At ismypracticehealthy.com, our objective is to give you brief, high impact business education blogs. Unfortunately, the majority of veterinary practices do not prepare and use an operating budget. We encourage every practice to begin to use an operating budget and also a capital budget. As we have mentioned before in daily blogs, the operating budget is based on your P&L and the capital budget is based on your Balance Sheet.
In the long term the capital budget often determines the difference between having money to distribute as return on equity to the owners (compensation for owning the practice) and a cash call (required cash infusion from the owners into the practice) to remain solvent. Cash calls are universally a low point in the lifespan of a practice.
The capital budget contains all non cash asset transactions for the business, such as:
Vehicles
Clinical Pathology diagnostic equipment
Computers
Network hardware
Imaging equipment
PACs
Practice Management Software
Software integration. For example lab results into practice management software.
The most common method of managing capital expenses in veterinary practices is to wait until something is absolutely necessary and then acquire it, often at a high price and poor terms because it is an emergency acquisition. Here is a step by step guide to saving yourself both stress and money.
Step 1:
Now is as good a time as any to sit down and make a list of all of the capital items your practice is likely to need in the next three years.
Step 2:
Prioritize the list in one year increments. In other words, if we are making the lists in 2016, the first list will be for 2017, the second list will be for 2018 and the third list for 2019.
Step 3:
Once you have the lists made, begin doing your due diligence and learn the cost of each item and any additional costs such as installation, training etc. Record the ‘out the door’ cost of each acquisition next to its name on the three lists.
Step 4:
Sit down with your accountant and share the lists with her and ask if the practice cash flow will support the capital acquisitions you have planned.
Step 5:
LISTEN TO YOUR ACCOUNTANT’S ADVICE! If your practice cash flow will not support the acquistions as you have presented them, modify the three year lists. There is no magic bean in veterinary medicine that will incredibly make cash available because you want something. Your business has to generate the cash to acquire assets.
After these five steps you will be much better prepared to manage the cash flow of your practice without surprises and still avoid a cash call.Plan your capital expenses over the horizon instead of using hope as a strategy and waiting for the asset emergencies of erupt.
