When we first start in business most of us just wanted to care for the pets and their clients. We were never thought about running a business and how to do this successfully without losing our core values and still be caring.

When I bought into a 6 vet practice as a second partner I also had the burden to look after the people that were now part of my team. They were now also relying on my practice to provide them with their next pay check.

I had no idea what a healthy veterinary practice margins were and if we had $600000 turnover what should my net profit be. The first few years just making the same as what I made as an assistant was great. At least we were not going backwards right….

6 years of university education and I turned out to be a great vet. Since I could do that side really well being a business owner should be a breeze it was all related wasn’t it? No it was not. There was a lot of room for improvement (that is putting it mildly).

We had one course on business management in the 4th year of university that was 1 semester for 2 h a week and that was my education. It was so far removed from any of the other courses nobody paid any attention. In hindsight that should have been our main focus.

Then my husband decided to go and study and our livelihood completely depended on me. This does change your perspective a lot. I decided more education was needed so I started a  degree in veterinary practice management and for 4 years went to every management course I could find and read every book I could get my hands on.

By just reading this I will spare you the trouble. It doesn’t matter where you are in the world.

The average margin in dentists is 40%, in doctors is 14% and in vets is 7%.

The good news is that the 7% is an average and the bad news is the 7% is an average.

This means that of your practice turnover is $500000 your net profit is $35000 for most countries this is ½ an assistant wage. If this is you then you would be better of going to work for somebody else.

The good news is that with some work we can get it up to 25% (and some are now doing 35%)

So that should be our aim.

Our benchmark figures to aim for to achieve a net profit of 25% (after owner salary of $90 000) Yes AFTER owner salary. This means you pay yourself a wage first and then look at your profit and loss bottom line.

Rather than give you the average of other clinics (because we are not aiming to be average), I am giving you a guide to aim for a 25% net profit.

In reality, the major cost of our industry comes under drugs, wages, lab costs and rent. All the others are generally less than 1%.

For a clinic to get a net profit of 25%, you need to aim for the following

• Drugs/consumables( COGS= cost of goods) costs 23%
• Wages costs 30% (This can be split into non vet wages aim for 17.5%. Normalise multiple business owners by allowing a $90 000 salary each for partners)
• Rent 4.5%
• Repairs 1%
• Phone 0.6%

Now this is going to vary between small and large animal clinics. The important one to look at is the wages and the drugs.

Wages

In all clinics with low profit, these are generally too high. The wages are often high because of poor work flow systems. What often happens is as you become busier; you just put another person on to cope with it..

Remember we are a service based industry. We therefore need to be excellent at providing the best service as efficiently as possible, with consistency.

Drugs

Either you are getting wastage which isn’t being billed out, you aren’t marking it up enough, or you aren’t buying well enough. OR you are aiming to sell lots of drugs instead of lots of service. Do the figures, if you could increase what you bill out in service by 10% and reduce your drug bill by 4%, your profit would soar!

Remember these are general percentages. However, I have seen clinics with total salaries of 50% and they wonder why they aren’t making any money. At least you can then define where you need to start to correct the haemorrhage.

To put this all into perspective, a survey was done by Rob White to analyse the top, middle and lower 20% of clinics, in terms of % profitability.

His findings were this:

• The top 20% performers were good at all aspects of running a business (charging, keeping overheads down, staff management, etc.) They pay attention to money in and money out. Their average turnover was $1.6 million
• The middle 20% were good in some areas and poor in others. The average turnover was $1.4 million
• The lower 20% were poor is all areas. The average turnover was $1.3 million.

My point is this. Turnover is important. However, managing where that income goes is just as important.

This article was meant to give you a focus. A new perception of what can be done. As vets we all work very much in isolation and think if we share information other people will benefit more then we will. What if we can all benefit? There is a thought.

For more information watch this space for our next article.

IF you would like some help NOW.

info@veterinarybusinessadvisor.com.au