For many people, personal and professional life goals are intertwined, and this is certainly true for current and future veterinary practice owners. Achieving your personal goals often depends on a certain level of financial freedom, which is only achieved when you reach your professional goals. If your goals include early retirement with travel and other luxuries (boats, vacation homes, etc.), your career goals are likely to be bolder than if you envision a more modest lifestyle and later retirement.

The first step in helping you improve your overall financial success is to decide (or update) what you want to accomplish in your life and create a list of specific goals to get there. Only after you consider the big picture can you start to narrow down the details. One of these “details” for many vets is the property of the practice.

Achieve your personal financial goals

The definition of personal financial success is different for everyone. Some people have an arbitrary number or scenario in mind that they think they will achieve if they “find their way” to the top. But working hard and blindly reaching for the stars may not be as effective as implementing a defined, disciplined approach to investing and saving.

Many people do not have a budget or have a budget that is not tight enough that they can significantly improve their finances. The point is, achieving financial success will likely take time, effort, discipline, and sacrifice. If you’re ready to make some tough decisions and take the time to plan for your personal financial growth, all that’s left is to execute your plans and start seeing results.

One way to determine where to cut spending is to categorize your goals into needs, wants, or wants. It allows you to see what you can do now and what will have to wait, giving you a better understanding of what you are capable of and when.

One of the best ways to create a disciplined budget is the “50/30/20” rule. This method determines how much of your after-tax income you can allocate to three types of expenses:

  • 50% is spent on your essential fixed costs (eg rent / mortgage, groceries, utilities).
  • 30% goes towards your wishes (dining out and other discretionary expenses).
  • 20% is directly invested in saving / investing and paying off bad debts (credit cards, high interest loans, etc.).

To make a real difference in your financial habits and your bottom line, that 20% number is the “magic sauce”. If your expenses are allocated correctly, you should reach the desired position on time.

Achieve your professional goals

The value of a practice is realized by an owner when the practice is sold. Understanding what drives the value of the practice and how to improve it is essential. Today there are two main markets in veterinary medicine in which a practice can be sold. The first is the historical market, that is, when a practice is sold from one veterinarian to another. The second is the corporate market, that is, when a practice is sold by a veterinarian to a legal entity that has many practices (and may or may not be owned by other veterinarians).

The amount that buyers in each market are willing to pay varies, but the profitability of the practice is almost always the most important determinant of the practice’s value. Whether you are 2 or 30 years away from selling your practice, this is a critical metric to understand, but most owners don’t know what that number is for their practice. Improving profitability will not only increase the value of your practice at the time of sale, but also increase your cash flow during ownership.

Determine the profitability of your practice

Calculating a firm’s true operating profits is no easy task. None of the standard financial or management reports that a firm typically receives include this number. Neither the taxable income from the tax return nor the net income from the income statement represent a true profitability.

Operating profit is the difference between operating income and expenses incurred by a firm. Operating income and expenses include only those items normally and necessarily seen in the day-to-day operations of the practice, such as fees for professional services and expenses for drugs and medical supplies. These items should be listed at their fair market value.

To facilitate comparison with other practices, a hospital’s profit margin is usually expressed as a percentage, which is calculated as the practice’s profits divided by gross revenue. However, certain items must be calculated differently to determine operating profit versus taxable profit or net profit. These include payments from the practice owner, rent for facilities and equipment (if these items belong to the practice owner and are rented to the practice), services provided by family members to the practice, amortization, interest on debt and benefits. The resulting percentage is the firm’s true operating profit, and it is important to compare this percentage with other investments you have and with that of other firms. An operating profit of 20% or more is considered higher, 12% to 13% is average, and less than 6% is poor.

It all might sound a little intimidating, but there are resources available to help you. If you are working with a veterinary financial advisor, that person should be able to calculate your profitability. Veterinary partners also offers resources to guide you through this calculation process.

Convert profitability into practical value

Once the profitability figure has been determined for a veterinary hospital, this figure should be converted into the practice value via an appropriate cap rate. In practical terms, the cap rate is the required rate of return that an investor needs to be persuaded to make an investment. There is no single rate for all situations: the rate is determined by the market and will vary depending on both external factors (for example, the state of the economy) and internal factors (for example, the level and quality of the company’s profits, competition in the region). The rate reflects the risks associated with owning and managing a veterinary practice and continues to generate the current level of profit. The inverse of the capitalization rate is a multiple; for example, if the cap rate is 20%, the multiple is 5 and the formula used to derive the practice value is:

Annual earnings × Multiple = Practice value

$ 200,000 × 5 = $ 1,000,000

To increase the value of the practice, the management team must either increase profitability or decrease the risk associated with owning the practice (that is, the risk associated with maintaining the current profitability of the practice. ).

A lack of profitability stems from too low income, too high spending, or a combination of both. Profitability can be improved in a number of ways, from increasing marketing to better inventory control to improving team productivity.

A wide range of factors affect the risk of owning a veterinary practice, including client demographics, the condition of the facility, the quality of the management team and the range of services offered, among others.

Increasing the value of the practice involves three steps:

  1. Understand where the practice is doing well and where it needs to be improved.
  2. Put plans in place to drive the change.
  3. Monitor the success of these plans.

Working with a financial advisor or practice consultant can help not only to better understand the problems that impact profitability, but also to identify and implement solutions.

Synergy between practice and personal financial goals

It is very possible to have a successful business and a personal financial situation that has ample room for improvement and vice versa – the two are not mutually exclusive. Having a well-organized personal financial life can impact how your practice is run, and a well-managed practice sets the stage for a successful personal financial future. The dominant common between these two aspects of financial health is planning.

Dr Felsted has spent the past 20 years working as a financial and operational consultant to veterinary practices and the animal health industry. She was CEO of the National Commission on Veterinary Economic Questions for 3 years. Dr Felsted is active in several veterinary organizations, has written extensively and regularly speaks at national and international veterinary meetings. She owns PantheraT veterinary management consultancy.

Miles Saunders owns and operates MNS Wealth Management LLC in Westport, CT. He can be contacted at [email protected]

Westport Office: 55 Greens Farms Road, Suite 1 Westport, CT 06880 – Phone: 203-571-2312 Registered Representative providing securities and advisory services through Cetera Advisor Networks LLC (practicing an insurance business in California as CFGAN Insurance Agency LLC), FINRA / SIPC member, broker-dealer and registered investment advisor. Cetera is a separate property from any other named entity. For a full review of your personal situation, always consult a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives can give legal or tax advice. Any investment involves risks, including the possible loss of capital. There can be no assurance that an investment strategy will be successful. Asset allocation is an investment strategy that will not guarantee profit or protect you against loss.

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