Four Ways To Think About A Cash Flow Crunch

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Introduction

If you manage the finances for your practice, this time of year is seldom fun. It’s often in these first months of the new year, after holiday bonuses have been paid, snow is on the ground, client visits slow down and your accountant hits you with your tax burden that cash flow can feel the pinch. If you’re like many of your peers, this time of year always seems to spark conversations about where we can find a few extra dollars, create a little more productivity and squeeze just a little more breathing room for the bank account.

Veterinary medicine, when compared to other industries, is generally accepted as a thin-margin business model. Said differently, when you add up the costs of rent, utilities, pharmacy, supplies and labor, the bulk of every dollar generated goes to pay the bills — in busy times and slow times of the year. As small business owners, it’s vital that we get the most out of every dollar invested in our businesses to be able to pay our suppliers, our teams and, yes, ourselves.

Cash flow, the inflow of money into and out of your business, is the number one factor in determining the financial health of a small business. Cash flow can certainly be improved by growing the money coming into a practice (increasing client visits), but it can also be improved by reducing the amount of money leaving a practice through the many expenses we pay.

So how can a practice improve its cash flow? In every business, there are extra dollars tied up that could be used for something better — sometimes they’re just hard to see. Financially healthy practices minimize the amount of money tied up in expenses for long periods of time or expenses that don’t bring immediate value. Those that aren’t are often beholden to their monthly bills. And while every practice is different, there are some common areas where any practice can focus and get a little more out of their business. The following are four illustrations of opportunities to improve your professional or your personal cash flow.

Find balance in your labor costs

Payroll can be one of the most significant costs to a veterinary practice. And while we all want to remain adequately staffed to ensure we provide great care for our patients, too often the schedule is set on our personal needs and not the needs of our clients. I have personally walked through practices during slow times of the day and witnessed multiple staff members standing around only to come back later in the day to see a skeleton crew overwhelmed by a heavy caseload. It’s this lack of balance in managing our teams that creates inefficiencies in patient care, increases staff costs and often leads to costly, excessive overtime.

Let me be clear. I am not a proponent of cutting just for the sake of cutting payroll. To the contrary, I am an advocate of a practice adopting the philosophy of making yourself available when your clients need you most and staffing to support this philosophy.

Use that equipment

So you went to the trade show two years ago and got a great deal on that new piece of equipment, and now it’s sitting in the corner. Maybe you’re the only doctor who knows how to use it, or you can’t figure out how to get your clients to pay for it, or you just haven’t had the time to figure out how to charge appropriately.

Once you’ve made the decision to purchase that therapy laser, dental radiology machine or ultrasound, that expense is referred to as a “sunk cost.” Sunk costs are expenses that are literally “sunk” or committed to the business. Rather than let that piece of equipment sit in the corner and wait for your team to catch up, think about turning it loose in the practice. Add the therapy laser into post-surgical treatments, even at a small cost. Or make every cystocentesis ultrasound-guided, and charge an extra $5.

The resulting benefit of this approach can be twofold. First, you’re creating incremental revenue from an underutilized piece of equipment. Those few extra dollars per procedure are more than you’re currently generating. Secondly, you’re enabling a new piece of technology to become a standard of practice in your hospital. As the entire team gains comfort utilizing new equipment and clients become oriented with this “new” way of doing things, you can implement additional gradual price increases over time.

Contract vs. seasonal deals

Between 20 and 30 percent of every dollar you make this year will go to paying for the costs of pharmaceuticals, vaccines and medical supplies. And while that buy-20-get-five-free deal is always appealing, many times these deals end up working against your cash flow. Load-in deals are a sales organization’s tool intended to get customers to purchase in large quantities of product. It helps a vendor to gain share of your inventory and also protect against other suppliers coming in and displacing their market share.

But we must remember one very important fact regarding these programs — ultimately, they must be paid off. I’ve seen too many practices that have bought in large quantities of vaccines or pharmaceuticals on the premise of a 20 to 25 percent discount, only to be left with an even bigger debt at the end of a 90- or 180-day grace period. As a general rule, if your practice is challenged with paying for pharmaceuticals and vaccines on a monthly basis, the problem is more likely in your own pricing, and load-in programs will not solve the problem.

Refinance your debt

If you look at your practice books right now, how many different debts do you have? Maybe you’re paying the original loan from when you purchased the practice some years back. There may possibly be a seller note to the previous owner as well. If you purchased the real estate where your practice is located, you probably have a separate loan for that purchase. There may also be one or more capital leases for pieces of equipment that you have purchased over the years.

Besides the inconvenience of paying multiple financing companies every month, you may be missing out on dollars in your pocket, as each of your different loans carries a different payment schedule, time period and interest rate. If you look at the home mortgage industry over the past few years, it’s impossible to ignore the popularity of refinancing home mortgages as home owners have taken advantage of lower interest rates to consolidate debt and reduce their monthly payments.

Attractive financing terms are available in the small-business lending world as well. Many lenders are helping practice owners take advantage of the current interest rates to consolidate their existing practice debt and free up additional cash flow every month. Depending on your situation, consolidating your debt may free up hundreds or thousands of dollars in reduced payments.

Conclusion

Veterinary practices are a great business, and I couldn’t imagine myself ever doing anything different with my career. But they’re also tough businesses with many day-to-day challenges. While our business model is one of tight margins and cash flow challenges, there are opportunities to squeeze a little bit more out of our practices and make them just a bit more effective.

Travis Meredith, DVM, MBA is an advisor and study group leader for Calico, a veterinary-specific lender. If you would like any additional information about refinancing your debt, preparing for a renovation or expansion, or if you are in the market of acquiring a second or third location, please reach out to Calico at (877) 629-3046.