Chances are you've peeked at your practice's expenses at least once in the last 12 months. And while it's important to track where your hard-earned revenue is going in the best of times, it's even more important when the economy's bad. So if you haven't checked your expenses lately, get to it!
Once you've reviewed your expenses, how do you decide when to spend and when to cut back? Evaluate your needs and your wants, what you can't afford and what you can. Take a look at the expense targets on the following pages for an idea of how to bring your expenses in line. Benchmarks 2011 Study participants let us in on some creative ways to effectively control costs and make decisions about what to cut a little bit easier.
Strategies for controlling your practice's expenses
1. Evaluate and adjust expenses. Use Benchmarks targets and the following general guidelines to determine if any changes to your operating expenses are warranted.
• Focus on the greatest variances. Those expenses that are considerably higher than the Benchmarks targets are the items you should focus on. Once you've brought these items under control you can fine-tune the less significant expenses. Make your biggest changes first, and the rest will follow.
• Prioritize. It can be overwhelming to look at the big picture and see all of the changes you need to make. So start small. Pick two or three expenses and bring them down, then move on to two or three more.
• Set realistic goals. The main reason budgets fail is that the bar was set too high. Sometimes small, incremental progress gets lost because the focus is on an impossible-to-reach target. Instead, make sure your goal is attainable and then create an action plan to reach that goal. Set targets along the way to indicate your progress and show you how far you've come.
2. Lower variable expenses to boost profit. Variable costs represent the highest expense category in your practice, next to staff expenses. The following suggestions will arm you with the tools to bring variable expenses down and improve your profit.
• Reduce inventory. It's not unusual for a veterinary practice's inventory costs to be $10,000 to $20,000 higher than expected in relation to revenue. Preventive medications often account for a significant portion of this inventory cost.
• Shop lab fees. If you find a lab with a lower fee, let your current provider know you're considering switching labs. Lab companies want your business, so you may be able to negotiate better rates.
• Control credit card fees by researching rates from various companies. You may be able to free up some cash to put toward revenue-generating causes.
3. Improve the return on your fixed costs. Don't let the word "fixed" change your mind about giving these expenses another look. Take advantage of these easy ways to reduce costs.
• E-mail client reminders. Postage can add up, especially when rates jump. Instead of mailing out client reminders, send an e-mail and save 44 cents per reminder. It's cheaper, and for many of your clients it's more effective.
• Evaluate the amount of paper, staples, three-ring binders, letterhead, and paper clips you have on hand. You don't want to run out of these items, but you don't want your profit sitting on a shelf, so take charge of your office supplies.
• Boost the reach of your marketing efforts and offer free community clinics to educate the general public and to increase awareness of the practice. Open houses are a fun way to educate the community about your practice.
• Evaluate employee benefits. Talk with your insurance agent about health insurance policies with lower premiums and similar coverage options. Your employees cover part of their own health care. But don't slash coverage—employees value health insurance and may walk if you eliminate coverage altogether.
• Call various phone providers for their rates and you may find savings by switching carriers or bundling services. If you find a better rate, let your current provider know you're considering switching—they may be willing to match the lower rate.
• Discuss revenue, expenses, or other goals you're comfortable sharing with management and staff during weekly or monthly staff meetings. They'll understand the importance of increased client activity and well-managed expenses.
4. Staff for profitability. Staff costs, as one of the highest expense categories, are often the first to be reduced. But before you start eliminating positions, consider that your team keeps the practice afloat. If you give them a reason to worry (or aren't open and honest with them), productivity will suffer. Take a look at the following tips to bring down expenses while leveraging your greatest asset—your team.
• Eliminate or minimize overtime while allocating staff hours to the busiest days and hours in the week. Evaluate all staff positions, and think about the staff members who may not be the right fit for your practice. You'll need to make a decision regarding their future with you.
• Reduce staff turnover through CE and training. Also, cross-train employees to better utilize their abilities, boost their confidence and morale, and enhance the efficiency of your practice.
• Freeze new hiring and adjust staff hours to ensure productivity from your team.
5. Evaluate your building. Given the current economic climate, and considering cash flow may be tight, now might not be the best time to build a new facility. However, you don't have to settle for a stagnant practice image. The following suggestions can help you convert underutilized space for medical use and can give your facility a relatively inexpensive facelift. Your clients will love it!
• Update the décor with new floors, new light fixtures, a fresh coat of paint, or new countertops. These are all cost-effective touchups that will buff and polish your image.
• Reallocate current facility space—is your practice bursting at the seams? Find revenue-generating potential in unused or little-used space. Consider turning a rarely used grief room into an exam room. Shifting rooms around can save the cost of expanding your existing structure, and you'll be able to see more patients without increasing your overhead expenses.
• If you can't convert excess space into a revenue-generating area, it may be time to expand. Efficiencies can help you grow your revenue, but your practice building will limit the amount of clients you can physically see for appointments. Ask your practice consultant to do an affordability analysis to see if expanding your facility is a viable option.
• You can't control energy costs, but you can control how much energy you use. Energy-efficient light bulbs, motion-triggered lights, caulking, improved insulation, and a programmable thermostat in your practice can help minimize utility costs.
• Shop property insurance providers. If your current provider also provides other forms of insurance, ask if there's a multi-plan discount.
6. More ways to trim your expenses. Consider the following ways to get more bang for your buck:
Figure 1 – Expense Benchmarks in a Well-Managed Practice®
• Refinance your loans at lower interest rates. Current rates are likely lower than when you originally financed your purchases.
• If you plan to invest in equipment, invest in technology that will generate new sources of revenue and add value to existing services. Your purchases should pay for themselves in a timely way, so don't forget to charge appropriately for the services once the equipment is installed.
• If your practice hasn't transitioned to digital medical records, use any available downtime between appointments to do so.
• Offer a third-party payment plan or require payment at the time of service to manage your accounts receivable.