At some point in the life cycle of a veterinary clinic or hospital there comes the time when the owner wonders whether he/she wants the business to get bigger.
Often the owner thinks of this as he or she is looking at ways to gain a competitive advantage in these challenging times. It could be a one-vet practice thinking of hiring an associate, or it could be an ambulatory practice with two to four vets that wants to build a haul-in facility or add a surgical suite to its location.
There are many opportunities for expansion, but with those opportunities also come challenges. What sounds like a good plan at the beginning can become weighed down by doubt and worry as the proposed expansion is examined to see whether it is a good idea.
At the same time, our fear of the unknown might prevent us from making a move that could be professionally and economically beneficial. If we don’t prepare properly, then we risk investing a significant amount of time, energy and money on something that might fail.
Fortunately, following some guidelines can help minimize the risks and help a practice with the desire to expand know how to take the right steps.
Sometimes the most helpful question is the simplest one: Are we expanding simply because we have the desire, or will there be a benefit to the practice, to the clients or the patients?
Like much of what we do as veterinarians, we will get the best results if we know what we are planning to do, why we are doing it and what steps we will take to accomplish the procedure.
Let’s use a routine castration as an example: We know what the desired outcome is, but there are varying reasons why we are performing the procedure, and the situation might alter our choice of sedation, anesthetic or surgical approach.
Think of a business expansion the same way. What are we doing? Are we adding an associate, opening a facility or offering a new service? That part is easy.
Why are we doing it? Here is where one should ask many questions to make sure you are doing it for the right reason. Is there a need for it? Do our clients want it? Here are some examples of questions to ask as you contemplate an expansion.
If you are looking to hire a new veterinarian:
·Am I working too much and therefore am unable to service our customers well?
·Am I lacking some specific skills that our clients want that could be solved by hiring a vet trained in new diagnostics or procedures?
·Am I looking for a succession plan?
If you want to open a haul-in or surgical facility:
·Are we referring horses that we could service?
·How many horses are we sending away?
·Do we have the skills or training to offer more comprehensive treatments or procedures?
If you want to merge two practices:
·Will the merger save us money by sharing resources?
·Will the merger give us a better chance to sell our shares in the future?
·Will the merger give us a greater variety of skills to service our clients?
Underlying these questions is the need to measure what your business does now and how that will change if it is expanded. It is not enough to think that there is enough work for a new associate or that you will see more horses if only you had somewhere for them to ship in. The key is to measure what you do now and make a realistic estimate of what could be.
At this stage all one can do is make an educated guess, but if you have a foundation of real numbers, then the guess can be based on reality. For example, how many clients are you turning away because you are too busy, or how many times do you wish you had the ability to perform sacroiliac injections? It may seem like a lot, but until you count, you don’t really know.
How to Expand
We all like insurance when we need it. Until then, we hate having to pay for it when everything is going well. There is also a need for insurance in planning for an expansion, and this is when you involve your accountant—and it is money well spent.
Here is the dirty little secret of expansion: It is expensive. It is a practical application of the saying “It takes money to make money.”
Barring extreme and unusual circumstances, there is little chance a new associate is going to make the business money for at least a year, and it might take longer. It might make life easier for the practice owner to have the associate, but there is a price to be paid for that.
Putting money into a facility, training or new equipment will take some time to pay off the investment. This is where your accountant can help.
Once you have some estimates of the numbers of new clients or new procedures your new endeavor will create, your accountant will be able to make some break-even projections for you. These are key to help you evaluate the risk.
We all have different levels of risk tolerance, but having some firm data can help us avoid making unnecessary expansions. You might not mind waiting two years until your new veterinarian makes the business money because your back hurts so much that you will pay for relief. Another person would rather work harder for a bit longer to build up the practice so the new associate will be able to be profitable in one year. There is no right answer in these analyses, but there can be wrong ones.
If your accountant figures out that your new haul-in facility can only make money if you are seeing 10 horses a week in it, and you figure that, at best, you will only see five horses a week, then it is an easy decision to make. As much as we might have a feeling that it is a good idea to expand, solid data will give you the foundation to know if your idea is a good one financially.
Monty McInturff, DVM, of Tennessee Equine Hospital, thought that his practice was referring too many surgical cases. His instinct told him that his ambulatory practice could justify building a referral hospital, but it wasn’t until he counted how many cases he was sending to otherveterinary hospitals that he decided that building a hospital was a good idea.
“Hope was my first strategy, but that wasn’t a good idea,” said McInturff. “When I began examining the number of cases we were sending away, I knew we had the basis to expand our business.”
He further explained that, “Expansion will give you cash if you do it right, and if you manage your cash well, you can turn that into profit.”
Good planning based on real numbers allowed McInturff to transform Tennessee Equine Hospital from a four-vet practice to a 10-vet referral hospital with a boarded surgeon and a well-respected internship program.
Sometimes a business expansion can happen because veterinarians have more to offer than first thought. Jim Zeliff, DVM, of Allegheny Equine Associates, located just outside of Pittsburgh, hired a new associate this past winter who also happened to be a boarded internist. He initially wanted an associate to help with his growing practice, but with the added skills of his new hire, Zeliff has embarked on expanding his facility to offer an isolation barn and buying new diagnostic equipment to offer more services to his clientele.
As Zeliff explained, “We were just wanting a general practitioner and our new hire was a perfect fit with us, so we hired her. It is a bonus that we can offer even more services.”
Many of us have had clients ask us for recommendations on services such as chiropractic or dentistry, only to be surprised to learn that our practices offered those services. In spite of all the newsletters you send or the Facebook cases where you discussed these services, not everyone knows everything that you do. You also might be missing out on promoting vets or technicians with special skills or interests that could be of value to your clients.
Beyond using real numbers before making a decision to expand, there are several challenges to purposely growing a veterinary business. Those include the significant volatility in the current economy, disruption of business culture, the problems associated with running a larger business, the cost of growth and marketing your new services, facility or associates to your clients.
Many economists think our post-recession reality is the new normal. The days of accelerated growth and free-spending clients are likely a thing of the past. At the same time we often hear about the fragile recovery and how events in the rest of the world can derail our early economic revival.
Both McInturff and Zeliff planned for expansions of their facilities before the Great Recession hit and ended up having to build during the deepest depths of it. They were able to respond in a positive manner, capitalizing on cheaper materials and labor to actually come in under budget. As Zeliff explained, “We kept what we needed and put on hold what we could live without when we were building.”
Expansion will often require shifting plans mid-stream to take into consideration changes beyond our control.
The Culture of Growth
Every business has a culture. It can be defined as the habits and activities of a business that become ingrained over time. We often see culture in action when we hire someone and that person just doesn’t fit in. We can’t put a finger on the problem, but we describe it as the proverbial square peg trying to fit into a round hole. Every time we hire a new vet or staff member, we risk disrupting our business culture because of incompatibilities.
These same principles apply when hiring a new receptionist or technician to help support your growing business. Most small veterinary practices have staff who are Jacks or Jills of all trades. As your business begins to grow you will find that you will need to hire people for more specific jobs.
In the past you might have had a tech who also returned phone calls at the end of the day or did all the billing and mailed out invoices.
Now you might need to hire someone to just answer the phone or handle your bookkeeping needs as the business becomes more complex. This can either be a relief or a worry for your existing staff as they might find the addition of these new people a threat to their existing jobs. It is then important to communicate clearly why the business needs a new person and why this move is not a reflection on their own skills.
Before hiring the technically great boarded surgeon or veterinarian certified in chiropractic, it is essential to make sure they fit your practice culture. Some of the ways you can do this is to first ensure that the business owners create a list of company values. Then you can ask key vets and staff to write down their own personal and professional values. These are then shared so common and disparate values can be identified. If you are in the unfortunate position where many personal values don’t align, you might want to think of getting the foundation of your business values in order before adding more people.
People issues are the one thing that everyone agrees are the hardest part of running a business, and we don’t want to add to this challenge if we can avoid it.
Once you have a list of business values that everyone can embrace, you have something to use as a guideline in hiring new people. Hire people that fit the values of your business and many of the potential challenges of your new person will be eliminated.
Now that the business is beginning to grow, there are more inherent complexities involved in the operation of it. A two-vet ambulatory practice has fewer business layers than a practice with a haul-in facility or even the addition of a third vet. A facility means stall cleaning, an addition to the insurance plan, maintenance and upkeep and more. A new vet brings more work, so perhaps another person in the office is needed to handle booking appointments. There might have been a good system in place to manage the operation of the smaller practice, but what will have to change in order to ensure the smooth running of the growing business?
It is the rare hire or new piece of equipment that makes money for the practice right away. Typically, there is a period of time when demand develops for a new service, or perhaps training is needed. As this process runs its course, it is essential that the business is earning enough profit to support the development of the new expansion or service.
If you are struggling to make ends meet or there is a major cash outlay planned for the business, that is not the time to expand unless alternative financing is available.
For example, if you are sending a veterinarian to become certified as an acupuncturist or gain more knowledge in dentistry, the cost of continuing education can be substantial. If you are upgrading your dental equipment, there can be several thousands of dollars in investment. While the vet is becoming familiar with the new techniques and clients are learning to understand they need these services, there is a good chance the new service isn’t making a profit. Make sure the business is making enough money elsewhere to support this new endeavor.
One of the areas where new services or technology suffer is when one is first in the area to offer it. It is common knowledge in the business world that first to market is not a guarantee of success. Apple did not make the first MP3 player or smartphone, but it was the best at making the most of its opportunities. Likewise, you might think being the only one in your area with a MRI unit equals guaranteed success, but until the local horse market begins to understand the value of this diagnostic modality, they won’t be beating down your door to get a scan. Until they know how it can help them, nobody wants to spend the money to just try things out.
Hear Ye, Hear Ye …
This leads us to our last challenge: Promoting your new vet, service or
facility. This can often be the hardest thing for a veterinary practice to do because we have been trained to think that promotion is less than respectable in our profession. That might have been the case in past years, but to get your message out and heard today, self-promotion is essential. (See the Marketing & PR column from the Fall 2013 EquiManagement, which is entitled “Promote Your Practice Professionally.”)
Fortunately, we have never had as many tools that can help us market professionally as we have today. Between websites, social media and all of the things we have always done (such as client education seminars), the toughest part of advertising your services is figuring out which platform to use.
It is essential that you have a strategy to help you plan where and when you are going to use your various options. It isn’t very effective to post something about your new vet on your Facebook page without updating your website with that information. Likewise, mentioning your new service on Facebook once will gain you little traction since not everyone sees every post on a Facebook page, nor are all of your clients using social media.
This is why a combined approach is best. Make sure your current and potential clients can find out about your new offering through all of your promotional efforts.
The other key is to make sure that you repeat your information about your new vet or service on social media on an ongoing basis. The half-life of a Facebook post is said to be 45 minutes, and a tweet on Twitter is about a minute, so don’t be afraid to post something a couple of times a month (or even more often) about your new service.
As many veterinary businesses come out on the other side of the recession, they are finding that there are opportunities to expand their offerings.
After years of belt tightening, seeing colleagues retire, and clients asking for more services after seeing what is available on the web, veterinarians are realizing that it isn’t business as usual.
The forward-thinking veterinarian is looking for opportunities to enhance and solidify business as he or she adapts to our new normal business world. Expansion can offer many challenges, but with careful planning, working with key financial advisors and flexibility, it can also offer a path to a successful future.