Updated on April 3, 2020
Safety first, cash flow second
A veterinary practice’s first priority during the COVID-19 pandemic is the health and safety of employees and the people we serve. The next most important priority—especially in the face of reduced client visits and ongoing costs—is maintaining cash flow.
Businesses that are currently struggling for profitability—those with low cash reserves or unstable cash flows—are particularly vulnerable. However, even businesses that appear to be in good financial shape today may face uncertainty down the road. This partly will depend on how the situation progresses and how long it takes for market demand and supply chains to return to normal.
Maintaining cash flow
Given the importance of cash flow in times like this, veterinary practices should immediately develop a fiscal plan for cash management as part of their overall business risk and continuity plans. If you don’t already, now is a good time to begin having ongoing conversations with your practice’s accountant and/or tax advisor. We also recommend leveraging the standard chart of accounts for veterinary practices, the AAHA/VMG Chart of Accounts, especially as you consider adding new services or implementing new business models. Standardizing the way these services are coded can improve your line of sight on how they perform for you, and how your business is progressing overall.
There are two aspects to cash flow: inflow (revenue) and outflow (expenses), and there are ways to address both in a downturn like the one we face in the COVID-19 emergency.
Strategies to maintain inflow
Many veterinary practice owners and managers already are implementing innovative strategies to maintain revenue. Here are some examples:
Strategies to reduce outflow
- Understand break-even: Know your financial break-even point and your practice’s daily break-even revenue. This begins with understanding your fixed and variable costs, something your accountant can help you with.
- Cutting expenses: Review your entire profit and loss statement and evaluate every individual spending category. The question you’re seeking to answer is, “What can be cut easily and without much impact?”
- Worst-case scenario: Define a handful of scenarios on your revenue impact, with low, medium, and severe cases. Figure out what each means for your ability to meet financial obligations. Discuss the options with your accountant.
- Inventory control: Now is not the time to be stockpiling medicine and supplies, as this is costly. Work with your practice manager on optimal inventory levels, and leverage platforms like AVMA Direct Connect to save your practice money.
- Postpone expansion: Now also is not the time to expand your practice or invest in large capital expenditures like new equipment. Put all of that on hold until we are well past the pandemic.
- Vendor contracts: Reach out to all your vendors and even banks you have loans with, and ask for an extension on invoices or payments due. Some contracts have late fees or interest rate penalties, so be sure to ask that these be excused as well. See our resource for addressing contractual obligations in a COVID-19 world.
- Staffing decisions: Layoffs should be the option of last resort. Look first at other options like reduced work hours, furloughs, and delaying pay raises and/or bonus pay. Also look to leverage your staff in ways you hadn’t considered (like home pickup of patients needing in-person exams, as mentioned in the revenue strategies). For ideas, don’t be afraid to ask them directly. Before you make any staffing decisions, be sure you have a clear understanding of the federal relief options available to you. Some options require you to keep all employees on the payroll.
Whatever actions you take during this challenging time, remember that communication is key. Talk with your practice accountant or tax advisor, practice manager, and the whole team to discuss ways you can work together to “tighten your belt” and be a leaner and more efficient business enterprise.