The Profitable Vet: Strategies for Financial Success in Veterinary Practice

By Dick Goebel, Karen E Felsted and Leslie A Mamalis

"The Profitable Vet provides tremendous and accessible insight into the often overlooked financial and managerial facets of veterinary medicine." Dr. Dave Nicol 

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A guide to help veterinarians, managers, and other practice leaders manage the business of veterinary medicine, this financial

• Language: English
• Publisher: Veterinary Press
• Release date: Feb 9, 2024
• ISBN: 9798989715602

Dick Goebel

Dr. Dick Goebel began the work of veterinary practice appraisal and brokerage as President of Simmons Great Lakes in 1998. He has since facilitated the sale of more than 150 veterinary practices and conducted more than 300 veterinary practice appraisals. Of special interest are valuations involving business or domestic partnership dissolutions, sometimes involving expert witness testimony. Prior to retirement, he served as Senior Associate with the company. He is a licensed real estate broker in Indiana. In 2010, he passed the certification requirements to become accredited by the Institute of Business Appraisers (AIBA). Dr. Goebel has published articles in JAVMA, Veterinary Economics, and AAHA Trends, and two book chapters. He earned his doctorate in veterinary medicine from Purdue University. After completing coursework in the Veterinary Management Institute that he helped launch in 1989, he taught the practice valuation segment for a number of years. (This course series has been re-branded as the Veterinary Practice Management Program at Purdue University.)He is a Charter Member of VetPartners, a national organization of veterinary practice advisors and consultants; served as their President in 2008; and is also a Charter Member of the VetPartners Valuation Council.Our profession has honored Dr. Goebel with service awards from AAHA, Southern California Veterinary Medical Association, Indiana Veterinary Medical Association, and Purdue University. He was recognized as a Distinguished Alumnus of the Purdue University School of Veterinary Medicine as well as a Distinguished Life Member of VetPartners.

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The Profitable Vet: Strategies for Financial Success in Veterinary Practice © copyright 2024 by Veterinary Press. All rights reserved.

Published by Veterinary Press

Lakewood, CO

Paperback ISBN: 979-8-9897156-1-9

Ebook ISBN: 979-8-9897156-0-2

Book cover and interior design by Jess LaGreca, Mayfly Design

Library of Congress Catalog Number: 2024900862

First Printing: 2024

Printed in the United States of America

Contents

Introduction

Chapter 1: Financial Leadership and Practice Culture

Chapter 2: Financial Management Essentials

Chapter 3: Planning and Budgeting

Chapter 4: Driving Revenue: Sales Volume

Chapter 5: Driving Revenue: Pricing

Chapter 6: Controlling Costs

Chapter 7: Evaluating the Operational and Financial Performance of Your Practice

Chapter 8: Embezzlement in the Veterinary Practice

Chapter 9: Thriving and Surviving in Practice with Technology

Chapter 10: Valuation of the Veterinary Practice

Chapter 11: Selling A Veterinary Practice

Chapter 12: Buying a Veterinary Practice

About the Authors

Glossary

Introduction

This financial management tool is intended to provide a broad basis for understanding the business side of veterinary medicine. While animal care is central to every veterinary practice, that care requires adequate medical equipment, pharmaceuticals, laboratory testing, highly skilled doctors, and personnel available and ready to treat the animal. Those assets of equipment, medications, and staff can be present only when the business is financially healthy enough to support them.

This is not the typical veterinary financial text a reader may be used to seeing. To begin with, other financial books rarely address leadership, let alone emphasize it as the first chapter. Here, the authors believe it is imperative to set the stage for leadership in the hospital. Why? A critical element of veterinary practice management is leadership. Veterinary teams are best led by example. Leaders and leadership styles must be compatible with a team’s willingness to be led. And team selection is critical. A highly skilled, competent, and motivated team helps assure the financial success of the enterprise. Leadership and practice culture are critical components of team performance, employee retention, and well-being for the very people who provide the medicine and client service in a veterinary hospital.

Few of the professionals in veterinary medicine chose their careers with the goal of poring over financial reports. Because their focus was not business management, many hospital owners and managers are unfamiliar with the basics of financial statements, or the most important numbers to monitor and manage. Even more challenging, as the practice moves through different stages of growth, the management focus must change to respond to new technologies, client demands, and new competitors. Just as the medicine is always evolving, the business must adapt to changes in its environment.

This book includes chapters on understanding the most common financial statements, because they reflect critical business activities. The results of management’s efforts to increase gross fees and contain costs are presented on those statements. By better understanding what the financial numbers mean, and how to manage them, practice leaders can achieve business goals and ensure practice longevity.

Financial performance, from growing the practice revenue to managing expenses, determines profitability levels. While few veterinarians entered the profession with the sole intention of making money, to remain in business, veterinary hospitals must be profitable. The business leaders have tremendous influence over hospital profitability. That profitability drives cash flow and is a critical component of business value. Practice owners must understand the factors that influence the value of a veterinary hospital.

Ownership of a veterinary practice has a life cycle that often begins with the search for and purchase of a veterinary practice and ends with the eventual sale of the same enterprise. Accordingly, the essentials of practice valuation are described for use both as a management tool and as a tool for pricing the practice for a potential purchase or sale. A poorly executed valuation can have significant detrimental effects upon decision-making. Wisdom in selecting a valuation professional is essential. The purchase or sale of a veterinary practice is often the largest financial transaction experience in the professional life of the practicing veterinarian. An understanding of what to expect in these processes should provide a reliable guide as one anticipates the important process of ownership transition.

This work is a collaboration by six leading veterinary business experts working together to create a guide to help veterinarians, managers, and other practice leaders manage the business of veterinary medicine. These industry experts dedicated their professional lives to helping veterinarians from the beginning of their careers to the day they sell their hospitals. It is the authors’ sincere hope that the information presented herein assists veterinary practice owners and managers to achieve outstanding financial results.

I am inspired to know the level of guidance and detail current and future veterinary business leaders have at their disposal. Not only does this book immediately frame leadership as a business competency but throughout the book, owners and managers are presented with a multitude of thought-provoking questions to help them situate concerns and outlook within their practices. Hats off to a much needed text that drives focus to cultivating a healthy practice and profitable ownership.

—Shelley Johnson, Director, Relief Services for Veterinary Practitioners, Patterson Veterinary

Chapter 1

Financial Leadership and Practice Culture

Veterinary practices thrive when effective leadership is on display.

Practice teams need to be inspired, to be led, to understand the mission and vision of the practice, to be included, to be mentored, to be cared for, and to be valued. Effective leadership can meet these team needs. It has been observed that the manner in which practice teams receive care and leadership typically guides the manner in which team members relate to clients—ideally with effective compassion, caring and helpfulness.

The majority of veterinary practices continue to be owned and operated by individual veterinarians, veterinary partnerships or a small group of veterinarians organized as a small company. These privately-owned veterinary practices are considered to be small businesses. That is, they have fewer than 50 employees and generate less than $25 million in revenue.

Most veterinarians did not go to veterinary school with the intent of owning and operating a small business. They were motivated to provide patient care and client service. Since private practice employment attracts the majority of veterinary graduates, they, by default, become part of a small business. If private practice employment is a good fit, the veterinarian often decides to buy into ownership of their employer, or consider purchasing a similar practice, or launch a start-up practice.

However, many new practice owners lack the experience to operate a small business and often need to further develop their leadership skills. This chapter is intended to help. The Veterinary Business Management Association,¹ a student led organization with chapters in all of the U.S. veterinary colleges and several international colleges, has placed a renewed emphasis on understanding the business of leading and operating a veterinary practice. This book is intended to provide tools and resources to help practice owners and managers with team leadership and practice operations. This chapter will focus on leadership in the context of a small professional business.

Leadership vs. Management

It has been described that one responsibility of a manager is controlling a group in order to accomplish a specific goal. Leadership, on the other hand, is the ability of an individual to motivate, influence, and enable other employees to make a contribution to the success of an organization.² Effective leaders lead by example. Managers organize and coordinate tasks.

Individuals follow leaders on the basis of trust and are inspired, influenced and encouraged by them. Leaders are proactive and formulate principles and guidelines. Effective leaders have an ability to anticipate the future. Managers on the other hand are given authority for control and for management activities. They work according to a set of rules and strive to maintain operational stability. Rather than being proactive, they are often reactive. They more often than not are comfortable complying with policies and procedures. They often have a short-range perspective rather than foresightedness.³

One description of a leadership style that seems quite appropriate for application in the private veterinary practice is called Situational Leadership.⁴

Situational Leadership

Leaders are often tempted to focus on themselves and how their leadership style and plans will influence their team. What this perspective lacks is that the readiness of the team to receive leadership should be assessed. Not all are ready and able to receive leadership. The extent to which they accept or reject leadership will determine the effectiveness of the leader.

The effective leader must evaluate the team to determine what approach is best. The leader’s responsibility is to then adapt the leadership style to match the maturity and skill level of the team. How competent and well trained are they? Do they have extensive or limited life skills and job experience? Are they motivated to respond and perform? The assessment of the team’s confidence, abilities and motivation provides the situation the leader has to work with in order to proceed with an expectation of success.

The leader must be able to adapt to the situation dictated by the realities of the team attributes. If the leader does not adapt to the situation, then there is unlikely to be a meaningful connection between the leader and the team. The leader’s focus must be on the people to be led more than the task to be performed. The leader’s motive should be the success of the team and the practice rather than on his/her own measure of success.

An assessment of the team’s readiness (the situation) is based on two factors.

The first factor is ability: The competence level of your team and the individuals on the team. What is their level of knowledge and experience? Do they function well together?

The second factor is willingness: The individuals and team must be willing to take on assigned tasks. This willingness is related to practice vision, mission and cultural health. The team must be willing to accomplish practice goals, projects and activities.

The Situations

Using the basis of ability and willingness, there are four possible situations. The first is low (low ability and low willingness). The group or individual is inexperienced, seems to be confused about directions, seems unwilling to risk growing (changing) and is insecure in their position. A young employee, perhaps in their first paid job, might exhibit the behavior described in this situation.

The second is low-moderate (low ability and high willingness). The group or individual has shown promise in performance as they have been able to follow directions. They have a functional level of confidence and competence. They appreciate the leader enough to listen to instructions and coaching. They engage in two-way conversations. This person would likely be a bit more mature and have had some job experience. They are likely to have confidence and a desire to grow in their position.

The third situation is moderate-high (high ability and low willingness). The group or individual has achieved competence in performing their job, but the productivity has plateaued or declined. The decline may be due to leadership failing to adequately describe expectations or the individual’s failure to buy into the goals and expectations. This person, while being skilled and knowledgeable, may be withdrawing from the team dynamic.

The final situation is high (high ability and high willingness). The group or individual has a high level of productivity and confidence. They are comfortable in independently making decisions as appropriate. They perform at a high level and provide updates to the leader on a regular basis. This seems to describe the ideal employee: willing to be thoughtful, function as a team member and buy into the practice goals and philosophy.

Situational Leadership Styles

The relationship between the team and the task should be considered to understand the situation. The focus will need to be on the task if the team situation is Low. If the team is able to grow and mature, the focus can shift from primarily task to primarily team and the individuals on the team. The long-term objective is to have a high performing team that is largely self-directed.

Situational leadership styles can be developed to match each of the four situations. The entry level is for the Low team situation and is called the directing style (high directive and low supportive). The focus is on task(s) to be performed and how they are to be accomplished. A minimal amount of explanation or rationale is provided. The style is much like that of a parent directing a young child.

The coaching style (high directive and high supportive) is the second style. The focus is on encouraging the team to perform, giving positive feedback, asking for input, and explaining the rationale for decision-making. Tasks are accomplished according to detailed instructions and the leader makes all decisions. This leadership role is much like that of a teacher in a classroom with students.

The participating style (low directive and high supportive) is the third style. The team has become more independent and can learn and perform tasks on their own. Some decision-making is delegated to the team and problem solving is encouraged. Team input is invited. Team members as well as the team itself are rewarded with prompt recognition of achievement. The leader is strongly supportive of the team, functioning as a supportive colleague for the team members.

The delegating style (low directive and low supportive) is the fourth style. The team has matured to the point that they can perform tasks without direction, can solve problems and gain satisfaction from successfully completing their tasks at a high level. They have a large amount of control over how work is accomplished and the status of their work environment. The team and leader function as responsible adults.⁵ While this style exhibits the most mature form of team behavior, all decision-making should not be delegated. Owner-operators of veterinary practices have not only the opportunity but the risk of ownership. Owners must retain decision-making that limits financial, employment practice, professional and general liability and other risks.

Servant Leadership

"True humility is not thinking less of yourself;

it is thinking of yourself less." —C.S. Lewis

As the title implies, servant leadership means having the desire to serve more than to be served, i.e., servant-first. By contrast, a leader-first individual means having the desire for power, recognition and/or material possessions. Servant leadership is noteworthy and useful as it is based on an attitude of humility and a desire to do what is best and right for the other person. This style is mentioned here to challenge the motivation for leadership. For most veterinary practice teams, the leader-first individual is unlikely to have a loyal following of effective team members. To develop the trust of team members, one must lead by a respectable and trustworthy example. Servant leadership provides such an example.⁶

Likert’s 4 Systems of Management

Rensis Likert, a social psychologist at the University of Michigan, has described four systems of management. His systems, like the two introduced previously, can be readily adapted to use in leading veterinary practices.

The first system is described as the exploitative authoritative system. In this system, individuals and team members are not involved in decision-making. Leadership is only concerned with work being completed; if necessary threats and negative consequences are used to motivate.

For the leader, this style may be needed if an employee is ignoring safety protocol—the concern should be about safely completing work. However, the leader may try this style when they feel pressured to show they can lead the team so threats may be used—not a good choice.

The second system is described as the benevolent authoritative system. In this system, employees are still not involved in decision-making. The major difference between this system and the exploitative authoritative is that the motivation is based on rewards, not on fear and threats. Though a leader controlled situation, opportunity lies in providing rewards and recognition that are meaningful for team members.

The third system is described as the consultative system. In this system, leaders have substantial, but not complete, trust and confidence in subordinates and constructively use the views and opinions given by them. Leaders and team members engage in a great flow of information both horizontally and vertically. But still, most decisions are made by practice leaders. Leaders may consider this style when troubleshooting a situation with the team. Gather feedback, show confidence in the team’s input, and then demonstrate that team feedback was important to the resulting decision.

The final system is described as the participative system. In the participative system, leaders have full confidence in their team and encourage them to participate actively in the decision-making process. Team members feel free to discuss any issue related to a job with their leader. This system is characterized by good teamwork; team members are motivated through rewards for their participation in the decision-making process.

Application of these systems in veterinary practices is limited primarily to the latter two, consultative and participative.

Application of Leadership Styles

Situational leadership, servant leadership and Likert’s 4 systems are all considered appropriate for application in our industry with veterinary practice teams. The following will cite several examples of how these leadership styles may be applied.

When launching a new service, the results are sometimes disappointing. Or when buying a new piece of equipment, it may be difficult to justify the capital expenditure (capex) if it is vastly underutilized. A few examples might be the acquisition of dental digital radiography, laser therapy, ultrasonography equipment, the introduction of a program to increase senior patient checkups, nutrition counseling and obesity management, or preventative dental care.

Understanding practice culture is also important when considering leadership style application. The leadership style selected must resonate with the readiness of the practice team to function and to adapt as needed. The following section illustrates applying several leadership styles in the context of a practice introducing a new Senior Patient Checkups service.

Example: Senior Patient Checkups

If your team is at a low situation level, you will likely have to, in a directing (Situational) manner, define senior checkups and explain why they are important. Your hope is to educate the team to learn and appreciate the benefits of the service. You will then have to develop the process by which this program is launched and instruct the team in detail. You may feel like a parent as you accomplish this.

If, on the other hand, the team is at a moderate-high level, the team has been high performing and productive as a result of your coaching and encouragement. They have not reached the level of being self-directed. So, you choose the consultative (Likert) or participating (Situational) style of leadership and invite them to brainstorm with you the concept of launching a Senior Patient Checkup program. You lead them through a Q&A session asking why they think this might be a good idea or not.

Assuming there is agreement that senior patients would benefit greatly, brainstorm some more about what services should be offered, how to market the program, etc. As leader, you encourage positive inputs and give recognition to those who demonstrate willingness, initiative and loyalty. In this role, your encouragement and support demonstrate your role as supportive colleague.

Offered here are topics for you and your team to brainstorm, consider and discuss:

Why should we consider offering senior patient checkups?

How many senior patients are now serviced compared to the number eligible and in need of this service?

Is the concept viable given our current staffing and equipping?

Who has the interest and skills to make it work?

Does the new service have a champion to provide leadership?

Emphasize the Benefits

For moderate-high and high situation teams, use a participating (Situational) or consultative (Likert) approach to think through what the feature is (what it is) and the related benefit (what it does). Clients often do not understand the feature (e.g., you recommend a senior checkup), they want to understand the benefit (what it will do for the patient, and possibly, for the client).

Discussing features and benefits in a staff or team meeting enriches the benefit conclusions and provides training for less experienced team members. The ensuing discussion might be reflected in Figure 1.1:

Practice Culture

Veterinary practice teams typically function in an environment that reflects the shared attitudes, values, goals and practices that we call culture. This practice culture may be healthy or unhealthy, highly functional or dysfunctional. This definition relates to the rational or intellectual culture of an organization. It is what we see, hear and experience as a work group functions within a system. When we think about organizational culture it is often in these terms.

What is rarely recognized is that there is also an emotional culture that co-exists with cognitive culture. This culture helps to dictate what emotions are shared in the workplace and which ones are not expressed.

As explained in the Harvard Business Review article Manage Your Emotional Culture,⁷ the two types of cultures are expressed differently. Cognitive culture manifests itself verbally.