Don't get lost in increased costs

Don't get lost in increased costs

Jun 01, 2006

You know your new facility will mean higher loan costs and additional taxes. Fortunately, the new-and-improved space should also let you expand services and clientele so you can cover the increased costs. And you may need to raise fees. But before you do anything, you need to know how your expenses will change so you can decide how to meet the challenge.

Estimate changes in your costs

First, consider your fixed costs. These expenses exist regardless of how many patients you see, and they'll increase the day you move into your new facility. Fixed costs include:

  • mortgage or rent payment
  • equipment loan payments
  • property taxes
  • utilities
  • insurance
  • maintenance service contracts.

Pinning down changes in variable costs is a bit more difficult, though not impossible. Because variable costs change based on the number of patients you see or the number of staff members you support, you must do some forward thinking to create an estimate. Consider these places where variable costs might increase:
  • drugs and supplies
  • payroll costs, including taxes
  • workers' compensation insurance
  • fringe benefits.

Don't over borrow
So, for example, say you set a goal to offer more dental care in the new facility. This move could increase your fixed costs if you need to invest in additional equipment. And if you see more patients for dental care, you'd also see increased costs for drugs and medical supplies. You could even experience increased staffing costs if you need to add employees. To cover the costs, you'll need to increase your revenue base.

Explore strategies for boosting revenue

Here are some revenue-increasing ideas to consider:

1. New services. Additional dental suites; expanded treatment areas; and surgical suites offering endoscopy, laser, and ultrasound provide opportunities to expand your services. Also consider offering boarding, grooming, pet health, and behavioral training. Of course, you want to think through your investment in the facility compared to the income these areas will generate. To estimate the potential revenue, think about the number of additional invoices this service will generate and multiply that by the estimated average invoice amount.

Keep in mind, it may take some time to build a new revenue stream. So the practice's cash flow may suffer in the short term—typically up to two or three years.

2. New clients. New facilities tend to attract new clients. Construction makes your facility more visible and piques clients' curiosity. So think about how many new clients you may attract and plan for the growth. As a starting point, an average full-time practitioner sees 25 to 30 new clients a month and maintains a client base of 1,200 to 1,400 active clients.

Your potential to attract new clients depends on the demographics of your area. A demographic study shows you the number of existing veterinary practices, practicing veterinarians, households, and pet-owning households. You also want to know whether the number of pet-owning households is increasing, staying the same, or decreasing.