Veterinarians don\u2019t enter the profession to practice accounting, which is why they often delegate bookkeeping to others. As a result, accounting methods can vary widely from hospital to hospital, hampering efforts to assess how a practice\u2019s revenue and expenses differ from industry benchmarks.<\/p>\n
A free tool created by an industry coalition aims to standardize accounting within the profession. The new AAHA\/VMG Chart of Accounts, which combines charts from the American Animal Hospital Association and Veterinary Management Groups, organizes a practice\u2019s financial transactions into easily identifiable categories.<\/p>\n
Only through a common but flexible chart of accounts can practices make apples-to-apples benchmark comparisons, said Jeff Godwin, DVM, a partner at Animal Medical Clinic in Melbourne, Florida.<\/p>\n
\u201cSome practice owners are not numbers people; they don\u2019t want to have 150 different lines in their financial reports,\u201d Dr. Godwin said. \u201cChart of accounts allows them to combine things into broad categories, if that\u2019s the way they want to do it, and then they can compare their broad categories with other practices\u2019 broad categories.<\/p>\n
\u201cOther practice owners want to be very granular in the details of their chart of accounts, and the current one is set up to allow them to do that.\u201d<\/p>\n
Also participating in the initiative were the American Veterinary Medical Association, VetPartners and the Veterinary Hospital Managers Association.<\/p>\n
Diane Eigner, VMD, MBA, CVPM, came to realize after a review of her VMG Chart of Accounts that the Barnegat, New Jersey, practice she owned for nearly 25 years wasn\u2019t as profitable as she wanted it to be. That fact was important because Dr. Eigner was pondering her exit strategy and planned to sell her practice.<\/p>\n
\u201cOne of the places I turned to resolve this problem was to look at my profit-and-loss statement, which showed me where my spending was out of line with my revenue,\u201d Dr. Eigner said. \u201cBecause of established industry standards, it is generally accepted that the cost of goods shouldn\u2019t be above a certain percentage, and mine was way out of whack. I was at 12 percent profitability, and I needed to be around 18 percent.\u201d<\/p>\n
She reasoned that if she could shave 5 percent off her expenses, profitability would increase and so would the value of her practice.<\/p>\n
\u201cI worked very closely with a staff member to get a handle on our inventory and enact changes in our ordering practices,\u201d Dr. Eigner said. \u201cThis is not something that happens in a month or two; it\u2019s a process. But by doing this, as well as keeping better track of staff costs, I was able to boost my profitability from 12 percent to 18 percent and sold my practice in 2016 for a pretty decent amount of money.\u201d<\/p>\n
Dr. Eigner learned to utilize a chart of accounts in this manner because hers was a Veterinary Management Group practice.<\/p>\n
\u201cI had to report my numbers every quarter because [the accounting firm] Katz, Sapper & Miller was working with VMG to develop an online reporting tool that would create reports comparing us to other practices in that management group,\u201d she said.<\/p>\n
\u201cMost practice owners haven\u2019t been introduced to the power of this because they delegate their bookkeeping to their accountant or bookkeeper,\u201d she added. \u201cIt was really profound in terms of what it allowed me to do as I approached the sale of my practice and tried to improve my profitability.\u201d<\/p>\n
Animal Medical Clinic\u2019s Dr. Godwin used his chart of accounts to better manage direct costs, which he found to be high compared with other practices.<\/p>\n
\u201cI focused on that particular area and was successful in bringing my costs down,\u201d he said. \u201cIf I hadn\u2019t had those comparison numbers, I wouldn\u2019t have known that was an area I needed to work on.\u201d<\/p>\n
Indeed, the AAHA\/VMG Chart of Accounts can benefit a practice in numerous other ways, said Beth Scott, CPA, a director at Katz, Sapper & Miller, which assisted AAHA and VMG in combining their charts and the accompanying field definitions. One significant benefit is creating a clearer picture of gross margins in a practice\u2019s main sources of revenue.<\/p>\n
\u201cThis allows for a high level of assessment of trends that can be used to identify opportunities for the practice,\u201d Scott said. \u201cOnce opportunities have been identified, management can focus its efforts in a specific area of the hospital to address markups, internal controls on inventory, missed charges, et cetera.\u201d<\/p>\n
An additional benefit is that the AAHA\/VMG Chart of Accounts helps everyone speak the same language, Scott said. Consultants, economists and accountants are better able to evaluate and analyze the industry.<\/p>\n
\u201cFor example, a practice will know that the transactions included in the professional services account will be the same types of transactions at other hospitals,\u201d Scott said. \u201cPrior to this, the industry was fairly fragmented in the use of chart of accounts, with AAHA and VMG having the most compliance on utilizing their individual chart of accounts. The combined efforts of these two organizations has provided a springboard of endorsements from the other organizations to begin educating the industry on why it is important for us to speak the same language.\u201d<\/p>\n
Office staff should see a benefit, too, starting with greater productivity, said AAHA\u2019s CEO, Michael Cavanaugh, DVM, DABVP (emeritus).<\/p>\n
\u201cUsing the standardized chart of accounts increases efficiency and decreases the potential for error,\u201d Dr. Cavanaugh said. \u201cAccordingly, using the chart of accounts can reduce the overall time staff spends on its finances, freeing them up to spend more time on providing patient care.\u201d<\/p>\n
Scott agreed.<\/p>\n
\u201cThe chart of accounts allows the team to easily recognize opportunities for improvement while also supplying them with a tool to measure, monitor and budget for financial success,\u201d she said.<\/p>\n
The AAHA\/VMG Chart of Accounts is designed specifically for companion animal practices. Hospitals can use the tool regardless of their size and location, Dr. Cavanaugh said.<\/p>\n
\u201cWe believe that the benefits greatly outweigh any costs, such as time spent implementing it,\u201d he said. \u201cThe only potential negative is that when the change is made, it will be harder to compare back to when a different chart of accounts was used. But moving forward, it will be much easier for the practice leadership to analyze their finances.\u201d<\/p>\n
Dr. Eigner, who is pondering the next step in her career, encourages all practitioners to implement the AAHA\/VMG Chart of Accounts.<\/p>\n
\u201cI was part of Veterinary Management Group, and I remember people grumbling when we would change some of the accounts to reflect different kinds of expenses,\u201d she said. \u201cThey grumbled because they had to take the time to go into their software and make the adjustments. I used to think, \u2018Boy, it doesn\u2019t take that long, and the return on that investment was worth taking the time away from doing something else.\u2019<\/p>\n
\u201cMy advice to practitioners, especially someone new, is to take the time upfront to set up the chart of accounts properly. Then, as invoices come in and expenses are allocated, use as much detail as you\u2019re comfortable using. And make sure that accounting staff understand fully the different accounts and what goes into those items.\u201d<\/p>\n
The AAHA\/VMG Chart of Accounts promises a new era in veterinary accounting, Dr. Cavanaugh said.<\/p>\n
\u201cWe have been careful to make the current chart of accounts very robust, so we anticipate few changes being needed,\u201d he said. \u201cCertainly, in the future, if new information arises that warrants a change, it will be considered.\u201d<\/p>\n