Cash flow in veterinary practices is challenged by several factors, but broken down, it’s simple: how much comes in versus how much goes out. Here are 10 ways your practice can immediately take control of its cash flow.
If your practice is hemorrhaging money, you must immediately staunch the flow. You cannot save your way to success, but you should still be conscious of what you are spending. By controlling spending and saving on extraneous things, your practice can spend more money where it counts, such as equipment and human resources. Plus, you must identify cash that is lost because it was never collected in the first place.
1) Create a budget
If you’re like most, you just cringed a little when you read the word ‘budget.’ As much as they’re disliked, budgets are a vital tool in your practice’s path to success. Your accounting software and/or your accountant should be able to help you get started if you are unsure how to begin.
Adhering to a budget allows you to project potential income and expenses, avoid shortcomings, and build in a safety net in the event of a slow month.
2) Negotiate fixed costs when possible
For the most part, there’s not much you can do about fixed costs, but that doesn’t mean you shouldn’t negotiate them when you can. Is your mortgage/lease at an appropriate rate? How about the business loan? What about your insurance coverage?
You want to save money, but you need to save yourself from liability. Don’t just choose the cheapest policy. Before signing the annual renewal, get different quotes. Property and professional liability, etc., are competitive, so make sure you get the coverage you want and need.
Also, annually review miscellaneous contracted services, such as paying for extra parking spaces, landscaping, trash service, etc. Again, multiple quotes can help ensure you get the best services you need for the dollars you spend.
And lastly, bank fees—including merchant services—can be a source of huge savings. Many practice managers and owners don’t clearly understand the mysterious credit card processing industry. Do your homework—I have seen practices save thousands upon thousands of dollars just by renegotiating or changing credit card processing.
3) Use and consolidate your technology
Practices often contract with multiple companies that overlap in service offerings (e.g. appointment reminder systems, social media management, portals, and marketing). Why pay monthly subscriptions to various businesses that do the same thing? Determine where you can consolidate.
When possible, link your technologies to help avoid errors and missed charges. For example, you may want to integrate your practice management software (PMS) with your in-house blood analyzers and radiology system. If you request a test or image via the patient chart in the PMS, you will instantly capture that charge on the client’s invoice.
4) Control accounts payable
Pay your bills on time to avoid late fees. Work with your distributors to leverage options such as split billing. Preferred over deferred billing, split billing allows you to pay over two or three instalments, rather than facing one large sum all at once a few months down the road when your stock is already gone and you have to order more.
Paying bills with a credit card might bring additional savings. I know one practice that earns one per cent cashback on every dollar they spend with their credit card. They pay every bill they can with that card and then pay off the card each month. The credit card company was paying them thousands of dollars each year for using it!
5) Control overtime
I don’t like to be cheap when it comes to payroll. My approach to practice finances is to spend more on human resources and less on the ‘stuff.’ Team members work so hard in an industry that doesn’t pay very well, and
I believe they deserve to be compensated appropriately. That said, inefficient scheduling can cost your practice thousands—it’s money you could have appropriated more wisely. If your team’s work schedule isn’t in harmony with the practice’s flow, it’s time to re-evaluate.
6) Empower the team
Your team wants to do a good job, but sometimes they don’t understand why management is concerned about a particular issue. It’s up to you to teach and coach them so they do. Give them the tools and knowledge they need to succeed. They will thank you for it, and you will thank them for eventual savings.
Your team is a huge influence on many practice expenses. Training methods such as open-book management (bit.ly/2uNQgyt) can really be eye-opening for them. It gives the team insight on how much hospital supplies cost each year and how much money is lost when a piece of equipment is damaged. Incentivize the team to lower those costs by offering to share some of the savings with them.
Incorporate time management into team training to boost efficiency and inspire your staff’s outlook. They feel the pressure when their days are chaotic and disorganized, and they also will benefit from a less stressed, balanced day.
7) Manage your inventory
Do you really know which items generate the most revenue? Use the ABC Analysis (80/20 rule) to help identify your core inventory items. Then, make sure you are getting the best price on these items and you never run out of stock. Veterinary practices are notorious for their use of just-in-time inventory management. However, when this method fails, you lose sales, your patient does not get what it needs, and your customer hasn’t been well-served. It is critical you use your practice management software and other tools to control quantities on hand.
8) Inventory expense
There are many ways to control the cost of goods. First and foremost, make sure you are getting the best price. The cost of many brand-name items are fixed, so it won’t matter where you order them from; however, taking advantage of promotions and split billing can help you save by earning rebates, free goods, etc.
Consider this: You use six boxes of item X a month. Each box costs $500. The manufacturer is offering a 10 percent rebate when you purchase 20 boxes. This means your regular monthly cost is $3000. If you take advantage of the promotion, the invoice would total $10,000 ($9000 after the 10 per cent rebate). Now, ask your distributor for three-month split billing. The result? You still pay the $3000 per month you would have spent anyway, and you’re ahead $1000. In addition, consider using generic drugs, which in most instances work equally as well as the name brand, but cost significantly less.
Don’t try to stock everything—leverage an online pharmacy. Many third-party companies can host your online pharmacy, branding it to your practice and assuring your clients they are getting competitive online prices, as well as guaranteed quality products. Additionally, your practice will still generate revenue from these online sales without having to actually manage the product. Today’s consumer loves to shop online, and they love auto-refill, auto-ship, and home delivery. Your online pharmacy can provide all these things, which can increase client compliance with everything from flea/tick/heartworm to prescription diets.
9) Shop smart
Maintaining a healthy and symbiotic relationship with your suppliers is an important part of your practice’s success. However, when you are purchasing inventory, equipment, or other goods, you are essentially acting as a consumer. Just as you would be an informed and conscientious consumer in your personal life, be that same consumer when buying for your practice. You, and only you, are going to ensure your decision to purchase is in the practice’s best interest, earning both the best price and the best terms. Don’t allow third-party representatives to place your orders; consider buying online to see all the options available before purchasing.
Don’t impulsively engage in pitches and promotions. First, do some research to determine if the promotion will work for your practice. Using the example above, it wouldn’t be smart to order 20 boxes of product if it’s going to take six-plus months to sell it. In this instance, your practice will have tied up cash in product that will sit on the shelf for too long, preventing you from spending it elsewhere.
10) Join a group purchasing organization
The best way to save money is to join at least one group purchasing organization (GPO).
The group you join depends on several factors, including your region and what additional perks you want from it.
GPOs already have negotiated special pricing and promotions with major manufacturers and distributors. The upfront discounts and end-of-period rebates can yield a significant reduction in cost of goods, freeing up cash the practice can spend to improve human resources or other practice needs.
Visit Marshall Liger, LVT, CVPM, of Liger Veterinary Consulting at ligerveterinaryconsulting.com or e-mail email@example.com for additional tips on improving client compliance and other ways to better your practice.