The First Rule of Budgeting: the front door must swing.

When we reference a "dynamic budget planning process", we envision income centers that are matched to expense centers, actuals matched to projected, and proactive review of programs based on commitments by the providers. These are not "beatings" of those not reaching the goals set, but rather, assessing the barriers that prevented those goals from being achieved during the reporting period.

When we speak of significant ratios, we should be referring to previously discussed programs, expense compared to income for the same line item, or the specific program income compared to outpatient visits, such as fluid therapy units compared to general anesthetic cases, or diagnostic sales compared to pharmacy sales by DVM and by practice. Let's try a few tests:

Question: Drugs and medical supply cost of goods sold for a companion animal practice are eighteen-point-three percent of gross income, food sales is another two-point-five percent, and laboratory/X-ray/ECG diagnostic costs are eight-point-five percent of gross sales. Which percentage(s) appear inappropriately high or low?

Answer: Do not jump into this discussion with both feet until you know "the rest of the story." Here are the income factors for this hypothetical situation. Drug and medical supplies brought in $375,000 in sales, food brought in $19,500, and laboratory/X-ray/ECG diagnostic sales accounted for $98,500 of the practice gross. Total gross was $985,400 for the period in this study. Now your answers would be:

 Pharmacy sales were over two times the expenses, so there is a good return, based on the mark-up. Inversely, the pharmacy sales accounted for over thirty-eight percent of the practice gross, so if it was not an ambulatory practice, we are low on "service-based" programs.

 There is over $5000 of product missing, even if we sold the food at cost, since even maintenance diets should have about twenty-five percent net.

 The diagnostics only brought in ten percent of gross, which was about $15,000 net. This is way off the one-to-one diagnostic ratio expected for a mature companion animal practice. The net income figure was significantly below expectations, because the reported expenses were way higher than expected. Film and developing fluid, ECG paper and contact cream, outside laboratory costs, and reagents are low cost. Someone probably added equipment or maintenance to the wrong expense category.

Okay, so you feel like we tricked you. But how often do you make a snap judgment on practice operations based on old habits, old information, or someone else's perspective, like these generalized articles in periodicals? The focus must be on your practice, your community, and your clients if you want the front door to swing!

A similar set of numbers exists for mixed animal practices, especially in farm call pricing, mileage, sale barn fees, or when they compete with the "white truck" selling drugs up and down the back roads. A dynamic budget means we know how much money it took to create how much income within a specific practice program, such as dentistry, X-ray, laboratory, vaccinations, etc.

Vaccinations. How many practices still hide their consultation fee from the client and charge $45 to $60 for the annual vaccination visit and exam? Why?

Most of our consulting clients started to use the term "doctor's consultation" to differentiate the "semi-annual life cycle consultation" with "wellness surveillance" from the nursing staff vaccine appointment, scheduled into ten minutes, fast-in-and-out, between the semi-annual doctor consultations. Return visits with a paraprofessional staff member stem from the doctor's semi-annual healthcare planning and client discussions. These are the more economical visits for clients, and balance the costs of the wellness screening done during the semi-annual consultations. This differentiation is critical, when you exist in a community where other veterinarians, super-sized pet stores, and vaccine clinics have made price a commodity to shop for in pet healthcare. Heck, most people don't mind a ten-minute vaccine appointment with a paraprofessional wellness exam. School nurses do it all the time. But if they want a doctor's consultation, they need to be scheduled for at least twenty minutes. The secret motivator is not that secret. The front door must swing for any program to be effective!

A dynamic budget process means we accept that the forecasts are only targets, and if we hit the target, we are okay. If we hit the bulls-eye every time, we are exceptional, and more likely, a falsifier of data. Each quarter we look at what our in-service training plan did to affect which programs, and assess if the expense and income ratio changed, based on the new knowledge shared within the team. If it did as expected, we must change the next quarter's budget to reflect the new trends and make new forecasts on lateral areas of interest. What does this mean in application? Please look at this simple example:

Issue: The practice decides it must start to use a laboratory test waiver before any general anesthesia for forensic reasons. It was added to the bottom of the Surgery and Hospitalization Authorization Form from the AVMA directory. The practice leadership decided to add a minimum level to the practice's existing "over six-years-old lab profile" policy, and require a minimum screen on all pre-anesthetic cases, such as PCV, T.P., and BUN, costing about $2, using only a hematocrit tube-refractometer, and use urine stick-screening test, adding $9.50 to each bundled fee. The semi-annual consultation alternated a urine screening for micro-albumin, which was $44.50 with stain and microscope screen, with a CBC/Chem 6 Panel for $45.50. The lesser pre-anesthesia profile was based on semi-annual wellness surveillance having been done.

Results: Surprisingly, eighty-five percent of the pet parents did not say anything when it was stated as a need rather than an option, and another ten percent said "okay", once explained as pre-anesthetic safety precaution. The "over-six-years-old profile" became a CHEM 12, with thyroid testing, and again there was an eighty-five percent acceptance rate without comment. Pet parents wanted this level of safety. The inclusion of the minimum profile in all younger animals brought peace of mind to the owners and staff, and an additional $850 in sales per month, which was ninety anesthesia procedures per month, or $2550 for the quarter. To their utter astonishment, the "over six-years-olds" full profile made the practice an extra $4000 monthly gross they had not expected ($12,000 per quarter), while the semi-annual wellness surveillance testing was driving about $9000 per doctor per month in net income. Since no one expected any impact, just a lot of waivers, the practice must now adjust the next quarter's projections. Where will the adjustments occur? Sure, pre-anesthetic, but what about the geriatric animal baseline laboratory profiles, which were offered only by exception in the past, during annual exams that are now semi-annual consults for all companion animals? In fact, the doctors became so comfortable with the increased client awareness of laboratory profiles, the "senior friends program" enabled many more genetic predisposition screenings to be added to the baseline profiles.

There are many applications of "looking at the programs", such as having four levels of dentistry prophy, as in 1+, 2+, 3+, and 4+, based on the four pictures on the back of the CET brochure or Pfizer dental booklet. The average "single price" for dentistries should be where the 2+ cost, and the more severe mouth, has two more levels of oral surgery, where the 4+ is about twice the 2+. Now the dentistry program can be appropriately priced, with grade 1+ within ten percent of the human prophy cost in the community, and promoted to the client who takes good care of their pet's mouth, giving them a perceived "price break", while getting two dentistries a year.

Similarly, there can be four levels of bandaging, as in joint and bandage-dependent, and four levels of hospitalization, such as o.d./b.i.d. to ICU. To keep the front door swinging, good clients must feel they are appreciated, and having levels of care allows them either recognition or options. Both are elements that will bring them back to your practice, as well as "spread the word" about their recognitions.

There are many other programs that should be addressed. But each practice is also limited by its past actions, and the prospective vision of its leadership. These are only examples of "practice entry" into program-based budgeting, and the examples have been taken from "real life" veterinary practices. The clients perceive a benefit, when presented with "two yes options". See Building The Successful Veterinary Practice: Programs & Procedures, or the VCI® Signature Series Monograph Client Relations Zone Operations.

Satisfied clients make the front door swing! There are challenges to making this system work, and they must be addressed in the earliest development phases, either with your consultant's help or with a strong personal belief and vision.