How looking at your numbers can lead to big improvements in your practice
Most of the time, when clients come to us, they have a feeling something isn’t right, they just don’t know what needs fixing, and how to fix it.
Recently, we had a Doctor approach us and say:
“I think I should be more profitable, but I don’t know how. I know I need help, but I don’t know where.”
Does this sound familiar?
Mindset shift: accounting isn’t simply a chore.
Despite what you believe about accounting and tax, the key to improving profitability and seeing real change in your Vet practice, is to start by having accurate financials. Then you can use your financials to measure and manage your practice.
This might take a bit of a mindset shift from what you’re used to hearing or telling yourself, “Accounting is just a means to an end, right? Taxes are a necessary evil!” You wouldn’t be alone in thinking that. In reality, accounting and tax work is just the start of the work. The real value for the client is what operational changes you make after reviewing the numbers.
Far from just keeping the cash flow steady, if you analyze your financials and act on them, you will start to see:
- An improvement in your profitability
- An improvement in your own compensation
- Ways in which you can make your practice more efficient
We’re going to talk about how exactly we use the numbers to improve your practice, reframing the ‘necessary evil’ as a goal-oriented task.
We have to run the tests to know what’s going on.
Every Vet will know the importance of testing and analysis. When a pet comes into your practice, you have to run tests to see what the issue is. You can’t diagnose without an assessment.
Imagine your practice as the pet, and us as the Vet. When you come to us, you know something is wrong. The issue may be that your accounting is poor, and the financial system may be the cause, or you may not have the right (or any) financial roles within your practice, so attention isn’t paid where it is needed.
Step 1: Assessing your practice in order to give a diagnosis.
The first thing we do with all our Veterinary assessments is take a deep dive into the who, what, where, why, and when. It’s all about looking at how the practice and the finances work right now.
We dig into your financials, and take a look at your tax returns to see how your tax is structured. If you have a Practice Manager, we’ll have a chat with them about your financial systems.
At this point we’re really trying to gain greater insight into your practice and how you operate. This period of understanding is really important, because it allows us to measure performance, and helps us to discover the incremental changes we need to make.
If we moved forward without analysis, you’d be no better off than you were with your prior CPA. It wasn’t working for you before – you weren’t getting the results you expected or hoped for, so we don’t want to continue down the same path.
Let’s go back to our Doctor as an example.
He knew he should be making more money than he was. Here are three things we discovered in our diagnosis phase.
- During our deep dive we asked him how much admin time he was spending on his practice, and he told us he was racking up at least 10-15 hours a week. That 10-15 hours a week is time away from seeing patients and driving revenue. We wanted to get him out of doing admin work, so that he could spend more time on generating revenue.
- We toured the practice and spent some time with the Doctor and Practice Manager, and found that they didn’t have a good system in place to track the finances, but were open to change. This told us that they weren’t looking at their financials on a regular basis. By interviewing the staff we were able to evaluate the employee skill sets and suggest improvements to the financial processes. Our goal is to have the right people doing the right jobs, which makes financial reporting practices easier to accomplish, and the practice can break out of their bad financial habits.
- We pulled a few reports from the practice management system and found that even though the practice carried inventory, the correct balance wasn’t being reflected on the practice financials making it impossible to measure inventory or know the cost of goods sold (COGS).
With this information, we can start to see the incremental changes that need to be made. But it all starts with having accurate accounting and financial reporting.
Step 2: Fix what can be fixed straight away.
With a firm grasp on the numbers, we go through and clean up all the information we can off the bat, filling the gaps that we discovered in our assessment.
We try to get our Vets into a standard Vet chart of accounts so that we can strengthen their practice by benchmarking. We also make a start on getting the right people into the right roles within the practice.
We’re addressing the deeper issues that need to be fixed to see real change.
Step 3 and beyond: Measure, adjust, re-measure.
Once we have a good chart of accounts and we’re getting regular accurate information we can start to measure performance. It’s in measuring performance and adjusting our strategy accordingly that we start to see changes to profitability.
If we find the Cost of Goods Sold is high, we might want to look at controls over inventory. If labor costs are high, we can look at how your staff is leveraged.
We’ll also introduce you to our partners at Core Vet Consulting (CVC). When you’re confident you know where your business stands, they’ll share their strategic business expertise to impact the day-to-day decisions you make in the pursuit of sustainable growth.
Allow yourself to be empowered by your numbers.
Accurate financial information does allow you to get your taxes done accurately, but it is also one of the greatest tools you have in your toolkit when your goal is to grow your practice. It turns a chore into a valuable task to increase your cash flow and profitability.
It all starts with the numbers.