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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Page 22 of 71

Money Matters columnist Leslie A. Mamalis is the owner and senior consultant at Summit Veterinary Advisors. Learn more at do so could require all the cash the business has in the bank or more. Even when businesses could pay out all the profit to owners, they often do not. The money could be put to better use in the short term, perhaps by acquiring new equip- ment, doing minor remodeling or paying off a business loan. It Gets Complicated The IRS has strict rules for how profit is distributed among owners. If the hospital is organized as a partnership, the rules are different than if the hospital is an S corpora- tion. Any profit that is distributed may need to be in proportion to the ownership percentage. For ex- ample, a 20 percent owner has the rights to 20 percent of the profit and may not receive more or less. The IRS also limits profit distribu- tion in some cases, so work closely with a tax accountant to determine appropriate distribution levels. If the hospital owners also own the real estate, facility rent pay- ments above a fair market rate also represent a form of profit distribu- tion. Work with a tax accountant to arrive at the best lease rate, one that benefits the hospital, the real estate company and the owners. Many owners are eager to earn a return on investment in addition to their clinical and management compensation. ROI is one of the benefits of ownership but is never guaranteed. If the practice isn't growing, if the pricing isn't adequate or if the payroll is too high, little or no profit will be generated and therefore nothing will be returned to the owners. Other times, profit must be reinvested to prepare the practice for growth. Ideally, these reinvest- ments lead to greater profit, but the timeline for recouping the investment is not guaranteed. Comparable Compensation All owner clinical and man- agement compensation that is consistent with how others in similar positions are paid is a normal wage/benefit expense of the business. In other words, whether the owner or someone While a lower profit can mean lower taxes, a lower practice value can result when the time to sell arrives. Be sure to work with your accountant and with veterinary business valuation experts at least three to five years before a sale to make sure your books are in order and that the practice's true profitability is reflected in the financial statements. A final note: The information presented here represents nor- mal compensation for veterinary hospital owners. The amount paid to business owners as sala- ries or guaranteed payments can have significant tax consequenc- es. Every situation is unique, and you should not change your compensation without consulting a tax adviser. OUR LUER SLIP AND LUER LOCK SYRINGES WITH LOW DEAD SPACE PLUNGERS HAVE BEEN DESIGNED TO REDUCE WASTE AND SAVE YOU MONEY. 1.800.940.EXEL WWW.EXELINT.COM The EXEL logo is a registered trademark of EXELINT International, Co. OVER 30 YEARS OF SERVICE YOU CAN TRUST CHOOSE EXELINT QUALITY VETERINARY PRODUCTS FOR COMPANION ANIMALS Contact your distributor for further information. else is performing the duties, the compensation would be the same. Any owner compensation above these normal wages and benefits represents discretionary use of profits. Whether the money is distributed as cash or is taken in some other form, such as a cell phone or season football tickets, the remaining profits available to the hospital are reduced.

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