Accountants for Mixed Veterinary Practices
Mixed practice is genuinely several businesses under one roof, with different cost structures, different cash cycles and different margins. Reported together, they average into a number that tells you very little.
The most common finding when a mixed practice is analysed properly is that one strand is substantially subsidising another, and that nobody knew by how much.
Separating the Strands
Direct income and direct cost are usually straightforward to split. The work is in allocating shared cost: premises, reception, management time and vehicles. The allocation basis has to be defensible, because the decisions that follow depend on it.
Once separated, the questions become concrete. Is the farm work profitable once travel time is properly costed? Is the small animal side funding an equine strand that operates below cost? Would dropping a strand release capacity or just remove contribution?
What Follows
Sometimes the answer is to reprice a strand. Sometimes it is to invest in the one that earns. Occasionally it is to stop doing something, which is a difficult decision in a practice with long client relationships and worth taking on evidence rather than instinct.
Getting the Allocation Basis Right
The whole exercise depends on how shared costs are allocated, so the basis has to be defensible before any conclusion is drawn from it. Allocating everything by revenue is the quickest method and the least informative, because it automatically makes the largest strand look like it carries the most cost.
We allocate each shared cost by whatever actually drives it. Premises by space used, reception by call and appointment volume, vehicles by mileage, management time by a reasonable estimate agreed with the people doing it. Estimates are fine provided they are consistent and written down.
- Test the conclusion before acting on it
- If a strand looks unprofitable, check whether the costs allocated to it would actually disappear if it stopped. Many would simply move to the remaining strands.
- Look at contribution as well as profit
- A strand that covers its direct costs and contributes to overheads is worth keeping even if a full allocation shows a loss.
- Review the basis annually
- As the mix changes, an allocation basis set three years ago stops describing the practice. It is a five minute review that keeps the numbers honest.
Frequently Asked Questions
Is it worth splitting our reporting when the same vets do both?
One strand looks like it is losing money. Should we drop it?
Does a mixed practice sell for less than a single species practice?
Find Out Which Strand Earns
We will build a split of your practice by strand and show you where the contribution actually comes from.