Andrew Clark, DVM, MBA, encouraged veterinarians to do the “100 penny exercise.” You do this by taking your Profit & Loss Statement and display it in % with revenue rounded to the nearest whole number. The total will be 100%, including profit, if you have any.
A single percentage point is represented by a single penny.
Begin at the top, “We earned 100 pennies this reporting period. Lets go through the report and see what happens to those pennies.”
State each line item in the P&L and push that many pennies to the side as “spent.” At the end of the exercise you will have some pennies left as the profit for the owner.
On the P&L, be sure to separate “return on effort” compensation for owner veterinary services from “return on equity” compensation for owning the business. Return on equity will be the profit.
Teasing out the return on effort from return on equity is sometimes a challenge. For demonstration purposes, the market value of an equine practitioner is 18-21% of collected gross. Use that for vet comp. In small practices, the owners usually take return on effort and return on equity out in one lump.
Sticking line-by-line with the P&L is really a great demonstration.