Monday, April 27, 2009
PULSE Magazine: Weathering The 2009 Economic Environment
Beginning a year and a half ago with the subprime mortgage meltdown, the U.S. economy’s
recession doesn’t look as if it’s going to be ending any time soon. However, the news for
veterinarian professionals simply is not as bad as it seems, and with the right plan and a
great team of experts on your side to act as your umbrella, you can shield your veterinary
practice from the worst of these challenging times.
The very first thing to do is to remember not to panic. Philip Homsey, an attorney whose practice is dedicated to exclusively representing veterinarians in California, says, “Many things in life run in cycles. The economy is one of them.” Instead of focusing on short-term circumstances, his view is “hard times are good times to take stock in ourselves. Though we cannot control the economy, we can certainly control how we view the world around us, bad economy or not. It has been my experience that the people in this industry, who have a good sense of who they are, and strive to be good caregivers, mentors, and role models, survive better despite economic times or any other outside factors.”
Mr. Homsey recalls having had the pleasure of working with Dr. Larry Lippincott, who passed away just recently. He marvels that once in the middle of a presentation at a business meeting, Dr. Lippincott stood up and announced that the deal that the present company had assembled to discuss, must reflect his character values- honor, honesty, fairness, and respect. Mr. Homsey stresses that “we cannot allow hard economic times to erode those qualities.”
These qualities and values are what help drive successful sales and acquisitions of veterinary practices. Mr. Homsey notes that gross revenue is not as important as it once was in practice desirability because “today, buyers choose practices based on the quality of medicine, physical facility, quality of staff, and other intangibles.” If your practice is based upon integrity and respect, it positively influences every single step of the buying and/or selling of veterinary practices.
So is it a good time to buy or sell? There is no one unequivocal ‘no’ or ‘yes’ answer; instead the question is one that is highly personal to the individuals involved in the transaction. If you’ve found a practice in the perfect area for you, then perhaps that’s enough to offset any gross revenue loss that’s happened during this downtime. Or if you’re a buyer and have found a practice you have confidence in, examine any uncertainties you might have and remember that after each economic recession, the veterinary profession not only survived, but thrived greatly beyond expectation.
Lou Gatto of the Gatto/McFerson Accounting Firm declares that consumers will be the ones to bring back profitability. He sums up ‘The Three C’s’ of Credit, Consumers, and Cash Flow as integral to growth during this time.
“The companion small animal industry in Southern California has not been hurt dramatically,” he observes; however, Mr. Gatto notes, “We are seeing signs that the specialty practices are having far worse results since this past September. Clients are not pursuing the heavy duty medical, surgical, radiology, and oncology procedures as readily as they did in 2007 and prior. So until the Consumer, our Client, has the confidence to spend those indirect dollars on services, we will stay in this stagnant growth phase. Once the consumers return, the joblessness will decrease, corporate earnings will increase, and that conf idence will dramatically reemerge.”
To keep consumers loyal to you, Mr. Gatto suggests, “Nothing will help your practice more than stressing six customer service points. We can always do a better at - answering the phone, greeting people walking through the door, weight and temp, the exam, the exit procedure, and our callbacks. That is where we have the opportunity to provide better customer service. Are we going to let attrition take place? Yes. Are we going to put off hiring that needed employee? Yes. Are we going to delay certain building repairs and improvements? Yes. Are we going to let our customer service slip? Never.”
Addressing the issue of credit, Ron Paterson, managing partner for VetFinance Group, recommends that “The consumer and small business group owners need to stop, regroup, and understand the current lending conditions.” He further elucidates, “Banks are making statistical lending decisions based on industry and several other f inancial-based factors to determine the likelihood for repayment. Unlike most consumers and small businesses, the healthcare industry is the most preferred industry for lending.”
One way to take advantage of this economic opportunity begins with reviewing current outstanding debt. Mr. Paterson says, “Interest rates are as low as many of us have seen in our lifetimes and may be the lowest we will ever see. Take advantage of consolidation. This will allow to take debt at a higher rate, stretch out the term and in many cases at a considerably lower rate. This could save you hundreds even thousands of dollars per month. This gives you a net increase in your company’s cash flow.”
In addition, Mr. Paterson warns “Don’t be complacent with many of the outsourcings and services you currently have. Things have changed economically for all industries. Now is an excellent time to research and shop for lower rates on insurance, merchant card services, telephone service, bookkeeping and any other contracts you may be able to negotiate. Tighten the reins and get your practice in order. Just as you suggest to your patients to work on preventative measures for their pet, you should do the same for your practice. There are good companies that can help and save you time, and money, which overall will benefit you and your bottom line.”
Agreeing with Mr. Paterson, Bob MacBurney, the SCVMA’s CPA, also counsels prioritizing expenses and cutting the fat where necessary. Mr. MacBurney finds himself concerned about vet businesses that subsidize their practices by actually loaning money to the company because they have the feeling that the recession is going to only be a short-term problem.
“Actually what they need to do is adjust to the situation now because this is not, unfortunately, going to turn around tomorrow,” he stresses.
The major adjustments that Mr. MacBurney suggests involve labor, inventory, investments, and assertiveness. “Labor is the first thing that can be dealt with immediately,” he says. “Stay on top of those things you have an opportunity to deal with. You need to be willing to make adjustments on a daily basis.”
Also in the labor category, Mr. MacBurney believes in the importance of communicating with your employees. “Discuss what’s going on, so they understand the situation you’re in,” he says, “Once you do that, they’re going to be sympathetic to what’s happening, and they may be your best resource for giving you information on how you can cut costs.”
Cutting costs can also take place with your inventory. Mr. MacBurney encourages looking at the inventory and questioning what you have, what you’re using, and what’s turning over. He remarks “During this particular type of economic situation, inventory control becomes a big issue,”
Another huge issue, perhaps the important issue Mr. MacBurney has identified involves some of the investments you may have. He bemoans the fact that, “NO ONE is being proactive in protecting those investments. Nobody’s broker is calling them and telling them to sell.”
“In all honesty,” he goes on to explain, “Many times the brokers are salespeople and so the investors really have to take a proactive approach in these investments. It used to be that you could make these investments, and over a long period of time, they’d increase in value, it’s the so-called ‘hold and hope theory;’ and it no longer applies. You have to be proactive with your advisor.”
Mr. MacBurney urges you to make sure you have a good set of advisors around you, your legal counsel, CPA, and insurance agent. “Make sure they’re the type of person you can pick up the phone and call, and they’ll either pick up that phone or get back to you right away with answers for you,” he says.
Almost every one of the experts and advisors interviewed for this article suggests taking a good look at your marketing efforts. “Leading companies do not subscribe to the common misconception that marketing is a discretionary expense,” says Robin Brogdon, President of BluePrints Veterinary Marketing Group, Inc. “They know that there is business opportunity during economic downturns and marketing can lead the way.”
“If you are experiencing a slow down in business,” Ms. Brogdon says, “Use the time to build your brand both inside and out and be prepared to not only gain market share, but be in a position to handle it in a way that will multiply through the delivery of an exceptional client experience, building trust, and loyalty, to help whether the next downturn.”
“When most people think of marketing,” muses Ms. Brogdon, “They think of external activity aimed at attracting prospective customers or marketing to existing ones. Essentially they think of it as an externally-focused business function.”
“But what about marketing to your internal customers – your employees?” she questions, “They are, or should be, walking, talking advocates for your brand. However, most companies spend little time, attention or money on internal marketing and branding, such as making sure employees understand the brand and communicate it well.”
Ms. Brogdon relates companies should embrace the idea of internal branding because it leads to: increased company loyalty and job longevity, better customer service, worker motivation, and brand differentiation, which sets you above the competition.
To differentiate your practice, Ms. Brogdon also suggests considering your niche. “A common business mistake practice owners tend to make in terms of positioning themselves in this type of market is they try to satisfy every type of client and be all things to all people to capture any revenue they can,” she says, “It may be counter intuitive but analyzing what your ideal client is and focusing on them, even if it is only a segment of your current clientele, is much wiser.”
No matter who your clientele, there is little doubt they could use some help during this downturn as well. One way to help them is to make sure they can afford your services whenever they may need them through proper pet insurance. Jack Stephens, DVM and Founder/President of Pets Best Insurance notes “Affording veterinary care when needed is an ageless problem. It is especially relevant now when we have both a recession and an uncertain economy.” By investing in affordable insurance premiums every month, clients can rest assured that they have financial help when they need it.
Practices should recommend pet health insurance to help their clients be informed of all the financial services available. Practices themselves benefit because “being prepared with pet insurance places the financial burden squarely on the client, and the staff and doctors won’t have to discount or cut corners for best of care,” notes Dr. Stephens. Also, “having pet insurance allows the clients to increase their spending by 5X more than they otherwise would because of the leverage of the insurance paying 80% and the client 20% plus their deductible. This means a client who would otherwise euthanize a pet if the expenses reached $1,000 could now afford $5,000 and not be any more out of pocket.”
How do you choose which company to recommend? Dr. Stephens insists: one, ensuring that the company you recommend will pay 80% of your bill (after the deductible); two, check that the company pays claims fast. Dr. Stephens says that “Clients should not wait for the money they need;” three, make sure clients thoroughly understand pet insurance is not for pre-existing conditions. For existing problems, clients will need to research other financing options.
Everyone wins with quality pet health insurance. Dr. Stephens points out “The pet wins by having needed diagnostics and in-depth care. The client wins by having peace of mind knowing they are prepared to a much higher level because of the 80:20 leverage. And the practice wins by eliminating financial conflict providing the best of care.”
So while the economy has lost a significant amount of steam, veterinary practices can still win in the long run by continuing paying attention to best practices of customer care and service, streamlining their operations, while advancing and maintaining important marketing initiatives, and by remaining value driven, and above all, calm.
Dave DuRee of Preferred Solutions succinctly sums up how to weather the current economic situation. He says “This is a time when we need to be reminded to get back to basics. The economy is going to take some time to resolve, and we need to be prepared for an extended downturn. Normally an optimist, I’m playing it extra cautious for now. Those that do will find a way to get through to the other side. Set aside time for your mental health, find a distraction from the daily grind, reduce stress levels and allow your mind a breather. Then, keep going, as this too shall pass. The survivors will be the ones who recognize that it‘s not “business as usual.”
Contact information for the experts and advisors mentioned in this article:
Lou Gatto – (310) 393-2434 (JavaScript must be enabled to view this email address)
Dave DuRee – (949) 496-9610 (JavaScript must be enabled to view this email address)
Robin Brogdon – (714) 625- 8496 (JavaScript must be enabled to view this email address)
Phil Homsey – (818) 547- 0800 (JavaScript must be enabled to view this email address)
Ron Paterson – 949-340-5725 (JavaScript must be enabled to view this email address)
Bob MacBurney – 626-859-3444 (JavaScript must be enabled to view this email address)
