Ensuring Profitability as Your Veterinary Practice Grows
In a thriving pet care industry valued at nearly $36 billion, increasing profitability while growing your veterinary practice can be a challenging endeavor.
The path to growth is not just about increasing revenue but understanding where and how profitability is generated and managed.
Diving into the financial health of a veterinary practice requires a multifaceted approach. To grasp where your profits are strongest (and where improvements can be made), it’s a good practice to break down profitability into core channels:
By Veterinarian: Not every doctor in your practice will generate the same profits. Perhaps some have specialized skills or more years of experience, attracting a different clientele. It’s essential to assess each doctor’s contribution to understand where your profit centers are, and which areas might need a boost.
By Location: Many factors can impact the profitability of a branch location. If you provide services from more than one office, it is important to understand the costs and revenues associated with each site. Neglecting to report financial results by location can mask potential profitability traps hidden within each one.
By Vertical: Different services such as surgeries, regular check-ups, grooming, or boarding can have varying profit margins. By tracking the profitability of each service, you can make informed decisions about where to invest further or adjust pricing.
Understanding Cash Flow
Maintaining a healthy cash flow is the foundation of any financially strong business. This involves:
- Minimizing Receivables: Swift billing and efficient collections can prevent overdue accounts. Implementing a point of sale system that requires same day payment, wellness subscription plans, and finding a partner to offer payment plans to customers can enhance cash flow.
- Inventory Management: Efficient inventory management isn’t just about stocking. It involves understanding product shelf life, predicting demand, and setting reorder points to prevent stockouts or overstock situations.
- Seasonal Adjustments: More pets might get vaccinated during spring, or you might notice an uptick in grooming services during summer months. Being prepared for these variations aids in managing cash flow more effectively.
Strategic Tax Planning
Small business owners often categorize taxes as a fixed business expense. However, with strategic planning, taxes can become a variable cost that you manage and optimize to maximize your company’s profits.
TIP: Take Advantage of Available Deductions for Upgrading Equipment
For the 2023 tax season, IRS Code Section 179 allows deductions of up to $1.16 million for new equipment
One of the primary considerations for any growing veterinary practice is the selection of the appropriate business entity. The decision between entities like an LLC, S Corporation, and other options directly impacts how a business is taxed. For example, opting for an S Corporation allows income to be passed through directly to shareholders, which can lead to potential tax benefits.
Understanding and taking advantage of the available deductions from the IRS can lead to significant savings. It’s crucial to keep abreast of the latest tax regulations and benefits.
Partner with Profitability Experts: The Value of a CPA
Navigating the profitability and growth of your veterinary practice can be complex and time-consuming. This is where partnering with a dedicated CPA – especially one with a forward-looking approach and veterinary industry experience – becomes invaluable.
Kirsch CPA Group can shed light on industry-specific best practices, recommend effective tax strategies, and offer insights to optimize profitability. Our team of financial experts work alongside your team to develop short and long-term strategic planning that drives the growth and success of your practice, in alignment with your goals. Speak with one of our team members to learn more about growing your veterinary practice.
© Copyright 2023. All rights reserved.