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Are you a passionate veterinarian seeking to elevate your practice and make a lasting impact in the field?
Welcome to "The Vet'Ed Podcast". Join Steven Hermann, Kale Flaspohler and Lindo Zwane - industry experts and thought leaders, as they delve into tailored strategies and nurturing relationships to empower privately owned veterinary practices.
Tune in the first and third Wednesday of the month to gain invaluable insights, tips, and inspiration to thrive in your independent clinic. Together, let's build a community dedicated to advancing veterinary care. Subscribe now and embark on a journey towards lasting success in your practice.
Are you ready?
Steven:Well, what do you think, man? Good morning.
Kale:Good morning. How you doing?
Steven:I'm
Kale:living the dream. I feel a lot I feel much more disappointed now that my my mug isn't worth hundreds of dollars. Yeah. It's only worth 6.
Steven:Well, it's it's it's funny. It's it's how do you know what something's worth? Yeah. Right? Uh-huh.
Steven:And and how do we figure that out?
Kale:Yeah. We I mean, you gotta dive into it
Steven:and figure
Kale:it out.
Steven:Yeah.
Kale:You gotta look it up first.
Steven:Yeah. Our our our director, producer, Kelsey, hit the old, Google button and found out it was worth $6. 6 bucks. So, I I look over here because, you know, back in the grocery store days, when we got these Budweiser mugs in right here,
Kale:it was a big deal.
Steven:Yeah. People people went crazy for them. I don't think it's as crazy nowadays as it used to be.
Kale:No. But it used to
Steven:be a big deal. You get in your your case of Budweiser mugs and people were asking, when are they coming? It's around Christmas time.
Kale:Mhmm.
Steven:Holidays. And I'm looking at a mug and it's 1991, so Kale's thinking,
Kale:Maybe it's rare. Maybe it's rare.
Steven:Maybe it's worth $200. Maybe it's worth $200. Slinging it around like it's worth nothing. I've been
Kale:I put this in the dishwasher a lot of times. Yeah. It's not good for a collectible item. $6 doesn't matter.
Steven:So, yeah. Made you feel a little better.
Kale:Yeah.
Steven:What would you have felt if it was $200? What would you have done?
Kale:Nothing different. Nothing different. I've still done it. And then but then I'd have been dramatic and told everybody about how I'm drinking out of a $200.
Steven:A story to tell.
Kale:You have a story
Steven:to tell.
Kale:Yeah. You know? Yeah. This is actually very valuable.
Steven:Very values in the eyes of the beholder. That's true. Yeah.
Kale:It's not worth 200 to me.
Steven:Yeah. No. No. Well, hey. We have a great presentation, that you did at the NVMA.
Steven:Yep. Been in a couple of times. Kelsey put this presentation together for, for you. And as we are sitting here in the March 1 with this podcast, it's, you know, are you profitable?
Kale:Mhmm.
Steven:And that that's every month you'll be looking at it. But, hey, we'll have some data from last year Yeah. On how things went. And, also, looking at this year, and I I think that that has so much importance to how people think about profit numbers and pricing. That mug right there is that people don't know, and they make assumptions.
Steven:And they don't look at data Mhmm. On pricing. Yeah. And, they they actually price out of probably fear more than anything. Right?
Steven:I'm fearful that someone's gonna be pissed at me. I'm they think I'm charging too much. Mhmm. So, all those things go on. So, what's really good about this, and I'm excited for you to share it today, is that the data's there.
Steven:It says there's work to be done. Yeah. And so, yeah.
Kale:Yeah. No. So, are you are you profitable? Are you profitable? Are you profitable?
Kale:I'm sure we can throw the slides up. I'm sure we can throw the slides up. But, you know, when I did this at MVMA, I started I'm gonna try really hard today not to say you know multiple times.
Steven:Okay. Soon as you do.
Kale:My speech mannerism that I just need to get rid of. However, when I gave this at at MBMA, the first slide here was blank. And I asked everybody, I said, what do you think of when you hear the word profit? Mhmm. And people in that room were generally positive, which I wasn't expecting.
Kale:Because normally, you hear the everybody thinks profit and it's like evil corporate greed. Right? That's the that's the the stigma that comes to that. And so I threw some things up here, you know, and I tried to have a good mix of that. But, you know, some people might think financial freedom, greed, overcharging, guilt, going on a vacation, buying a boat, taking advantage of other people, sacrifice.
Kale:Mhmm. And, like, those are all valid feelings that people could have Yes. When you're thinking about profit. And so it's really, a mindset thing when you approach, I'm I'm making money.
Steven:Mhmm.
Kale:And that's not a bad thing. Yes. If you're making maybe an egregious quantity of money and exploiting people and things like that, it can be bad. But, like Yeah. Most veterinary clinics, it's not a bad thing to make profit.
Steven:No. So Well, hey. That's the other thing about you talk mindset with that, but, also, we talk about data. The data can show if you're making I hate you know, we're just making too much money where you maybe are overcharging. Right.
Steven:Right? Maybe that's that is egregious, and that can show you in the data that, yeah, that is because there's metrics out there. So here's what's appropriate.
Kale:Mhmm. The market would price you out, though, if you were being too egregious, I would think.
Steven:Potentially. Potentially. Potentially. Potentially. It depends where you're at.
Kale:That's true.
Steven:I mean, in a desert. Why I say that? Because I think you can look at it. This the numbers will help you either way. Mhmm.
Steven:Right? So
Kale:yeah. Yeah. So, but that question of why are you profitable really comes from people looking at financial statements and not being able to pull things out that aren't normal. And so
Steven:You've got a great line on here.
Kale:Yeah. The question is where can your financial statements lie to you? And so going through this, and I'm not gonna go super in-depth. But the first one is is rent. And so if you're approaching this from the standpoint of looking at at your own practice, the question you need to
Steven:ask yourself is You own you own the building?
Kale:You own the building. Own the building. You're renting from yourself. You own your practice. Okay.
Kale:But even if you don't to a point, you can understand whether you're getting a deal or not to, how much are you paying in rent? And so, the generally accepted like, the market standard out there, you hear 6% a lot. The average is four in this dataset. And so I've seen it as low as two, and we'll see the difference between mixed and small animal clinic.
Steven:Midwest data set.
Kale:Midwest data set. Midwest data set. Yeah. And so what that would tell me is is if you're paying yourself eight or you're paying yourself two Mhmm. You're either overpaying yourself on rent and you're less profitable.
Kale:And, you know, that's a good thing. You know? Because your net income, your true normalized net income would be higher. Mhmm. Or, you know, if you're way underpaying yourself, that could be a bad thing when it comes to net income.
Kale:You know? You bring it back up.
Steven:You use that word we talked about not using. Yeah. Fair. Normalized. But but real quick, let's use that word is that I really what that means is what the bank accepts for lending.
Steven:Mhmm. I think that's what that means is the bank is gonna say, I'm gonna treat these numbers as if. Yeah. You know, that everything was normal.
Kale:Everything was normal or paid right based on standards.
Steven:Yeah. They're looking at it as an investor that's not gonna have labor in that practice to go, what would it take for me? Because as of the bank, the bank is looking at it going, what happens if I have to own this business? Mhmm. Right?
Steven:Because that has it happens. It does. Very rare. But that happens if the bank has owned that business, what's it gonna cost me to own that business? Because the owner is isn't there anymore or I gotta pay that owner as an employee now.
Steven:Mhmm. And so, though, that's what they look at when you say normalize. Really, you're right. We talked about that. It's a hard word to get out there as people get
Kale:Yeah. It's a hard
Steven:word to make sense. What does that mean? But, really, it's like, what's acceptable to the bank?
Kale:Yeah. And and I think it is a it's an important concept to know though because when you're approaching this conversation through trying to understand the value of your practice Mhmm. If you don't understand how to make numbers normal, then your value you're not gonna be able to calculate your own value. And so when I think it is an important concept to understand as well. Yes.
Steven:Breakdown, like, why do we talk in percentages in the in the profit and loss versus dollars?
Kale:Because it's, it's it's applicable across companies.
Steven:It's like if you're in New York City where cost of living's high.
Kale:Yeah. It'd still be a similar distribution likely where, you know, it might be slightly different. Versus here in Columbus. In Columbus, Missouri. It would be a similar percentage wise.
Steven:Percentage wise.
Kale:And, also, it makes sense, you know like, I wasn't gonna say that. If if you have make a million dollars a year top line and I make 4, if we're just talking about dollars, it doesn't translate. Whereas Right. The cost to get sold percentage would still be likely the same. Labor would be the same.
Kale:Distribution of services would be the same.
Steven:Also important to look year over year with your numbers to compare yourself to yourself. Yes. %. To be able to compare yourself to yourself and the progress you make. So that's good.
Steven:Well, I think it's I think as we dive into that, though, like, what? Let's set the stage on those percentages. So yeah.
Kale:Yeah. So, coming back to where financial statements can lie to you, not paying yourself as a veterinarian appropriately, which I'm not saying you should or should not do based on what your CPA has told you. However, if your production calculation calculation says you should make 200,000 as a veterinarian and you make a hundred, your net income is overstated by a hundred thousand dollars. Right? And so, that might be fine for the IRS and the tax guy.
Kale:But when it comes in time to do evaluation or to understand, are you truly a profitable clinic or not, you know, that is something you need to definitely take, into consideration. So the other things that come through that are not always a big deal but could be are bulk orders that you expense out in one year or the other. So, like, you might look profitable at the beginning of a year because you bought a bunch of stuff in last year and expensed it out and things like that. There's ways to, check on those things. Lots of folks, like I said, that kinda ties into not paying yourself as a veterinarian.
Kale:They might still take a draw, but your draw is not categorized as an expense. And so you might make $200,000, but it's not on the profit and loss statement. And so it's not reflected accurately in your numbers. Also, a lot of times, we'll see miscategorized transactions if somebody is doing the books. Not intentionally, but it they just may not have any clue where to put things.
Kale:And so, they end up going in in a general bucket, but it's like loan payments that just get put on the profit loss statement. The interest interest is an expense. Principle is not an expense. And so, those things can get overstated that way or understated. And then if you bought an asset, it doesn't belong on profit loss statement.
Kale:You know, the I wasn't gonna say that. The c the CPA can, can put it on the profit loss statement through depreciation and such. However, the whole purchase doesn't just get if you bought a $30,000 x-ray machine or whatever, you don't get to just expense $30 or you shouldn't. And then tax payments slash payroll, depending on how you're structured, your estimated taxes aren't an expense to the company likely. And so if you're just throwing those on the profit loss statement, it might be decreasing profitability.
Kale:Or, you know, if they're supposed to be on the profit loss statement, they're not. That can be a problem as well. So, those are just a few places that your your financial statement could lie to you if you're if it's not being done done well.
Steven:What would you add? No. I the set up the stage for that's great. And getting back to what so I I love the question about the, you know, get back to that slide there, where your where can your financial statements lie to you?
Kale:Mhmm.
Steven:That's it. That's people come in sometimes with a financial statement. I think they're in great shape. And if you correlate this to the veterinary community, imagine if your, you know, blood machine analysis isn't working, is off, and giving you false numbers. Imagine if your, you know, thermometer taken the temperature of the animals off by a couple of degrees.
Kale:Mhmm.
Steven:I mean, that's the I
Kale:think off.
Steven:It scales off. I think that's what's going on with people's numbers is that, yes, we have these chart of accounts,
Kale:but great. Just because it looks pretty doesn't mean that it is.
Steven:Yeah. It doesn't it is or even it's it's a complex thing.
Kale:Mhmm.
Steven:I think that's that's the if we can, you know, do a pitch here with DBM office, what you do so well there, what your team with Anna, Austin, Lane, you know, with Sam and and JT on the technology side of automating, integrating, accuracy checking to make sure things are going to the right accounts. Mhmm. It's as accurate as it can get. Yeah. So you know what you're looking at is right.
Steven:And I think, as we've done this, as we've seen, profitability maybe actually shrink to a degree Yeah. Certainly. On people. Cash flow is still the same for the for clients, but profitability go when you first go through this process, like, oh, I do have work to do. Mhmm.
Steven:Whereas the blood machine, like, it kept spitting out the right stuff going and then all of a sudden come in like, oh. Mhmm. I got a new blood machine. I'm getting different reason. That's the way to put it.
Steven:Right?
Kale:New blood machine, different cells.
Steven:Machine get the get the what does the right things, the thermometer, getting again, everything calibrated. Right. That's what it is. So yeah. No.
Steven:Man. Important question. No. We said we wanted to do short time, so we'll keep rolling here.
Kale:Yeah.
Steven:Yeah. Because I you know, I'm gonna geek out on
Kale:We could talk. I talked to stay in the Yeah. I talked to NV Bay for an hour
Steven:and a half. Awesome.
Kale:Because the room was open at the end, and people stayed. But, no, it's it's a good it's a good topic. So k. The next slide here, understanding an income statement. Mhmm.
Kale:Really, it's made up of of just a few big pieces. So the the tax return is gonna look at very few things. You know? Right. That's not all of them, but that's the majority of them.
Kale:And and so, also, if you look at general benchmarks, which I absolutely despise, because I think that it's unfair for you to compare yourself to anyone else largely and say that I should be at that number. There's a range. You should be between a range, you know, or something like that, but it's not like you if you're not at 20%, you're failing. Yeah. Like, that's not the stance that I would take
Steven:on that. But, anyway, if you look at a general makeup
Kale:of of the industry standards, you would start at the bottom of the of the income statement and say 20 of that should go to net income. 15% of that will go to this is every dollar that comes in the practice. 15% of that goes to general expenses, rent, cleaning the floor, lawn care, whatever it is. Labor, obviously, the biggest one, gonna be roughly 40% once you include everything, benefits and whatnot.
Steven:Payroll tax. Payroll tax. Employer pays.
Kale:Yep. All the stuff. Tax. And then cost of goods sold should be somewhere around around 25%. So if and I'm gonna completely contradict some of these things here in the next slide.
Kale:But the whole point is if you go out to the industry, whatever that is, and you read articles and you look at things, you're gonna come to an answer that is somewhat similar to this of a if you just put a practice in a box, that's what they say you should get to.
Steven:Yes. And that's what when you get back to those chart of accounts, all those things, people self report Mhmm. To the to Yeah. They do have they say they're doing some integration stuff. But at the end of the day, how do you how do you ensure the data is good coming in?
Kale:Mhmm. Absolutely. Yeah. So I took 20 of our clients, and I took 10 small animal and 10 mixed animal, and I removed people that had strange anomalies. So this is a very, what I would say, fair representation of a dataset.
Kale:Now I wanna I wanna reiterate these are not what we had a conversation earlier on normalized numbers. These are not normalized numbers. These are as reported Mhmm. To the to the tax return. Mhmm.
Kale:So,
Steven:two main things on normalization. Usually, there's two things. It's the owners underpay as a veterinarian is underpaid and then rent. Yeah.
Kale:Rent's probably fair. Rent's probably usually pretty good.
Steven:Sometimes.
Kale:Sometimes you can't get. Usually, the biggest the biggest one is always owner owner
Steven:pay pay. Almost. Owner production pay as a veterinarian.
Kale:Yep. Is underreported. Is underreported. Yeah. So, this wasn't it.
Kale:So for small animal clinics first, if we look at that, net income is obviously less than 20%. It's coming in at about 10% if we average everything out across. Cost of goods sold is way higher than what it should be, based on averages or based on industry standards at 33%. Labor is pretty close at 42, little high, but that could you know, there's ways that that would be reasons that that could be the case. Expenses right on the money, 15.
Kale:Mhmm. I think that one's probably gonna be the most fair representation because it's close. It's very close, and it doesn't change a whole lot. Like, there's only so many things that a vet clinic buys that would fall into that bucket that would make that change differently. And so that's that's kind of how the the small animal data set, you know, comes into comes into play.
Kale:The one thing that I will say is I think everyone is less profitable in 2024 than they were in 2023. I don't have the data on this sheet specifically, but it is less. And I I attribute that to not keeping up with inflation pricing.
Steven:Correct. So Yeah. When what's happened is that when the company goes, we're increasing prices 10%, the veterinarian increases prices 10%. It decreases your profit. Mhmm.
Steven:You have to go more than 10. You have to go 10 plus your profit margin Right. Into that. And so that's the big part. It's like, well, if your profit margin needs to be if 75% is your profit, 75% needs to be what you're going up on top of the 10%.
Steven:So you really probably need to be going up, if you divide 10 by point seven five ring, like, 19%. Mhmm. You need to go up by 19%. That's tough. Yeah.
Steven:It's tough tough for the veterinary to handle, but a good correlation of why you should do this is Aldi's. Mhmm. You know, we shop there in family of five, and our bill in the last two years has gone from a hundred to $1.80.
Kale:Double. Double. I think a lot of times too, what I've seen is is clinics will just eat the cost and say that's okay. I'm not passing it to my customer.
Steven:They get to choose that.
Kale:That is a choice.
Steven:They get to choose that. Right? And we gotta respect that. Yeah. They do.
Steven:But
Kale:it it's why net income is less. It's correct. So Right. Coming in at mixed animal clinics, and I'm not gonna talk about the differences on this page because I have a differences slide. But, net income as reported is 11%.
Kale:Again, I think this one is likely more overstated because of labor than in other places because the mixed animal travel component, lots of things that that can go into that argument. However, you'll see, you'll see a swap on cost of goods sold coming in at 39 and 37, and then expenses are 13. And the 13% is rent because mixed animal clinics generally pay themselves less rent than small animal clinics in this dataset.
Steven:Yeah. Oh, because, I mean, they're they're kind of ambulatory too. Right? Yeah. Maybe they don't need a bigger facility for because the rents.
Steven:They're doing revenue out here. Half the revenue's out in the on the farm.
Kale:And you can say that this you can make the argument that it's more a rural environment where cost of living is less too.
Steven:So Maybe the rent is right because of that ambulatory part.
Kale:Potentially. So, anyway, that is what I attribute the majority of that change on expenses too. So Can have a
Steven:whole episode on yeah. What are you charging to drive out to that that farm?
Kale:Oh, yeah. I don't wanna get into that. There's lots of opinions about that. I I I was nervous talking at NVMe about about that. I was like, should you go?
Kale:Like, maybe. Yeah. But, like, they're like Or
Steven:even if you have you don't need a hauling. You have a chute. Have them cut. Set up a fence and There's shoot on your property.
Kale:There's there's certainly a demographic of folks that certainly need to be served. But if it doesn't if it costs you money to serve them,
Steven:that's your choice. Yeah. Well, it gets into that why profit matters on the one side is that to be profitable to be able to serve somebody, you have to be profitable. Because there could be that call where you're like, so and so. I've been three generations of farming.
Steven:They're a small operation. I really care about them. They're trying. I wanna go serve them. Mhmm.
Steven:You better have profit
Kale:On the other side.
Steven:To go because you're not gonna make profit on that, which is fine.
Kale:Yeah. Yeah. And I I totally advocate for people, you know, not everything has to be profitable. Yeah. It doesn't.
Kale:I mean, if you're making plenty of money and you're happy, that's what is important. And so I'm not here to say whether someone should or shouldn't do something. But if you're trying to be as profitable as possible, you can't do something that costs you money on purpose.
Steven:You know?
Kale:Or at least know that it doesn't cost you money and actively make
Steven:Mhmm.
Kale:The choice Mhmm. To do that. So, we're moving on to, like, the differences.
Steven:Mhmm.
Kale:Cost of goods sold is comes in right at 6% higher at large animal clinic or at a mixed animal clinic than it does a small animal clinic. It's already talked about facility expenses being 2% less at a mixed animal clinic. The average allocation, which I think it this this could be its whole own topic. And this was pretty a pretty large disparity, so I would take this with a slight grain of salt. But the average of these 10 clinics, was 24% of revenue was attributed to large animal services, whether that be equine, cattle, whatever that ends up being.
Steven:So of the mix of revenue?
Kale:Of the mix of total revenue, 75% is still allocated to small animal. Okay. And so, there were some folks that were 55 and some that were five. Mhmm. So that would still classify themselves as a mixed animal facility.
Steven:Yeah.
Kale:So, large disparity in that. I'd like to get more I'd like to get more folks in that dataset to understand maybe, Is that truly the percentage? I think it's close, but, you know, I'm not I'm not willing to sit there there and say, it is 24. It could be 20 to 30 would be a good acceptable range.
Steven:So what what this comes down into where percentages do change is that if you have a bottle of Draxen,
Kale:yeah,
Steven:it's thousand bucks cost, roughly roughly. You cannot mark that up two times, three times. You can't. You're gonna mark it up $200, maybe. Mhmm.
Steven:But you are making so it's like you're making $200. So that's that's on one item. It's smaller percentage, but you're still making money. So you have the way that rolls out is your labor ratio go down because you're getting a higher dollar item per labor. So that's where, yes, my gross profit declines a bit as a large animal potentially Mhmm.
Steven:But my labor declines also proportionally. Mhmm. And we saw that between, three grocery stores in three different towns based on what people bought. One town, they bought things that were, less profitable, but higher volume. Mhmm.
Steven:And then your labor was down vice versa. Kinda interesting with that. Right.
Kale:That'll work out. So yep. So, also looking at that 13% of income at mixed animal clinics was allocated to large animal cost to get sold. Yeah. So that's a pretty pretty high expense ratio there if you if you go average that out.
Kale:Labor at mixed animal practices, 5% less than a small animal.
Steven:Mhmm. K. So k. Yeah. No.
Steven:That's what net proves that right there. So cost look at cost and goods plus six labor minus five. That almost proves out that It's that point there.
Kale:That's there's the the swap. Yeah. So, anyway, Steven, you can Strategies? Yeah. You can talk about profit optimization strategies.
Kale:There's really, you know, three main ways you can change that if you if you have an issue. But
Steven:Yeah. No. Definitely. Obviously, in any business, it's your number one thing should be revenue.
Kale:Mhmm.
Steven:Are you do you have revenue coming through the door? Yeah. And that's at the end of the day, if you don't have revenue coming through the door Mhmm. There's not much you can do. And so I really focus on revenue and, great points here, through to go look at.
Steven:You know, what is something that you could provide this best medicine for the animal that'd be new to your practice or something that you have already that you're not optimizing? Whether that's, you know, dang dentals. A lot of people it's interesting. You said dental month in February. It was a big deal.
Steven:Seems like it's not as big a deal anymore. It's still around. It's still around, but it's not, like, pushed like it used to be because people are like, I don't wanna shove all the dentals into into February. Mhmm. But I I think we're missing a little bit on dental again.
Steven:I think it's not in the people's minds as much. Something as simple as that, the dentals. Revenue, how you do it, two is within in that practice. In the exam room is that you make sure you're communicating the services well. So you get you get what, is best.
Steven:I cannot talk right now. I have brain fart. You know, we fly out today to Vet Partners and, in Westburn. I'll leave it leave it five.
Kale:Gotcha. Gotcha.
Steven:So I have to do a meeting from the airport though because I to get the meeting anyway. So so I apologize. Yeah. No. But back back back to this thinking about it in the exam room, really communicating again the best the services need to happen for the healthy animal matters.
Steven:And then don't make the pricing decision for that for that that customer.
Kale:Option a, b, or c? Yeah. It's Most people go with b
Steven:too, by the way.
Kale:If you here's best medicine. If you don't like that, here's this. If you don't
Steven:But you're gonna get a lot more people going a than you ever thought before because you're probably recommending b or c. Yeah. You never recommended a because you're fearful that someone's gonna think I'm high priced. Yeah. Anyway Give them the option.
Steven:So now there there's that. I think that so let's let's say we got revenue coming in. Alright? If if I look at a practice and I see revenue is good, but profit has an issue, then, yeah, it's it's gonna be cost management. And and cost management is real simple.
Steven:At the end of the day, it's, between labor
Kale:Mhmm.
Steven:And cost of goods sold. The two biggest things you said. Mhmm. You know, your fixed expenses, your rent, utilities. I wanna say fixed, you know, utilities fluctuate, but those things like that, you're not They're not changing.
Kale:Don't don't well, I mean
Steven:Is it 7 is it 74 in your practice or 72? Like, you can do old things like that. Yeah, say, save $10
Kale:by the time. Yeah, but like you said,
Steven:who cares?
Kale:It's a hundred dollars
Steven:Yeah. Well, it all matters.
Kale:It does.
Steven:It all matters. It adds up. You gotta have that You gotta have that thinking about cost effectiveness. And when you get Why you do that? Because it gets you in that cost effectiveness mode.
Steven:So when you're thinking about a business, that's what you should be thinking about. And so, you know, yeah, you're looking at your inventory, looking at things that go, am am I over buying? Mhmm. All the things that goes goes on with that. And, at the end day too, it's it's just talking to your vendors.
Steven:I don't think people people forget you have to ask the question. You do. You can't no one's going no one's going to help you unless you ask for help.
Kale:Mhmm.
Steven:That's the end of the day when you sit there and just wait for help.
Kale:It's not
Steven:gonna come to you. But if you ask for help Mhmm. The vendors wanna help. When you ask, they will. They will help.
Steven:Say, I need help on my pricing or help on my cost controls. I need you to I need you to come in and see me. Mhmm. They will. They'll come in and train.
Steven:Come in and buy your staff lunch. Multiple things they will do. They're looking to do that. They're looking to do it because that's justification for that salesperson's job to go, hey, I was at that practice. I helped them out.
Steven:I did those things. So that's good. Pricing strategies. You know, what's difficult on pricing strategies, one is maintaining the cost of goods sold with the cost from the invoices. So I think what we like to take an approach on to simplify it is to go to eighty twenty rule that 20%, of your services, products generally come 80%.
Steven:It's a little different. It's more like, forty sixty rule in the in the veterinary space where 40% in the or not so I'm sorry. About 40 items end up being about 40%. We've kinda found that ratio actually. 40 item services between services and products end up being about 40% of revenue.
Steven:Mhmm. So if you go look at those 40 and make adjustments on those 40, you should be able to get your profit up pretty quick just on 40 items. If you got any questions on that, please give us a shot. We can help you on that strategy real easily. But, revenue, cost management price strategies ties back into the graph that you have, the pie graph, about how it breaks down.
Steven:What's the biggest categories?
Kale:Yeah. Labor and cost gets sold.
Steven:Labor and cost gets sold.
Kale:Mhmm.
Steven:Gotta get right in there. So So good stuff. Anything else you'd
Kale:No. I mean, just to kinda clarify some of those things, you know, just really quickly. Under revenue, the things you can do to look at that are ask yourself the question, what new services can you provide?
Steven:Mhmm.
Kale:You gotta ensure that all the automated prices that are in your system are correct and actually being multiplied right because that has happened before where the PIM system is just doing it wrong. Guard against inflation with your life. Make sure that you're not, you know, losing profit margin to inflation constantly.
Steven:Mhmm.
Kale:What services could you get rid of? I think that's always an important question to ask yourself. What are you doing that's totally not worth your time to do? And are you incentivizing your staff to sell for you as well? Because I think that's an important everybody has to be saying the same message.
Kale:You can't get a message from the front that you get different in the back. So, just some very specific pointed things to
Steven:do there. Services, like, real quick, like, if are you doing grooming and boarding? Yeah. What's that? What's it what's it doing
Kale:for you?
Steven:What's it doing
Kale:for you? Yeah. K. I think it's always important to be critical about your services. Like Yeah.
Kale:What is what is truly worth doing and what isn't. So, this graph I put on here solely just as a as a kind of a reference point to say yeah. Perfect. The, just as a reference to say, look at if you put your top line revenue on a graph, understand what months you're making it over time and what months you're not. And I would argue I would I would bet that you will find the lowest month or the lowest two months of the year are always the same two lowest months of the year.
Kale:If you look at this graph in particular, September is particularly almost always flat. Those are two separate years right there. And so the question that I ask myself in this whole scenario is if I'm gonna take a vacation as the owner, I'm probably gonna do it in September.
Steven:Or on
Kale:the flip side of that, what can I do in September to raise revenue that would be different from other months? And so you might also use your high volume month of August to come in and say, hey. Let's fill let's open up extra surgery time. Let's open up extra slots for services that we may not offer normally. But we know that September is not gonna be as busy because we've the last three years, it just hasn't been.
Kale:And so we can schedule differently because of that. Or maybe, you know, in May, July, and August, based on this graph, we open up extra appointment slots in a day. We'll we stay open an hour or two later. I'm not saying you should, but it's an it's a question. Right?
Kale:If you know you make the most of your money in three months of the year, let them come all in right there. I mean, consider it. Yeah. So just ways to look at the graph and ask yourself some questions. Like, if you could bring if you could bring every month to a line, how would you how would you pull that off?
Steven:Other important part about financial planning and forecasting are are tracking key events. Yeah. If you look at January on here without diving into it, year over year here, I'm gonna say the year that's down had weather. Yep. Had snow.
Steven:Could be February. February's pretty stable there, so it looks pretty good. March, pretty good. You know, April, it's increasing right. And yeah.
Steven:Then you get into May, June, July, and you go, you took a vacation or two year veterinarian took a vacation, didn't they? Yep. In July, in your highest revenue month. You know, you took a vacation. Yep.
Steven:And then we know August, September, August is gets to be the dog days of summer. But people looking at school, they're gonna take care of some animal things before they get their kids back to school and get busy and can't get to the veterinarian, which September if I look at September, we've had a discussion that it's going back to school.
Kale:Mhmm.
Steven:People are busy. Fall sports, kicking that off, the routine. It's just like to get the pet to the practice is gonna be is a tall order. So, yeah, understand all those things. Yeah.
Steven:The back to school special. Mhmm. You know, how can you how can you market it and make make a difference? But you have to know events. Now these numbers here, then what events have happened to affect your numbers.
Steven:Right? Absolutely. So, yeah, just to kinda wrap it
Kale:up, why why would you care about net income? If the first question I would I would say is, are you happy? Are you able to do what you
Steven:wanna
Kale:do with your life? Mhmm. If the answer to that is yes, then the only other thing that would be important to do is, you know, you're looking at a a sale at some point Right. Of the practice. And so net income is is obviously a big part of of the value of the practice, the calculation, the word EBITDA.
Kale:You need to know the word if you're gonna go sell that, research it, at least understand that before you go to the bank. If you say the word EBITDA when you go to the banker, they'll fall over in their chair. I have a feeling. But, you know, understanding that phrase, is gonna be largely beneficial. And so that's how you whatever that number ends up being is what you take times a multiple, and that range can be anywhere from two to 15%.
Kale:I mean, depending on whether it's a private 15 times. 15 times. Sorry. Yeah.
Steven:No. You're good.
Kale:Times. And so, you know, whether it's a private sale, small clinic, or a corporate sale at a giant clinic, you know, the the better the more profitable you are, the higher multiple you deserve. And the higher the multiple the person can pay you for it. So it's an important it's an important concept to pay attention to as you're looking at a at a sale particularly. It matters.
Steven:It does. Well, what it matters too is that you you talk about financial independence in the beginning. Profit. People saying financial independence. That's how you become actually financially independent Mhmm.
Steven:As a sale of your practice. Yeah. Hopefully, you've been saving money along the way of four zero one k or other things. And and so you have you know, you're not relying completely on your practice for sale Mhmm. To for your retirement, but it's gonna be a big chunk of your retirement.
Steven:Right. And you're gonna turn off your income stream, so you need to make sure that that that can happen. And that's financial planning matters in that. And the earlier you look at and more often you look at it, it can really make you go, this feeling I have of feeling good is good. Mhmm.
Steven:It's like, can I back it up in numbers? Other things it tells you too is that, generally, a practice that has I mean, talk about those multiples. Why they range so far, you know, up so so swing so much is, marketability of the practice, sustainability of the practice. And so the better your practice is for a bank, the associate may be buying your practice, those things, they're gonna go, oh, wow. Your practice is gonna continue to be profitable.
Steven:And that's a well run business. And so that's important to know that that EBITDA can reflect a well run business. The multipliers is where it gets a factor. Mhmm. It's factor.
Steven:So not only am I profitable, but in this multiplier, that reflects I've got a well run business. Someone's excited about my location, what I got going on, the future of the area. There's a lot of things to to understand. Mhmm.
Kale:So we've
Steven:seen both sides. We see at the NBA May where have the 72 year old veterinarian come up and say, how do I sell my practice? And they're in a small town in Missouri.
Kale:They have one doctor.
Steven:One doctor, and you go, well, if we had five years, if we would have gone back five or even ten years, you know, you've got to work on that a decade out. Mhmm. And and just a little bit. Right? I think it's I think it's not heavy lifting ten years out.
Steven:It's just making little steps so you don't have it all stuffed into when One year. One year or it could be too late. So as we've talked about mindset is the future thinking forward thinking all those things matters a business owner. Mhmm. And so, yeah, really the practice valuation where numbers lie to you is that people will take their net income and they'll take it.
Steven:I've heard times five.
Kale:Mhmm.
Steven:I've heard times 10. And they but they don't understand the EBITDA, that standardization, what it looks like to actually get to that Mhmm. Valuation number. And so, yeah, I think that people had to jump into it. So yeah.
Steven:Are you profitable?
Kale:Amen. Are you?
Steven:We'll find out.
Kale:I guess you go. Yeah. If you
Steven:wanna find out, call us. Call and give a shout. There are, and if if you're not in our neck of the woods, we work around the country, so don't don't be fearful of that. We're we're working with a lot of people and really help out. We're here to we're here to help.
Steven:So if you just need some questions answered, please give us a shout. Otherwise, no. This is it's funny. I love geeking out on this. I know a lot of veterinarians.
Steven:They probably wanna hear about, you know, advances in technology for medicine and and procedures and things like that. So, really, though, if you're a business owner or wanting to be a business owner, I I hope this does peak your interest.
Kale:Mhmm.
Steven:Because that's it's a huge important part. It should it should excite you. And you but you shouldn't also feel I don't want you to feel discouraged. You're like, I I I feel less informed now. Yeah.
Steven:You could. You could come out here and go, what did these guys just say? Main mainly me. Kale laid it out really well, but what do these guys just say? And if that's the case, let's talk.
Kale:Mhmm.
Steven:Let's talk. So good. Great great presentation, you guys. Thanks for bringing that to the forefront.
Kale:Thanks for building it, Kelsey.
Steven:Yeah, Kelsey.
Kale:I gave you a very minimal little amount of notes, and you created something really awesome.
Steven:Worked out wonderful. So Very cool. Thanks, everybody. Peace and blessings. See you.