In last month’s article, I discussed planning. Included was an encouragement to pick a small
number of objectives, no more than 2-3 at a time, and focus your efforts on
them through project completion before moving on to new objectives. With regard to the pond-less waterfall
project in my backyard, I hit a point where I had to decide whether to move on
– or abandon the project. As I
considered what a final outcome might look like including the 
stream length and
width, I also began to think about what it might cost. To date, there were sunk
costs including the concrete pavers and dirt, not to mention the time I had
spent working on it and visualizing a future outcome. But, like so many projects, the bulk of the
expense was yet to come. I would need a
pump, liner, collection box, weir, water hose, various plumbing fittings,
plants and flowers, moss rocks, more dirt and who knows what else. The class I
had taken had provided a sense of the costs for the equipment needed but only
had hinted at costs for other materials and effects. Generally speaking, it was
during this stage that we had to make a decision – do it or don’t. After lining out estimated needs and costs on
paper and discussing the expected project budget with my wife, we decided to
take the plunge and commit the remaining funds to bring the project to
completion. That was a liberating
decision and day!
The process we went through is very similar to the decision
process in a veterinary setting when individuals or teams are deciding whether
to make capital investments such as replacing faulty equipment or purchasing
new equipment, remodeling or expanding facilities. It is also very similar to one used to create
the next calendar or fiscal year’s operating budget. If you don’t like that term, try one of these:
“Income and Spending Plan” or “Goal Setting.”
Sometimes the word “budget” conjures up negative images for people,
images that remind them of controlling, inflexible documents. Having worked in the field of veterinary
management for the past 19 years and having used budgets/income and spending
plans/goal setting that entire time, I am a strong proponent of this type of
tool. Last month we examined the importance
of setting up our operational plans to succeed.
It seems logical, then, that this month, the final month of the year,
that we should discuss the importance and essence of budgeting, or goal
setting.
If you don’t currently engage in this type of practice,
please don’t throw the idea out with the bath water! I know of single doctor practices that
consistently budget and I know of 10+ doctor practices that don’t. Practice size or complexity is
irrelevant. What is relevant is your
practice’s desire to track income and expense and, as a result, target
improvements that are realistic and rewarding once achieved.
Presuming your hospital is stable, that ownership hasn’t
changed in the recent past, and that you are remaining in your present
facility, I recommend starting by compiling a 3-year record of income and
expenses. An electronic worksheet such as Excel is very helpful for this
purpose. Once you capture those income and expense items, you can sum each line
and divide by three to derive a 3-year average that you can use to target your
next year’s income and expenses. If your
practice has experienced recent changes such as those mentioned, I recommend
starting with a shorter horizon, perhaps one or two years, or even 1.5 years. It seems that many practices still do not
focus enough on how to increase income in specific categories, or even break
out income by category, but rather focus mostly on projecting and controlling expenses. If you want to increase a category, such as
dental income for example, by a certain percentage, you need to come up with a
corresponding plan of how you are going to do that. But, you will incur other expenses along the
way (e.g., new equipment, supplies, additional staff cost, maintenance &
repair, marketing, etc.). Those costs
need to find their way to the expense budget. Don’t sweat over minute details;
just give it your best educated guess then move on. The same can be said with
various expenses. Some items such as facility lease cost, for example, can be
fairly easy to predict. If you’re consistently spending X percent on drugs and
supplies, then that expense is easily projected by multiplying that percentage
times your anticipated revenue. Other items, such as practice promotion, can be
a bit more difficult to predict especially if you are planning to offer new or
altering your services or product offerings. In this case, engage those
involved in practice promotion in the process, give it your best guess, and
continue on without becoming bogged down. Practices that have begun the income
and spending planning process with the end in mind (i.e., a targeted net profit
margin), and work backward are often very pleased with their resultant plan and
actual results. Too many practices still think that profit is a bad word and
therefore they don’t put processes in place to optimize practice operating and
financial results.
We cannot begin to explore all the aspects of budgeting/goal
setting in a message such as this. Rather, please know that you’re not
alone. Each year at about this time
MemberConnect buzzes with
veterinarians and managers asking and answering questions about various
budgeting processes.
In conclusion, don’t allow the downstream flow of the busyness
of your veterinary practice create a log jam that deters you from planning
income sources and expenses for the coming year. Rather, dip your feet in the
cool and wonderful world of budgeting! Once you have your budget created in an
electronic worksheet such as Microsoft Excel, then insert those figures into
your accounting software so that you can pull up actual versus budget profit
and loss statements (income and expense statements) each month or whenever you
want to see it. When hospital leaders begin seeing how the practice actually
did compared with what you planned for it to do, you’ll more easily be able to
identify areas to focus on in the near future.
Mid-year course corrections are common and a sign that practice leaders
are humble and willing to learn.
As for the waterfall project, the go-no-go decision enabled
by a very simple, handwritten project budget allowed us the freedom to move
forward to the finish line. While we still need to employ a licensed electrician to permanently power the water pump, and perhaps install some
attractive lighting, and purchase some additional wine barrels for planting, we
have claimed victory in our backyard for the time being.
To those whole-brain and right brain thinkers, especially, thanks for indulging me these past few months as
I’ve used this metaphor to discuss business practices common to all veterinary
hospitals. To the left brain thinkers, I will return to more of a left-brain
approach in future blog articles. Here’s a left-brain thought to end the year
on – now is the time to renew your VHMA membership – it’s time to stop
procrastinating. Let’s all end the year with a bright smile, knowing that we’ve
submitted our renewals. Have a great holiday season, enjoy time with your
family and friends, and I’ll “see” you all in 2014! At that time, it will be due time to begin
cleaning out our closets…
Jon Cunnington, MBA, CVPM
VHMA President