Management Diagnostics: What is Your Fitness Level?

Owners of Well-Managed Practices (WellMPs) know that expense management is not, and should not be, the focus of their practice. Controlling expenses is a means to continue offering high-quality medical care for patients that is affordable for pet owners. In doing so, the practice benefits from the positive effect of conscientious expense management on practice value.

1. Introduction

Are you the type of expense manager who pours over every long distance telephone charge? Or do you drop the practice checkbook on your accountant's desk once a year and just briefly glance at the financial statements he compiles?

The key to successful expense management lies somewhere between these two extremes. Owners of WellMPs realize that keeping expenses in line is an integral part of practice management. If you're not paying attention, it's easy for expenses to spiral out of control and have a serious impact on practice profitability.

2. Discussion

What should your game plan be for effective, efficient expense management? How do WellMPs minimize expenses while maximizing the quality of patient care?

First, owners realize that, while important, expense management is not a practice focus--it's certainly not why they love veterinary medicine! That's why these veterinarians structure expense management to require no more than a few hours of their time each month. Here's the process:

1. Develop a budget. Budgeting is the foundation of effective expense management Could you imagine arriving at the airport with no destination in mind? Similarly, you can't expect to achieve expense management goals without first defining them. Use the WellMP numbers as a starting point to decide what is right for your practice, and develop a budget. Use your practice's last annual income statement as a guide when budgeting each individual expense item but don't forget to evaluate expenses in light of your expectations for the coming year.
2. Communicate your plan with team members. Once you pin down expense targets, share them with the team members who'll help you achieve them. In most cases it's a business administrator, financial director, or office manager that shoulders the expense management responsibility. Regardless of their position, team members charged with financial compliance should be trustworthy, thorough, and conscientious.
3. Implement appropriate controls and procedures. Every practice should have a system of controls and procedures related to the above duties. For example, you may ask your office manager to interview vendors but require that a practice owner make the final purchasing decision. Or, an animal health technician may prepare an inventory order request that is reviewed by a doctor. Check disbursements should always be reviewed alongside appropriate documentation and signed by a person in authority. We strongly encourage you to periodically review your practice's needs for controls and procedures with your accountant.
4. Encourage the use of technology to create accurate, timely financial information. Seventy percent of WellMPs prepare monthly in-house financial statements. By combining a small business accounting package, veterinary software, and possibly a financial management spreadsheet package, you'll have everything you need to follow their lead. These important tools allow your staff to input financial information and generate summarized reports with a few clicks of the mouse. Most off-the-shelf accounting packages will let you structure your accounts in the categories we've discussed above (Fig. 1).
5. Review financial information monthly. How did you do? Once your in-house financial reports are created, it should only take you a few minutes to review the numbers. Of course, you're looking for major variances from budget in any expense item and by expense category total. Examine the detail behind any unexpected numbers to determine the cause.
6. Make changes or adjustments as necessary. Whether it be shopping for a new telephone system or reviewing drug costs to assure you're buying at the best price, take prompt action to ensure that your practice stays financially healthy.

Figure 1.

The bottom line in managing practice expenses: make sure you have the right information, look at the big picture often, and focus on the details when necessary. Careful expense management is not only important for your checkbook balance but also your ability to offer high-quality patient care into the future and for your practice's resale value.