Have you ever wondered how your veterinary practice is performing compared to those of your peers?
It doesn’t matter whether you have a community or a competitor mindset, it is only natural to want to know how your practice is performing in comparison others in the veterinary industry.
But how would you begin to gather this information?
While sharing stories with other vets at conferences or following them on social media may provide you with glimpse of other practices, financials will provide you with a clearer picture.
To gain a better understanding of how your practice is doing, begin benchmarking yourself.
What is benchmarking?
Benchmarking is comparing your key metrics and processes to other successful veterinary practices to identify areas of improvement.
The process of benchmarking will provide you with a bigger picture than a simple comparison between yourself and a neighboring veterinary practice. Typically, benchmarking is the gathering of information from multiple veterinary practices, spanning a geographical area, niche or even by practice size.
Depending on the quality and depth of information, benchmarking can do anything from compare your turnover to similar veterinary practices down to income per veterinary assistant.
How can I benefit from benchmarking?
Benchmarking will give you a rare insight into the business processes of the other veterinary practices as well as the results of these processes. So, if you compare poorly to a benchmark, then you can dive deeper to why you are performing poorly, giving you insights into business processes that you can improve.
Not all benchmarks are purely financial. Benchmarks are at their most powerful when they are combined with information from outside your accounting system. This is why it is important that your practice management system is also set up to enable benchmarking.
An example of these duel benchmarks is average transaction charge and revenue per full-time equivalent veterinarian.
By combining these benchmarks, you may discover for instance, that your veterinary practice has a higher than average fee for cats but a lower than average fee for dogs. But that your practice has an above average number of canine patients.
The extra insight could help you to increase your profitability or just enable you to continue to run an efficient veterinary practice.
What kind of insights can I achieve from benchmarking?
Amongst our clients, revenue per full time equivalent (FTE) veterinarian is a very popular benchmark.
The aim is to achieve a higher than average revenue per veterinarian.
However, rather than having higher prices for medical services, we have discovered that the veterinary practices that rank well against this industry benchmark offer additional services and products such as grooming, boarding and various retail products.
Veterinary practices with a low revenue per veterinarian typically have their veterinarians doing staff-level work. In these instances, we often recommend hiring a highly-qualified non-veterinarian employee, whose role will include taking the time to offer and explain all available treatment options and recommend the best care for your patients.
Having the wrong staff mix can lower the revenue and profitability of your veterinary practice and using this benchmark is a quick way of deciphering how your veterinary practice compares with the industry average.
Start by creating comparable data
The first step towards being able to benchmark your veterinary practice is to ensure that you have comparable data. We recommend using the standard chart of accounts supplied by the AAHA.
Doing this enables you to create data that is comparable to all the other veterinary practices who also use this chart of accounts. And this is important because using a difference chart of accounts will at best make the process of benchmarking difficult and at worse will give you incorrect results which you could then decide to act upon.
If you are going to be comparing a financial metric, such as your gross profit percentage, you want the elements that make up the best practice example to be identical to yours. Including or omitting additional costs within your figures will skew the results.
Align your practice management software for consistent information
Having the AAHA’s chart of accounts uploaded into your QuickBooks is only half the story.
We have been working with a practice manager who was becoming increasingly frustrated that she couldn’t pull together an accurate budget for her veterinary practice. She needed the correct revenue information, but it never seemed to be available.
We did some digging to locate the cause and discovered the that practice management software hadn’t been set up properly. The team had been entering information by doctor instead of by revenue source or procedure. This meant that any extracted information was not comparable to the AAHA chart of accounts.
It was important that this was corrected promptly, as the information being generated by the practice management software wasn’t aligned to the chart of accounts within QuickBooks. As well as hindering the budgeting process of the veterinary practice, it also meant the data wasn’t suitable for benchmarking.
We resolved this by adjusting the practice management software so that information could be correctly entered going forward.
How can your practice management software affect your numbers?
There is an old saying: garbage in, garbage out. And while this may sound harsh, it can highlight why your practice management software is so important to your financial information.
If your team are entering incorrect information into your practice management software, then any report that you generate from it will also be incorrect.
We tell our clients that the goal should be to create a streamlined process of entering the initial information so that it flows through the practice management software and into QuickBooks. Once the information is in QuickBooks you can check any metrics that you many be monitoring, compare and update budgets, and generate the financial reports that you require. The next stage is to be able to use these reports to benchmark your veterinary practice.
Any glitches and inconsistencies within the system, such as mismatched charts of accounts, can disrupt these efficiencies.
Set things up correctly from the start
We always recommend that you work with a CPA firm that truly understands veterinary practices and has experience creating and setting up systems that work for you from the very start. You may not want to benchmark your practice today, but having your financial information structured and formatted in a way that will make benchmarking possible will save you a considerable amount of time and effort later.
If you’re not sure your chart of accounts are set up correctly or would like to learn more about how we can help, schedule a time to talk with us.