whose last medical service was performed 14-18 months ago) have grown dramatically since March 2022. Remember too, that most practices want to see patients every twelve months so a patient who hasn’t been to the practice in 18 months is seriously overdue.

Revenue per unique patient increased by 8.2% in October 2022 compared to the same month in 2021, however, patient visit numbers actually declined by 2.5%. The increase in revenue per unique patient is most likely due primarily to fee increases with some degree of greater acceptance of medical recommendations by pet owners. New client numbers continue to decline. One thing to remember is that most of the data captured here are from “traditional” veterinary hospital models; it does not include data from alternate care models such as mobile vaccine clinics, pop-up clinics seen in pet stores or other retail locations, and the newer de novo practice types. We don’t know if the decline seen here is across all practice types or if there is some movement of pet owners from more traditional to alternate care providers of veterinary services.

The current growth is certainly respectable although not as high as some practices have become accustomed to. However, as we discussed last month, growth may not be as easy to obtain as we move forward in a very uncertain economy and a difficult hiring market. Pet owners may also not be as forgiving of poor service and higher prices when they once again have the ability to more easily switch practices. Practices will need to focus more on creating an environment that is attractive to both employees and clients and on building/maintaining the structure and processes necessary to keep a practice running smoothly. 

Last month we talked about the leadership and human resource aspects of structure and process; this month we’ll talk about financial processes. 

All practices must have some kind of financial system in place to gather and disseminate data.  The word “system” can mean a couple of things—either the tasks, activities, tools, or resources used to accomplish something; for example, the preparation of an income statement or the software itself.

Some of the most common uses of the financial system are as follows:

• Prepare accurate financial statements (either for internal use or to satisfy lender requirements)
• Monitor and manage practice cash flow
• Manage invoices and bills that must be paid (accounts payable)
• Track and collect amounts due to the practice (accounts receivable)
• Preparation of tax returns
• Pay employees accurately and promptly
• Track and manage employee benefits (accrued vacation, CE reimbursement, etc.)
• Create and manage a budget
• Track fixed assets
• Monitor and control debt
• Control inventory
• Obtain information to improve pet owner compliance, client service, profitability, and efficiency
• Protect practice assets from theft

There are a number of things practices need to do to make sure the financial system operates smoothly and the information received is accurate:

• Set up the systems in a clearly defined, logical way.
• Document the various tasks involved in receiving payments, making payments, processing payroll, analyzing practice metrics, etc., in a procedure manual so that employees have a resource to consult when needed.
• Use an appropriate chart of accounts. An excellent source is the American Animal Hospital Association/Veterinary Study Group’s Chart of Accounts designed specifically for veterinary practices. This publication includes descriptions of the specific accounts and the types of transactions that should be recorded in each. Not every practice will need every account included in this list and some practices may need to add a few accounts specific to their own operations; however, this Chart of Accounts is an excellent starting point.
• Set up well-organized paper or electronic files for the storage of data that must be kept long-term so that information is readily accessible when needed.
• Select good quality, easy-to-use software to aid in the collection and manipulation of data.
• Hire employees with the appropriate skills and knowledge to perform the tasks necessary to achieve the above goals. Not only, is technical knowledge critical but these employees also need the right non-technical competencies—the ability to problem solve, good communication skills, strong analytical skills, and a detail-oriented approach to their work.
• Put cash, inventory, and other controls into place to identify and prevent errors and misappropriation of assets.
• Prepare a budget at least annually and review it regularly during the year.
• Routinely monitor cash flow.
• Identify the data the practice needs regularly to manage operations and make sure this information is available quickly and easily.
• Review financial statements and other metrics regularly—daily, weekly, monthly, and quarterly as needed depending on the metric.
• Calculate true operating profitability at least once a year.
• Limit the amount of accounts receivable the practice carries and communicate appropriately and regularly with those who owe the practice money in order to collect accounts due soon after they were incurred.
• Design compensation and benefits packages to attract and keep the types of people needed by the practice—ask yourself:
  • Are the amounts offered competitive with what other practices and businesses in your area offer?
  • Is the compensation structure appealing to the employees you want to attract and keep?
  • Are the benefits offered those desired by potential and current employees?
  • Are compensation policies in line with state and federal law?
  • Is there a correlation between job performance and pay? Are better employees paid more?
  • Is the compensation structure reviewed each year to ensure the appropriate people are being paid the appropriate amounts?
  • If the practice gives bonuses, are they accomplishing what they are meant to accomplish?

Support functions are often considered to be boring and less important than the areas of the hospital that actually provide patient care and yet they make it possible for the provision of good patient care and client service and for the hospital to be financially successful.  Sloppy accounting and data analysis are often indicative of a poorly run hospital; it’s worth spending the time to set these systems up properly, hire the right people for these functions and review data regularly.

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