Today's Veterinary Business

FEB 2019

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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18 Today's Veterinary Business Business Veterinary practice owners often see their hospital as more than an investment. For many, it is a passion, a calling or a life choice. Few private buyers acquire a hospital with a primary goal of making as much money as possible. The money is important, of course, but creating a legacy is sometimes of equal or higher importance. By Leslie A. Mamalis, MBA, MSIT, CVA Many misunderstandings exist regarding how to pay hospital owners. The topic gets more com- plicated as practice managers and veterinary nurses become owners in their own right. Industry benchmarks for doctor and staff compensation are easy to find, but there are few benchmarks for owner compen- sation. Yet practice management consultants routinely are asked some version of this question: "Am I paying myself enough? Too much? What is normal?" The question is difficult to an- swer without in-depth knowledge of the practice and the owner's role. Practice owners have found a number of ways to compensate themselves, from something as plain vanilla as a flat salary to high- ly creative plans that are difficult to understand let alone explain to a payroll company. Generally, owner compensation consists of four pieces: clinical compensation, management compensation, fringe benefits and profit distribution. Clinical compensation is easy to explain. Owners who fill clinical roles as veterinarians or veterinary nurses should be com- pensated for the work. Using pro- duction-based pay or ProSal makes sense for doctors. Owner-doctors are paid at the same rates as asso- ciate veterinarians. For owners who are veterinary nurses, this portion of compensation should be in line with what another nurse with a similar background earns. Owners who are practice managers do not earn clinical compensation. Management compensa- tion is the pool of money allocated to pay all managers in the practice for their management du- ties. The pool depends somewhat on the size and complexity of the practice, but the customary amount is 1 to 6 percent of gross annual revenue. The portion of the man- agement compensation budget that can be paid to owners relates to the management roles they play. An owner who is a full-time practice manager or hospital administrator will earn a sizable portion of the budget. If the owner does little management, usually because the team has qualified managers, the owner may be allocated one-half of 1 percent of gross revenue. The budget for management compensation is shared among all management staff but only for the portion of their jobs that is manage- ment-related. An office manager might create the schedule for client service representatives but spend most of her time assisting clients at the front desk. If she spends four hours creating the weekly schedule, just 10 percent of her compensation is allocated to management. The Business MONEY MATTERS remainder is allocated to front desk compensation. The same concept applies to a head veterinary nurse who has some personnel manage- ment responsibility but spends a great deal of time caring for patients. Fringe benefits comprise a third type of owner com- pensation and represent some of the more creative compensation schemes I see. When hospital owners receive benefits above and beyond what employees receive, the extra benefits are considered additional compensation. These might involve an owner's personal vehicle, tickets to cultural events, charitable giving or the living room drapes (true story!). Such benefits go beyond the scope of what employees receive and rep- resent additional compensation. In truth, such benefits are a form of profit distribution. Profit distribution refers to the payout of profit to owners throughout the year. Busi- nesses generally do not distribute 100 percent of profits because to Your fair share How hospital owners are paid — and how much — depends on the responsibilities they hold and the budgets and policies that are in place. 1 2 3 4

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