I'm no economist, but when I decided to take the plunge into the world of business, I started to pay more attention to the economy. Right now, there's a lot of debate about whether we're about to enter another recession or not: some economists say there are signs that we are, while others say the last recession was just so bad that we are just returning to the upward trend line that we should have been on had the previous recession not been so terrible.
The reality is that we've been on an upswing for longer than normal. That doesn't mean you should be getting nervous, but it never hurts to prepare for the worst.
I graduated from vet school in 2009. Excuse me for saying it was a pretty shitty time to graduate for someone who worked exclusively on horses, a luxury animal. In case you don't remember, the dumpster fire that was the Great Recession started coming to a head right around late 2008.
Or if you need a visual:
When I was looking for my first job after my internship, I recall that for months there had been around eight equine jobs listed in AAEP's job board. In the entire country.
I sat unemployed at my mom's house for three months after my internship, with my panic level increasing rising. Finally, I found a job by word of mouth. I was offered a position to start a new satellite location for an equine practice. I'd be completely on my own - no staff - and I'd be paid $38,000 to do so. I was provided housing.
I gladly took this offer. I had no money left. My family (single mother) was struggling herself, and it was to the point where I was making laundry detergent from a recipe I found online to save money.
Graduating when I did profoundly affected my relationship with money and how I financially value my abilities in this profession, and I don't know if it's something I'll ever recover from.
With that said, this experience was not all negative. Having started from rock-bottom, I suppose I had nothing to lose, so I gained a ton of experience: after building this practice, almost single-handedly for two years, I bought it so I could run it the way I wanted. I then sold it seven years later with a 12% profit margin that year.
I will always consider that a success, considering the circumstances.
If I can build a clinic from nothing in the middle of a low income area, starting in a terrible recession, you can, too, especially will some wimpy, run-of-the-mill recession.
How do I do it?
First of all, I truly don't think there's any "one right way" to do this, nor do you need to perfectly run your practice to weather a recession.
To be honest, all of our practices have infinite areas where we can improve - and I mean that literally. The Lean Management techniques (more on that later) emphasize the concept of continuous improvement, and that's because no one will ever reach perfection.
Here are some suggestions of a few places to look to improve your practice's odds of survival. Certainly, the list is not limited to these items!
Under normal circumstances, the best way to increase profits is to focus on two items:
But let's be practical. In a recession, your clients are going to be far more cost-conscious during a recession than during a recovery period. Increasing revenue is probably not the preferential place to look.
Am I saying you should stop trying to expand your clientele and selling medically needed (but not currently utilized services) to your current clients? Absolutely not. I'm saying this job's just going to be harder during a recession.
Where you do have control, though, is within your own business, and that's over decreasing costs. That can be accomplished in numerous ways.
The most obvious, but often least-effective cost-cutting method is to look at the money you are paying your suppliers.
Hints and tricks to decrease costs with suppliers:
Buy in bulk to obtain discounts, especially during sales/specials, but don't buy so much that items will go unused. Try to accurately forecast your usage for the year.
Talk to your reps: They can give you far more insight into your problems than you realize, and you never know until you ask. I've often been surprised. Make friends with them, as they often end up moving to other companies and can become valuable sources in the future.
Are you using your supplier-provided inventory management system? While this is more efficient for you, it's also more efficient for them. Think of it like this: What if you had a good idea of every supply item all of your clients would need? That's going to save you headaches - and money. Ask your supplier if they would offer a discount if you committed to religiously using your inventory management system, which would work in both of your favors. If not, ask them if they'd be willing to train you to get the absolute most out of it, because if you use it correctly, it's going to save you money.
Ask your supplier(s) what else you can be doing to be efficient with your inventory. A strategic partnership with one main supplier has the benefit that they are invested in your success as well. They might also put you ahead of other clinics when it comes to shortage situations.
Speaking of Inventory...
Hypothetically, the best inventory system for a veterinary practice would consist of a staff member lifting up their hand, and the item they desire magically appears. Okay, too much Harry Potter, I guess...
However, I cannot over-emphasize how serious it is for you to get your inventory under control if you want to minimize your money wastage.
If you have never evaluated your inventory before, I guarantee you are losing money here. And it's not just buying things you never use, although that's a big part.
There are three main reasons why money is wasted due to poor inventory control:
You buy stuff you never use, then never recoup the cost.
You don't have stuff when you need it, and client goes elsewhere.
You don't have stuff when you need it, and you permanently lose client.
FYI, that last one's the worst, as you're losing the lifetime value of the client, and there may be reputational repercussions also.
There are many different calculations you can do to figure out if it's in your financial interest to have certain items or not: feel free to contact me if you're interested in learning how to do this for high-value items you're not sure about!
So, where do you start when you have no idea where to start?
While there are various methods of managing inventory, luckily there is one popular one that tends to stand out. (Side note: To be clear, by "method" I mean way of distinguishing what items you want, how many, and when, NOT a computer system.)
This method is called ABC Inventory Analysis, and it groups items, amazingly, into 3 groups: A, B, and C based on their "importance." Well, what does that mean?
"Importance" means whatever you want it to mean. The most common measure is % of income, but you might also find things like gloves and needles to be important, but you don't make a lot of money off of them. In that case, maybe you'd go for "usage."
Below is an example of how you might break down your inventory items by percentages. I'm sure you've heard of the 80/20 rule? That's called the Pareto Principle, and that applies here as well. The top 20% of your items tend to account for 80% of your revenue, and therefore, you want to make sure they're almost always in stock.
Group B? Yes, you want these around, but they are not quite as "life-and-death" or perhaps profitable. Maybe you could script these out and not feel too bad about it.
And C? Think about ordering as needed or drop shipping these. These are great candidates to waste your money on the shelf.
Keep in mind, these numbers are not hard and fast. Look for natural breaks in your data as you assign your groups.
Group A: Top 20% of items (80% of inventory investment)
Group B: Next 30% of items (15-30% of inventory)
Group C: Bottom 50% of items (~5% of inventory)
Or, if you need a visual for the "importance" of the groups versus the % of inventory:
I've talked about Lean Management techniques before in this blog, but let's review: Lean techniques come out of Japan, specifically Toyota, and they are all about reducing waste, aiming for perfection (but understanding you're never going to reach that...but that should still be your goal), and efficiency.
Here are the Lean techniques: The "5 Ss" plus two not included in the originals.
Sort/Segregate: Only keep what is needed in the work area and get valuable space back.
Simplify/Straighten: Konmari your space, or a place for everything and everything in its place! Get rid of items you will never use. This will help with inventory control as well as work flow.
Shine: Clean the work space every day. This will help you spot problems in the work area sooner and will increase work efficiency.
Standardize: Your products and processes. Create checklists and protocols to decrease variability and make sure everything is getting done as indicated. Going through the process of standardization will often point out how much variability you have in your business, and your goal should always be to reduce variability as much as possible.
Sustain: Keep going! You have to have the discipline to keep up with your new plan, as well as proper training for new staff coming into the system. This is the "continuous improvement" aspect as well.
Safety: Of course, safety measures should be included in your planning as well. OSHA guidelines should be followed. In addition, I would recommend ergonomic practices, as our industry tends to be hard on our bodies: what is physically easy when you first graduate is not so easy a decade or two later if you’ve not been kind to your body.
Support/Maintenance: Understand how to properly maintain your equipment and keep the preventive maintenance on schedule to prevent down time. Our equipment is expensive, so make it last!
Finally, just look around you
Now is the time to look at how your business is operating and think "what if a recession hit right now?" I find that these kind of questions tend to be sobering and put stupid decisions into perspective. You know, not that I've ever made any of those...
Where are your current weak points? What would it take to fix these? If it's feasible, do it. Now.
Where have you been a bit excessive? Forgive yourself. These are often sunk costs, but it's never too late to make different decisions. However, be sure to recognize when these scenarios pop up in the future, and make more responsible choices.
Are there things in your practice that you really don't need? What about unused equipment sitting around? Can you sell them? Can you just dispose of them to free up space? Are these things actually costing you money consistently (extra employees, monthly subscriptions, etc.)?
Finally, what really matters to you? I'm a big fan of Marie Kondo, and it's not because I have a clean house (secret: I don't). Her dumb book about cleaning your house, a task which I hate to do, made me start thinking about stuff in a different way and realizing that what I thought was important maybe wasn't. Also, use affiliate code AE2358 when you buy the book. Just kidding. Point is, less is often more, and once you get to less you can focus on what truly matters to you.
Didn't sell you with the Konmari method? Well, how about some cold, hard DATA?
Before you buy (or before you downsize), maybe you want a more mathematical way to go about knowing what direction you should pursue?
Enter: ROI, or Return on Investment.
In this scenario, ROI could be used to give you either a reality check and/or a way to compare multiple investments.
In the above formula, I've found the "Net Profit" part is what can be tricky due to my own propensity to think "if I try hard enough, it'll all work out just fine." For instance, I bought an ultrasound, knowing I'd certainly be able to get at least a few usages per month out of it. So wrong. That thing never paid for itself.
The best way to run this formula for equipment you're considering investing in is with multiple scenarios: an optimistic, pessimistic, and most-likely scenario. In hindsight, I used an optimistic scenario, when running all three would have given me more perspective. In real life, the pessimistic scenario played out.
These are only a few ways to set yourself up for success before we hit another recession. It's not a matter of if, but when. But if you're honest with yourself and face your problems head-on, you'll be fine.
Please, if you have any questions about anything I wrote in this article, and how you can make this work for you, please reach out below in the comments, or your can email here or on Instagram or Facebook @TheBusinessVet!
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