As spring approaches and new projects begin, it is a good time to assess current fixed assets and evaluate them for impairment. According to Governmental Accounting Standards Board (GASB) Statement No. 42, “Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred.” The first question all entities should address is What is an Impairment? Asset impairment is defined by the GASB as a significant, unexpected decline in the service utility of a capital asset. The determination of an impairment is done in a two-step process: (1) identify potential impairments risks, and (2) test for impairment. A variety of factors should be considered in identifying and testing for impairment including, but not limited to, physical damage, changes in laws or regulations, changes in environmental factors, changes in technology or evidence of obsolescence, changes in the manner or duration of use, or construction project stoppage or abandonment.
For example, a City ABC provides utility services including water service. Recently, the Federal government enacted new policies regarding water quality standards. City ABC has determined its current facility is unable to meet new standards and is unable to be retrofitted to do so in the future.
Two factors in determining impairment should be present:
- The magnitude of the decline in service utility is significant.
- The decline in service utility is unexpected.
In consideration of the example –
- Is the magnitude of the decline in service utility significant? Yes. Continued operation and maintenance will result in expenses that are much higher than the benefit being derived from the current facility as it is unable to use the facility to provide water service.
- Was the decline in service utility of the asset unexpected? Yes. It was unforeseen to management at the time of construction of the facility that regulations would change prior to the end of the facility’s useful life.
If your entities fixed asset listing is particularly large, we recommend breaking it up into groups and evaluating each group on a periodic basis instead of all at once. Additional information on accounting for impairments can be found here: https://www.gasb.org/cs/ContentServer?c=Document_C&cid=1176160028905&d=&pagename=GASB%2FDocument_C%2FGASBDocumentPage
In this blog we take a deep dive into leases and the changes that are coming. Two types of leases currently exist under generally accepted accounting principles for both the FASB (Financial Accounting Standards Board) and the GASB (Government Accounting Standards Board) – operating leases and capital leases. An operating lease is essentially renting where the payments are considered operational expenses and the asset being leased is not reported on the balance sheet. This type of lease can be typically seen with office equipment or rental space. In contrast, a capital lease is treated as a loan where the asset is reported on the balance sheet and payments are recorded against the outstanding “loan” balance until full ownership of the asset is complete. This type of lease can typically be seen with vehicles and heavy equipment.
New changes will now require all leased items to be treated in a manner consistent with accounting for capital leases. Both FASB and GASB have taken the stance that leases that were previously reported as operating leases actually convey the “right to use” an underlying asset for a period, therefore, that use should be reported as an asset on the books and amortized for the proper useful period. These changes were made in an effort to increase transparency and disclosure surrounding what was previously considered to be “off-balance sheet financing.”
New standards are effective for all entities for fiscal years starting after December 15, 2019, except for public business entities which will be effective for fiscal years starting after December 15, 2018.
These links will provide more disclosure and detail regarding these new standards:
For business, non-profits, and other entities:
In order to prepare for these new lease standards, we recommend all clients take an inventory of all leases, gather all important documents in a file (especially those that outline the current lease terms), and assess each current lease as operating or capital under the current standards. The new standards will require a retrospective implementation so having all information available at audit time will help with the adoption of this new guidance. Please feel free to reach out to our office with questions!
With the unemployment rate in the veterinary profession dipping below 1% and a less than one applicant to veterinarian job ratio, hiring and retaining an associate veterinarian can seem like an impossible task. Candidates have more options for placement and are getting higher offers while stressing the importance of a work/life balance. I’ve had the absolute pleasure of visiting with several associate veterinarians this fall and picking their brain about their workplace and career. When comparing our discussion points with findings from various studies on the subject, the conclusions line up. Here are some of the key takeaways which can help you hire and retain your next all-star:
What makes your practice special?
Long gone are the days of candidates lining up to be interviewed. Now you are the one being interviewed! Why should a candidate want to work at your practice? What is your WHY? Why did you want to be a practice owner and how does your philosophy and mission show up every day at your practice? Does your practice “walk the walk” when it comes to its mission? Candidates want to feel connected to the practice and be as passionate about their job as you want them to be! Are you investing in new technology? Why do your clients love you? If you have a strong story in your practice, you can even have another associate veterinarian talk about their experience as part of the interview process. We all have a story, make sure yours is well communicated. As the saying goes, if you don’t toot your own, there will be no music!
Communication is key
During my discussions with several of the associate veterinarians, it was clear that the owners and management were not communicating effectively. Some were unaware of the mission and focus of the practice. This leads to a disconnection from the practice and the feeling that their concerns are not important. Lingering differences without resolution can cause small problems to become big problems and eventually result in a veterinarian leaving the practice. Employees should feel like they can have an open conversation with owners about issues concerning them such as scheduling, adequate support staff and large decisions affecting the practice. Likewise, owners should have open dialogs with the associate veterinarians to give constructive feedback and to discuss mentorship opportunities within the practice. Silence is a connection killer. Having clear dialogs during the hiring process and throughout employment will assist in retaining your next veterinary hire.
The Compensation Conversation
Employers and employees both agree that a competitive compensation package is the most important item to associates. According to the 2017 Well-Managed Practice Study, almost 75% of well-managed practices use an incentive-based compensation system for the doctors. When having the compensation conversation, make sure that the employment agreement clearly explains how the compensation works and for which revenue items the doctor receives credit. A lack of understanding about the compensation system can lead to confusion, misconceptions and hurt feelings on both sides. The owner can interpret the conversation as the associates desire for more compensation when really there isn’t a clear understanding of the associate’s current compensation. Education about the compensation at the start of the process and then continual check-ins can keep this awkward situation from occurring and build trust.
This is another area where effective communication early on can prevent concerns later. Employees are looking for career development opportunities whereas an owner might be looking for an employee to initiate a succession plan. Having mentorship opportunities including business mentorship can let employees test the water and think about business ownership before being overwhelmed about the idea of practice ownership. Developing and explaining advancement opportunities and how they are attained within the practice can create a long-term bond between the associate and the practice.
When we think of growing a practice, we often think of growing revenue and investing time and resources into marketing. Through a successful associate hire, you can better serve your patients while expanding your practice. A win/win for both owner and associate.
Once you have developed a better idea of what you want your practice to look like, you can create a business plan that will start putting your goals into motion. A business plan is a written document that describes in detail how a new business will achieve its goals. The plan is a timeline that sets deadlines for when the big and small details will get done and who perform the task. For example, when will the doors open for your practice? (BIG detail) or when will you put an ad out for your first employee? Listing who will perform the task provides a level of accountability to complete the task and keeps you on track. At this point, you will be the one doing all the heavy lifting in planning your practice but as you open the doors and hire employees, you may have a practice manager or other administrative person completing tasks as well.
Business Plan Steps
This section outlines a description of your practice including long-term and short-term goals. We add the goals and a description at the top to stay focused on them! Then, when we continue to add to our business plan, we can always go back and reference our goals and determine if our plan additions are in-line with our practice goals. In your proposal, answer questions such as:
What will your practice look like in one year?
How about in three years?
Where will your practice will be located?
What services will you offer or not offer?
The more detailed you can be in your proposal, the better you can align your tasks to your goals. You don’t need to have all the answers now and your business is very likely to change over time. Therefore, the plan can and will change over time. That’s ok!
2. Do the research
The next step in your business plan is to put numbers to paper and prove that the practice you want to own is attainable and sustainable! To start, this step can sound daunting but by breaking each step down and taking it one task at a time, you will have a thorough business plan which is backed up by data!
Based on the size and practice areas of your practice, what size space will you need? Estimate how much it will cost to build out the space or to purchase a location that matches your needs. Will you hire an architect to create a floor plan so you can better visualize the space?
If you are starting a new practice, are there enough clients and demand for your services in the area you serve. How will you be different from other practices that operate in the same space? Analyze your target market and look at the demographics in the area you intend to practice.
What staffing will you need in the first year and as your practice grows? There are tools and websites that offer salary data as well as benchmarks for salary data through the AAHA that you can use to forecast your staffing level and pay. When will you start paying salaries and will you use a payroll company? You will also want employment contracts, employee manuals and possibly fringe benefits with your practices. There is a lot to think about! Your advisors can help you sort these questions out and tackle them one at a time. However, it’s important to set a budget for each of these essential pieces of your practice.
How will customers learn about your practice? Will you have a grand opening? Who will setup your website and your social media accounts? The marketing section of your plan will address how you plan to attain and retain new customers!
What software will you use to run your practice? Who will send out invoices, pay the bills and prepare the accounting? As a doctor, you will hopefully be too busy to do these tasks. Your CPA can give you great ideas on how these tasks can be accomplished within your budget and how this area of your practice can change as your practice grows.
Once you have your business plan completed and have estimates for the essential areas of your practice, then we can review your income and expense forecast and see if the plan can work! It’s not uncommon that you may want the BEST and BRIGHTEST for your practice to start, but with an uncertain starting cash flow, you may have to stay lean and mean in the first year in order to get your practice off the ground. This is once again where a CPA can come in handy. An outside review of your business forecast can give an objective opinion to whether or not your business plan and cash flow projections are reasonable. This is also where a good discussion on your backup plan can take place if cash flow projections do not follow your expectations at first. Will you have additional funds to draw upon if needed?
Creating a business plan can seem like a lot of work, especially when you are putting the entire plan in writing. However, the process of creating the plan and all of the questions that arise from the creation are invaluable and will give your practice its best chance of success.
Acquiring and starting your own veterinary practice can be overwhelming. You might be thinking, “Where do I start?” “How do I handle financing, payroll, patients?”! This article is the first of several articles that guides you step-by-step toward owning your own veterinary practice.
The idea of owning your own practice can be daunting. There are so many thoughts that can cause anxiety and concern:
• How can I acquire lending for a practice if I have mortgage and student loan debt?
• How can I afford to buy a practice if I have other debt to pay?
• What do I need to know to own my own business and have a steady income?
These are all valid concerns, but we have to start at the very beginning with what kind of practice do you want to buy?
Often the first place we look is to what is right in front of us. In this case, you could be working for a practice that you want to consider owning. However, it’s important to gain perspective of the current veterinary market and what practices are available in your local area. Owning your first practice is a BIG step and you want to make sure that the practice you ultimately buy is one that fits you perfectly. Here are a few tips that can assist you with gaining perspective as a buyer so that you can start your acquisition planning with a good base of information.
1. Ask Around
Be active in your state and professional associations and make professional relationships with other veterinarians. As you get to know your peers and they get to know you, you can learn best practices from other veterinarians and have a place to ask questions. As your relationships and trust builds, you can let it be known that you are interested in owning your own practice. This is a long-term approach, but it’s a great way to find practices to own that are quality practices and that you know. What’s equally important is that it’s also a great way to learn about what practices you wouldn’t want to own, such as a practice that is ultimately, unprofitable, or one that has poor employee culture. Through your professional relationships, you can learn about practices that might not even be on the market yet but could offer a great practice purchase opportunity.
2. What will YOUR practice look like?
Before you decided that you want to own your own practice, you might not have paid attention to the nuances of different practices and what you like and dislike. Now is a great time to think about what you want YOUR practice to look like. You don’t need to have all of the answers immediately, but if you can start answering these questions, it will assist you in narrowing down the practice that fits you.
• Location – Do you want to operate in the city, the suburbs or have a rural practice? Depending on the location and demographics, there can be significant differences in the prices you can charge and the money you can make. Therefore, it will be helpful to think about how much money you want and need to make as well.
• Services – Are you going to focus on small animals, large animals or both? Are you going to offer boarding and grooming at your practice? Take time to consider the quality of medicine you will offer and the specialties you will provide in your practice.
• Facility – Are you going to lease your practice space, buy your space or build a new building? Knowing what type of services your practice will provide will assist you in exploring these options.
• Sole Owner or Partnership – A partner can be there to share the workload and the financial welfare of the practice. He or she could also assist with animal diagnosis and treatment. Entering a partnership is in ways similar to getting married, your interests must be fully aligned for the partnership to work. Exploring the benefits and drawbacks of adding a partner should be carefully considered.
3. Developing your advisory team
Having a quality team of advisors in place is essential in completing your practice purchase objectives. An initial meeting with your advisors can help you answer questions that you have about a practice start-up or purchase. Here is a list of advisors that you might want to meet with first and share your ideas:
CPA – A CPA that has experience with veterinarians can assist you by discussing the process by which you will account for your practice. It’s important to setup your practice accounting right from the start so that you both can monitor your business income, expenses and cash flows in comparison to your business forecast to make sure you are on target in the early stages of your practice. A CPA can also help you with registering your business taxes and how you will perform payroll for your employees. A CPA familiar with veterinary practices can also walk you through a business purchase and even assist you with valuating a current veterinary practice. Once the business is setup, your CPA can plan and prepare tax filings and be there to answer questions as they come up.
Attorney – An attorney can help you form the proper business entity to protect you from legal liability, review lease agreements, purchase agreements and be there to answer questions as legal issues come up.
Additional advisors you will want to meet with:
Business banker – To setup your business banking options
Commercial banker – To discuss financing options for your practice acquisition
Commercial insurance representative – To setup and price professional liability, lease or building insurance for your practice
Payroll representative – To setup employees to be paid and register the business for payroll taxes
A good CPA or attorney that works heavily in the veterinary industry can help you with these introductions.
Our next blog will discuss taking this information and forming a business plan to get your dreams of owning a business into motion!
An Employer-provided educational assistance program can provide an excellent fringe benefit to attract and retain talented employees. In addition, both the employer and the employee can both receive a tax benefit under the program.
An employee may receive, on a tax-free basis, up to $5,250 each year from his or her employer for educational assistance under a “qualified educational assistance program.” For this purpose, “education” means any form of instruction or training that improves or develops an individual’s capabilities, whether or not job-related or part of a degree program. This includes employer-provided education assistance for graduate-level courses, including those normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree.
The educational assistance must be provided under a separate written plan that is publicized to your employees and must meet a number of conditions, including nondiscrimination requirements, i.e., it can’t discriminate in favor of highly compensated employees. In addition, not more than 5% of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who (including their spouses or dependents) own 5% or more of the business. No deduction or credit may be taken by the employee for any amount excluded from the employee’s income as an education assistance benefit.
In addition to, or instead of applying, the $5,250 exclusion, an employer may satisfy an employee’s educational expenses, on a nontaxable basis, if the educational assistance is job-related. To qualify as job-related, the educational assistance has to:
- Maintain or improve the skills required for the employee’s then-current job, or
- Comply with certain express employer-imposed conditions for continued employment.
‘‘Job-related’’ employer educational assistance is not subject to a dollar limit. To be job-related, the education cannot qualify the employee to meet the minimum educational requirements for qualification in his or her employment or other trade or business.
Educational assistance meeting the above “job-related” rules is excludable from an employee’s income as a working condition fringe benefit.
The benefit to the employer is an income tax deduction of $5,250 that is not subject to employment taxes as typically a payment to an employee would be, such as wages.
The benefit to the employee is a tax-free income of $5,250.
Human Resource specialist Katie Magoon from the People Solution Center assists companies in implementing human resource policies and programs. She says there are many questions that should be considered in drafting the employer-provided educational assistance policy:
- What is the maximum amount per year eligible for reimbursement?
- What is the eligibility requirement? A common practice is that employees must be there for 6 months or a year prior to utilizing the benefit.
- Do the classes taken need to be approved in advance?
- Are there limitations on the type of classes that will be approved (i.e. classes must part of a degree program)?
- How long must the employee stay with the employer after the tuition reimbursement date?
- Does the employee have to pay the money back in full or is it pro-rated based on how long the employee stays following the tuition reimbursement?
Katie also mentions, “it can be difficult for companies to recover these dollars when employees leave, so they need to know it is not a guarantee. Missouri law (and many other states) do not allow employers to withdraw money owed from the final paycheck, so you are reliant on collecting a check from employees after their departure. That being said, it is typically a very low percentage of people that leave before the defined time period. There are also methods to create a policy that limits the company’s risk.”
Employer-provided educational assistance programs can be an excellent way to stand out from other employers, attract talented staff and reduce staff turnover. Your human resources advisor and your CPA can work together to ensure your policy is drafted to maximize the benefits of the policy and tailor the policy to your business.
The question of “should I buy a car for my business” is probably the most often asked question I receive from business owners. I mean, why not! The lure of being able to receive a business deduction for an expense you already incur sounds like a tax win! However, we need to dive deeper to determine if there is really an opportunity for a tax deduction. Asking a few key questions will assist us in making the best recommendation for you.
The first question we need to ask is:
Do you drive deductible business mileage?
To figure this out, let’s define what deductible business mileage is and what it is not:
- Commuting from home to work
- Commuting from home to a temporary work location and from a temporary work location to work
- If your home is the principal place of business, commuting from your home to another work location
If most of your car mileage is commuting mileage to and from work, then only the mileage not considered commuting mileage is deductible mileage. You can see that if you can qualify for the business use of the home deduction, the possibilities in deducting mileage increases as mileage directly from your place of residence now qualifies as a deduction.
What kind of car did you buy and how much did it cost?
This question is important because we need to know the cost to determine which method of receiving a deduction is best for you. There are two methods for you to consider:
IRS Standard Mileage Rate
This is the mileage rate the IRS gives you for the business use of your car and is adjusted for inflation each year. In 2018, the IRS allows you 54.5 cents per mile. This allowance is meant to cover the cost of all the expenses of owning your car including maintenance, depreciation, gas, insurance, registration fees. Your deduction is calculated by multiplying your business mileage by the IRS standard mileage rate. The only expense the standard mileage rate does not cover is personal property taxes on the car which is separately deducted.
Pros – Less recordkeeping, you only need to keep a mileage log of business versus personal mileage
You can switch to actual cost later if you use standard mileage first
Cons – Could result in a small tax deduction
Actual Cost method
The actual cost method allows you to deduct the actual cost of using your car for business. This method can result in a higher tax deduction. Actual costs of your car include depreciation, gas, insurance, maintenance, fees, car washing, tires, etc.
Pros – Can result in a higher tax deduction than standard cost
Cons – Must keep detailed receipts of each vehicle expense in order to claim the deduction
So which one should I choose?
A determination of which method is better should be made on a case by case basis. Here are factors to consider:
- Purchase price of the vehicle – The IRS standard mileage rate does not increase based upon the purchase price of your vehicle. Therefore, whether your vehicle is a $15,000 vehicle or a $50,000 vehicle, the reimbursement rate will still be 54.5 cents per mile. Under the actual cost method, you will be eligible for a depreciation deduction based upon the full purchase price. For more expensive vehicles, the actual cost method could be a better choice.
- How many miles do you drive? – If you drive less miles for business, your deduction under the standard mileage rate is going to be less. Under the actual cost method, you receive the deductions for insurance, depreciation, etc. regardless of the mileage driven.
- Your recordkeeping skills – If you are awful at recordkeeping, using the actual cost method may prove too much of a hassle. You may want to use the standard mileage rate to minimize the records you need for a mileage deduction.
Important factors to consider
If you choose the actual cost method, you still must calculate your business use of the vehicle versus overall use to calculate a business use percentage which will be used to calculate the business portion of your car expenses. For instance, if you drive 10,000 miles during the year and 6,000 of those miles were for business, then you will be able to use 60% of the vehicles actual expenses as a business deduction.
The new 2018 Tax Cut and Jobs Act increased the allowable amount of depreciation for the first five years of owning a passenger automobile. Previously, the total amount eligible for depreciation in the first five years was $15,800. That amount has increased to $50,000, which might make small business owners take a second look at using actual expenses versus the standard mileage rate.
THE IMPORTANCE OF SAYING NO – WHY SAYING YES IS COSTING YOU TIME AND MONEY
I have a wonderful young dentist as a client looking to buy her first practice. She is energetic, proficient and I have no doubt, she will be successful throughout her career in dentistry. She is eagerly looking to purchase her first practice and as we negotiate with the seller, I can tell she is looking for reasons to make the deal work.
But the deal is not working. It’s falling apart. The selling dentist is retiring and letting his practice go into decline. The asking price for the practice is too high because of the trend of client attrition (loss), which is significant.
Still, my client is looking for ways to justify the purchase price.
Practice location, proximity to other dentists who are retiring…these are all justifiable reasons stated by my client to purchase the practice at the higher price. But the numbers don’t support it.
What’s really behind this reasoning?
Sometimes we need to step back and look at what’s driving our decisions. Unfortunately, I’m concerned that it may be fear driving this decision. I can tell in our communications together.
Fear of wasting time
“I started negotiating this practice in September and now it is June and we still don’t have a deal. I could have been looking at other opportunities.”
Fear of wasting money
“I’ve had to pay the cost of lawyers and accountants in order to perform the due diligence on the practice and now I may not buy it.”
Fear of losing the opportunity
“It will be so hard to find another opportunity like this. I need to jump on this one.”
I can relate and empathize with these fears because I’ve had them. I can remember how excited for the opportunity to buy my second tax practice. I was looking for ways for it to work but it wasn’t a fit. I ignored the signs, and, in the end, I should have likely passed on the practice and looked for other opportunities.
Saying no to others is difficult. It’s tough! I can tell my client really likes the seller personally and part of her concern is how to break the news that she might be no longer interested.
But let’s look at other ways the buyer could frame her thoughts using a better mindset:
Fear of wasting time
“I’ve spent the better part of 9 months in negotiations, however, I’ve learned a lot more about the process and what to expect when the next opportunity presents itself.”
Fear of wasting money
“I’ve had to pay the cost of lawyers and accountants and they helped me make the best decision for my future.”
Fear of losing the opportunity
“There will be more opportunities like this. I just need to be patient and keep looking.”
So much of this fear is fueled by other emotions such as your view of your own self-worth (I’m behind in comparison to my peers. I want to be respect by my peers.) A scarcity mindset (I’m lucky to have this opportunity to buy this practice and I may not get this opportunity again.).
Saying “no” is empowering!
Think of how many times business leaders such as Warren Buffett or Elon Musk say no on a daily basis. They are flooded with investment opportunities and they understand the true importance of “opportunity cost”.
We think of saying “no” to ourselves as a way of “losing” something when really there is an offsetting benefit we often don’t think of immediately. We may be gaining time and resources by not committing them elsewhere.
The next time you are faced with a difficult decision such as buying your own business. Are you willing to walk away? The easier it is for you to say “no”, the more satisfying it will be the next time you get to say “yes!”
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.