Data Veterinarian Should Be Reviewing Regularly

Overview It is not possible to manage a practice effectively without reviewing key data on a regular basis to identify what the practice...

Overview

It is not possible to manage a practice effectively without reviewing key data on a regular basis to identify what the practice is doing well and where the challenges lie. As the old adage says, "You can’t manage what you can’t measure."
Although there is an endless list of items in a veterinary practice that could be measured, most of these are not meaningful and practice owners and managers do not have the time or inclination to review things that do not matter. Therefore, it is essential that a reasonable number of meaningful metrics be identified for regular review.
Much of the data analyzed will be of a financial nature; other operational information will help explain changes in the financial data or be useful in planning and monitoring future progress.
The financial data and related metrics give an overall picture of how well the practice is doing. Regular review of this data will help the practice understand its progress financially and operationally.
After determining what data need to be reviewed regularly, a system should be set up to ensure the data are collected properly each month. The practice’s accountant, bookkeeper, practice manager, and any other pertinent people should be involved in the process to be sure everyone understands the system, including the source of all the information used and what the data are really saying.
The financial and other data that should be regularly reviewed can be grouped into three categories – data that come from the balance sheet, data that come from the income statement, and other operational key performance indicators.
 
Data Veterinarian Should Be Reviewing Regularly

Financial Data - The Balance Sheet

Balance Sheet: A commonly prepared financial statement that shows a business’s financial position at a specific point in time; this statement lists a practice’s assets, liabilities, and owners’ equity.
Most practices do not have an employee with the financial knowledge necessary to prepare an accurate balance sheet, and therefore they rely on their accountant to prepare this statement. Some practices receive financial statements from their accountant monthly; others get them on a quarterly or annual basis. Some practices may be able to generate some of the balance sheet data from their accounting system even if they do not prepare a full balance sheet.
Balance sheets are generally more confusing to most small business owners than income statements and are less useful in running the practice on a day-to-day basis. However, very important information is included in the balance sheet concerning the assets and liabilities of the practice, and this should be reviewed at least annually (preferably quarterly) with the practice accountant. Practice owners and managers should understand the items included on the balance sheet, and why these amounts have changed from period to period as well as the practical implications of these items.
Read: Giving Clients What They Want Most

Financial Data – The Income Statement

Income Statement: Another commonly prepared financial statement that shows a business’s performance over a period of time; this statement lists income and expenses during the covered period (also known as a profit and loss statement, or P&L).
The income statement is intuitively easier to understand than the balance sheet. This statement shows the revenues, expenses, and net income of a practice for a given period of time, usually a month or a year. The income statement should be reviewed by the practice manager and owners on a monthly basis. The bottom line (usually called “net income”) on financial statements that are not prepared using generally accepted accounting principles generally is not a measure of the true profitability of the business; this must be calculated separately.
This statement may be prepared on a cash or an accrual basis. Most practices prepare income statements in-house on a cash basis, and the accountant prepares the income statement on either a cash or an accrual basis at the end of the year.
Accrual basis financial statements are more accurate than cash basis ones in matching revenue and expenses to the activity that caused these items to be incurred; however, regular monthly review of cash basis financial statements is still very useful in managing the practice.
The AAHA/VMG Chart of Accounts1 is a list of the most useful and most commonly used accounts for recording financial transactions. Using this chart of accounts will ensure that a practice gets meaningful information from its income statement and that the accounts will be reasonably comparable to outside benchmarks.
May Like: What Clients Expect from Their Veterinarian?

Key Performance Indicators (KPIs)

KPIs in a veterinary practice are financial and operational metrics that are used to measure performance within a practice, expand upon the information seen in the financial statements, explain changes seen from one period to another, and compare a practice to other practices. They should be reviewed on a monthly basis.
Many KPIs offer more detail about the revenue generated by the practice; for example, is an increase in revenue due to an increase in the number of clients seen or an increase in the average amount each client spends at the practice? Other KPIs are used to measure client activity, the collectability of accounts receivable, and doctor performance.
KPI information is readily available from the PIMS but usually needs to be input into a spreadsheet program to be most useful. This data input should not take more than an hour or so each month.
Common KPIs that should be reviewed monthly include:
  • Total practice revenue
  • Total practice transactions
  • Average transaction charge (ATC) for the practice
  • New clients
  • Lost clients
  • Revenue, transactions, and ATC per individual doctor
  • Revenue by category (immunization, laboratory, etc.)
  • Accounts receivable by aging category.

Cautions

All practices are different, and comparison to outside data must be done carefully. Differences between your practice and the outside benchmarks can indicate an area that should be investigated, but they do not necessarily mean there is a problem in your practice.
Tracking changes is not enough. Significant changes must be investigated in order to understand why they occurred and if corrective action is necessary.

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Data Veterinarian Should Be Reviewing Regularly
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