Veterinary Businesses work in an environment in which we have significantly less ability to increase our net profit via the top line than we did prior to the Great Recession. What I mean by that is, before the Great Recession, Veterinary Businesses could routinely raise prices . In those glory days, veterinary practice owners didn’t need to be so concerned about the bottom-line because they could improve it using routine price increases, growing the topline without adding expenses. In the new normal economic conditions, to improve the financial performance of their Veterinary Business, practice owners must pay attention to managing expenses. Reducing expenses directly lowers the amount subtracted from gross production to yield net profit.
In virtually every Veterinary Business, the second largest expense, after labor, is Cost of Professional Services. The Cost of Professional Service category in your Chart of Accounts is made up of all the direct costs of providing a veterinary service. Most of the items in this category are purchased from a Veterinary Distributor.
The distribution business operates at a very small, generally single digit, profit margin so negotiating on price can only get the cost so low. The world of finance occasionally generates a genuine credit card benefit for the customer. This is beginning to happen in veterinary distribution. At least one of veterinary distribution companies offers a loyalty credit card to their Veterinary Business owner customers. If a Veterinary Business pays the distribution company’s monthly statement with the loyalty credit card the distribution company issued, the distributor will discount the invoice by about 2%. In the distribution world, where price is measured in Cost Plus 8 to 15 percent depending upon volume, another 2% discount is significant.
You can usually get a discount for paying at the time you receive the invoice. This credit card strategy allows you thirty days from receipt of the invoice plus 30 days on the loyalty credit card before you have to pay. This is essentially as good as if the distributor put the products on your shelf on consignment!
Now comes the critical financial advice. DO NOT USE THIS STRATEGY UNLESS YOU CAN PAY THE CREDIT CARD DOWN TO ZERO EVERY MONTH. If you carry a balance over into the next billing period, the interest charges will be MUCH higher than the 2% you are trying to save.
