January 1, 2012
Veterinary practices inch back to growth
By: Jim Downing
For The VIN News Service
Practice consultants are reporting signs of modest revenue increases at U.S. veterinary clinics, with third-quarter results from three independent clinic surveys showing the most promising trends since 2008.
Dr. Susanne Heartsill says business at her 1.5-veterinarian practice in downtown Memphis, Tenn., has nearly recovered to pre-recession levels. Photo courtesy of Dr. Susanne Heartsill.
No one is predicting 2012 will yield a return to pre-recession growth levels, of course. Consultants say average growth is likely to be in the low single digits this year due to the still-weak national economic recovery and a variety of drains on clinic business, from retail competition for drug sales to the increasing number of low-cost spay and neuter clinics.
"I think it's a lot harder being in vet practice than it used to be, and that's not going to change anytime soon," said Dr. Karen Felsted, a veterinary consultant based in Dallas and former CEO of the National Commission on Veterinary Economic Issues.
Data collected from 68 clinics nationwide by Burzenski & Company, P.C., an accounting firm in East Haven, Conn., that specializes in veterinary practices, showed a 2.7 percent year-over-year increase in sales in the third quarter of 2011. But, noted Gary Glassman, a certified public accountant and partner with the firm, the clinics surveyed also averaged a 1.1 percent decline in the number of invoices for the same period, a sign that client traffic is continuing to drop and revenue gains are coming from fee increases.
Glassman cited the high national unemployment rate, 8.6 percent in the latest federal survey, as the key impediment to growth for veterinary practices. "I don't see much change taking place for 2012" if job growth remains slow, he said.
The third-quarter Bow Wow Jones report from consultant Jon Dittrich’s Profit Profile Corp. in Knoxville, Tenn., showed year-over-year practice revenue increases of 1.6 percent and 4.9 percent in August and September, respectively, the first consecutive months of revenue growth since 2008. However, due to very poor sales reported for July (down 7.7 percent), overall third quarter sales were still down 1.1 percent for the 50 practices across the country in Dittrich's survey. The report does not include a measure of how business at the practices surveyed changed when the effect of fee increases is removed.
In an interview, Dittrich said he's generally advising clients to budget for revenue increases in the range of 1 percent to 4 percent, in contrast to the past few years, when he's been counseling them to prepare for a drop in revenue. Prior to 2008, he said, his clients could typically expect annual growth in the range of 5 percent to 10 percent.
Results from the Gatto McFerson survey of California veterinary practices showed somewhat more positive results. For the third quarter, sales for all three categories of clinics in the firm's survey — general practices in Northern California; general practices in Southern California; and specialty clinics throughout California — showed year-over-year growth of around 1 percent, even after subtracting the effect of price increases. It is the first time since the firm began collecting data in October 2008 that all three categories showed a year-over-year increase. Taking into account fee increases, revenue grew by between 2.2 percent and 2.5 percent in each of the three categories. The monthly survey by the Santa Monica, Calif.-based accounting firm draws on data from 170 clinics in that state.
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None of the three surveys measures profits, in part because of accounting differences between practices that complicate month-to-month comparisons.
Stories from the trenches
Average figures, of course, don't reflect the range of financial performance among veterinary clinics. In the survey by Glassman's firm, for instance, 20.6 percent of clinics reported a decline in sales of greater than 3 percent for the third quarter of 2011, while 30.9 percent saw sales increase by more than 6 percent.
Dr. John Carey, who owns Westgate Pet Clinic in Madison, Wisc. said patient traffic at his practice stabilized in 2011 after two years of declines, leaving him with roughly 20 percent fewer visits compared with 2008. He's been able to offset some of that drop with annual fee increases.
Carey, who purchased his clinic six years ago, said other veterinarians in his area tell him they've experienced a similar — and unprecedented — drop in business.
"This practice has been here for 40 years, and this is the first sustained downturn," he said. "If it holds steady, it's sustainable. But it definitely decreases the profitability a lot. And it will definitely have a big impact on the resale value of the practice."
Some clinics, such as Dr. Susanne Heartsill's in downtown Memphis, Tenn., have experienced a significant recovery in the past year.
In early 2010, Heartsill said, her one-and-a-half-veterinarian clinic was coping with year-over-year declines in monthly revenue of as much as 22 percent, which she attributed to the bad economy and the opening in her area of a low-cost clinic.
Heartsill opted not to lower her prices to match her new competitor's, instead focusing on doing an excellent job providing higher-value services, she said. Starting roughly six months ago, client traffic began to pick up significantly. By November, business was back nearly to 2007 levels.
"It's by no means all roses and cherries at this point, but we're doing a lot better," she said.
Consultants also said that financing for veterinary practices appears to be getting somewhat easier to obtain. Dr. Jackson Walker, who graduated from the Auburn University College of Veterinary Medicine in 2009, qualified for 100 percent financing to build a clinic and launch a practice near his hometown of Anderson, S.C.
Walker said he has wanted to own a practice since he decided to become a veterinarian, and he thinks he's found a location and a business plan that can lead to success even in the current economic climate. He also notes that his wife has a good-paying career as a physical therapist, providing the family with some financial cushion, and that he is prepared to get by on low profits for a while.
Consultants offer suggestions
Janice Cox, who runs CJ Associates, a national veterinary-practice consulting firm based near Denver, said the most important factor separating practices that are growing from those that are struggling is the way the veterinarians and staff communicate with clients. In the more successful clinics, she said, "the veterinarians spend time so that the clients really understand what's going on. They have staff that are incredibly well-trained and empowered to assist in providing answers" to questions other than those of a diagnostic nature.
Cox and others also stressed the importance of business fundamentals: analyzing the practice to identify which services make money and which don't; developing marketing strategies to increase profits and capitalize on the practice's strengths; and creating budgets and doing periodic budget reviews.
On average, Glassman said, hands-on services — the ones that veterinarians are trained to provide — account for around half of a practice's revenue but substantially less than half its profits. Meanwhile, sales of pharmaceuticals, which historically have been a major revenue driver for the typical clinic, are experiencing a "slow, noticeable leak" in most practices, he said.
The five consultants interviewed for this article all advised against lowering fees, a strategy that on its own seldom boosts traffic enough to deliver a net increase in profits. Instead, they said, veterinarians should think strategically about how to drive sales of high-margin products and services, and look at ways to expand the scope of services the clinic offers.
Finally, Cox cautioned veterinarians to not be too concerned about what competing clinics are doing to bring in new business. Rather, she said, "Focus on how you want to practice as a veterinarian, and how you can maximize things for you and for your staff.
"The key is making sure that you know what you want to do and then getting a plan in place so that you know what you are going to do and how you are going to go about doing it," Cox advised. "The people who do this, I see them having fewer problems and they're able to react to situations more quickly. I think there's a lot of danger in focusing everything on what everybody else is doing."
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