How to Manage Your Veterinary Budget in Difficult Times
Interest rates continue to rise to combat persistent inflation, and regardless of whether we formally tip into a recession, some practices—including mine—are starting to see a slowdown in business. This makes it all the more important to establish a veterinary budget and monitor it carefully in order to remain profitable.
Creating a Workable Veterinary Practice Budget
A good budget serves two purposes. It allows you to manage cash flow in your veterinary practice, ensuring you have enough on hand to pay your bills, and track expenses against revenue to maintain a profit through the year. Although budgets vary between practices, using a standard chart of accounts will help you to keep things organized. Additionally, if you start by copying information over from your previous actual income and expenditures, you'll give yourself a leg up.
These sections are good starting points for a veterinary budget template:
- Revenue: Income from all sources.
- Cost of goods sold (COGS): Direct cost of products you sell, including pharmacy or lab charges (but not tech time or equipment rental).
- Administration: General services to run your business including office expenses, white goods, and communications.
- Team: The total cost to employ your team, including wages, benefits, and taxes.
- Facilities: Building costs, including rent or mortgage, taxes, and utilities.
I use data from the same period the previous year—but if you have a new veterinary practice, or one that is growing or shrinking rapidly, you may find data from the previous month to be more representative. I adjust the budget based on known price increases or inflation.
Reporting and Tracking Your Practice Budget
The real value in your budget can be found by tracking and managing your spending versus revenue. Some practices manage the COGS portion of their budget on a weekly basis. I've found it more efficient and accurate to review spending at the end of the month focusing on items used rather than the amount spent.
Before you do that, however, you need to make sure that your data is accurate, specifically:
- Adjust your COGS spend for inventory fluctuations. For example, if you buy a box of a product and only use part of it, only deduct the cost of the amount used. Likewise, if you sell a product that was already in your inventory, you need to increase the cost for that area. Your practice management software should be able to report fluctuations in inventory.
- Make sure you are including all spending for the period you are monitoring. For physical goods, only include costs for items physically delivered in the period. For services, include costs used in that period. For example, August's electric bill should be included in August—not in September when it is paid.
- Track pay periods and expenses for team wages, benefits, and taxes. If you pay your team every two weeks, you'll have two months containing three pay periods. Make sure you're comparing months with the same number of pay periods when creating your budget and increase or decrease as needed.
Important Budget Management Tips
The longer you manage your veterinary practice's budget, the better you'll get at spotting and accounting for patterns and changes. Some things that I've seen come up regularly include the following:
- Utility costs: Fluctuations often reflect the weather more than anything else. If you have a pattern of unexpectedly high costs, check that your supplier rates haven't changed and that your equipment doesn't need to be serviced.
- Team: Overtime can be a budget killer. Actively managing your team's time will help to keep expenses stable. I've found that making it the employee's responsibility to stay within normal hours can help.
- Cash flow: Cash flow and profit are not the same things. Amortizing expenses like property taxes over the whole year removes budget spikes, but you still need to track cash on hand. I maintain daily cash projections to help avoid issues.
- COGS percentages: COGS amounts should fluctuate with revenue. If you sell more preventatives than expected, costs will increase in line with revenue. Changes in expense as a percentage of revenue can indicate a change in cost not reflected in your pricing or theft of goods from your practice.
- COGS mix: A change in revenue mix can have a significant impact on overall profitability. Radiology, for example, is usually more profitable than pharmacy. If you are taking fewer diagnostic X-rays, you may find profits down even though you are meeting other budget objectives.
Achieving Your Goals
A budget for your veterinary practice can help you achieve your financial goals by identifying areas where you can find savings and guiding you in implementing the changes. iVet360 has a great overview of practice performance that you can compare your current budget to, and create targets to get closer to the best-managed practices. However, it's important to note that industry-wide veterinary budget benchmarks may not accurately reflect your location, client demographic, or style of medicine. A few additional things to take into account include:
- If you own your facility, the amount of rent you charge yourself may not be a market rate.
- Reducing COGS expenses may require changes to your medical protocol to change revenue mix, rather than a focus on pricing or costs.
- Team costs reflect your operating protocols. Some practices run tech-heavy and should see a higher revenue per doctor as a result, whereas in another practice, reducing team spend may reduce overall profit.
Making and managing budgets is a complicated task, but when done properly, it allows your practice to pay your team well, get new veterinary equipment, and ultimately be safe in tough markets. Having a good veterinary budget will help you make the most of every cent and keep your practice profitable.