Financial strategy to recover from COVID-19

The authors express their thanks to Antje Blättner and Susie Samuel for their contribution to this article.

Introduction 

When facing a crisis such as COVID-19 we need to deal with uncertainty. At the time of writing neither the magnitude nor the duration of the pandemic is known – but it is already obvious that the virus has had a very rapid and violent impact on the economics of veterinary business. Hopefully, it will be relatively short-lived. However it is apparent that during this period veterinary practice owners will experience a dramatic drop in revenue, so it is essential to reduce costs in order to minimize losses and avoid a financial crisis. Unfortunately, given the timeframe of the present pandemic it is impossible to fully adapt expenditure in proportion to income because of the importance of fixed costs. This paper offers a blueprint to help maintain a practice through these difficult next few weeks or months, and Table 1 offers a summary in the form of a priority action grid (Figure 1).

The vital need to reduce fixed costs

Most of the costs for any veterinary clinic are fixed, such as premises, equipment and (the main one) the team. The adjective "fixed" does not mean that such costs cannot be changed, but it implies that they cannot be adapted quickly or easily. For instance, there is almost nothing that can be done about premises costs within a short period of time. In terms of equipment, it is of course possible to postpone non-essential investment in new kit, but other than this nothing more can be done, given that staff will need all the necessary equipment to continue offering the same level of service during the lockdown period.

The most efficient target when managing fixed costs during the crisis is to focus on team management, because although it is a major fixed cost it is the one that can be – to a certain extent – most easily adjusted. Basically, we should aim to reduce the payroll by roughly the same proportion as the loss in revenue, or (to be more specific) the revenue obtained from services (rather than goods sold). Table 2 shows the impact of a decrease in income on the profit and loss account from a typical first opinion small animal practice, keeping the core assumptions that were made in the “Intensive financial care” paper. It demonstrates that if revenue drops by 30%, damage to the profit margin (EBITDA) can be significantly mitigated if there is a corresponding reduction in staff costs. 

Protecting the clinic’s capabilities

First of all, although the impact from the pandemic has been brutal, if we expect the crisis to be relatively brief the most important thing to keep in mind is to protect the clinic’s ability to rebound quickly and efficiently when everything is resolved. Therefore a clinic’s owners or partners must not overreact. Do not think that it is immediately necessary to cut the payroll, either by firing people or by ending the trial introductory period for new staff members, especially if it was difficult to recruit them. The key point here is to think about the post-crisis period: business will restart, and the upturn may be very fast, so staff will be needed to handle the recovery.

Can staff costs be cut without harming the team?

In most European countries – and elsewhere – governments are providing various legal frameworks to allow companies alleviate staff costs without firing people. The most widespread system is partial unemployment, or "furlough". The principles of this system are worth noting:

• Staff members remain as employees, meaning their employment contract is still in force.
• Working hours for individual staff members can be reduced, even down to zero, provided there is evidence of a drop in the company’s revenues.
• Affected staff are paid a proportion of their salary by the government, although the amount paid depends on the country.
• The business owner may choose (or sometimes has to) top up an individual’s salary to the original level.

This system is a good way to quickly relieve the burden of wage costs from a business. In countries where such an option does not exist then unpaid leave (which keeps the employment contract intact) may be considered, but this is much more harmful for employees and can be used only for a short period of time. Essentially, if it is available, it is crucial that a veterinary practice implements the furlough system as quickly as possible, although only after careful consideration of its staffing needs.

Another option to consider is to ask staff members to take accrued holiday during the lockdown when the full team is not required. Although this will not actually cut wage costs (because it is paid holiday entitlement) it will allow the clinic to avoid a shortage of employees after the confinement period when the workload increases.

On-going staff adaptation

From a financial management perspective it is important to review and reorganize team members and rotas at least once, if not twice, a week, in order to determine the correct team structure (for both veterinarians and support staff: receptionists, technicians and nurses) to cope with the caseload. Being in lockdown does not mean that the level of service usually provided to clients and their animals should decrease, so it is essential to maintain the optimal human resource. There is no doubt that the confinement will result in a drop in the clinic caseload, but it is important to bear in mind the necessity of limiting the loss in revenue, and consequently at least maintaining, and if possible increasing, the average transaction value (ATV) (Figure 2). In fact, given that clinics are likely to treat a higher percentage of complicated or severe cases in these difficult times (because most routine preventive procedures are postponed) this should help increase the ATV. Therefore we need to have enough people at work.

It is obviously very difficult to forecast the amount of work that will come into the practice each day, and it is likely that the team will either be overloaded with work or have some spare time. Although it may appear counter-intuitive, it is strongly advised that, in order to offer the best quality of service, it is better to have a slight excess of veterinarians and nurses than a shortage. Consequently, the solution here is to recall some staff members as soon as the workload exceeds the capabilities – although this must be with regard to the national furlough regulations. During days when demand is slow, it may be worthwhile to take the opportunity to retrain employees (for example, by using webinars), or to progress the implementation of new services that have been previously postponed (for example, setting up work sessions on wellness plans or the management of chronic diseases). This is a good way to prepare for the restart when the lockdown will be eased or lifted, and at the same time to bring a positive message to the team.

Maintaining income when times are hard

It is undeniable that the COVID-19 crisis is having a serious economic and emotional impact on veterinary practices; with very few exceptions, practices can expect a decrease in income of anywhere between 15 and 50% of normal revenue, at least in the toughest weeks of the pandemic. Given this frightening scenario, it is understandable that the first impulse of any practice owner is to find quick ways of cutting fixed costs (which will inevitably be salaries) and postponing any payments to suppliers. However, just as we would do in a clinical situation, once the patient (i.e., the practice) is stabilized in the intensive care unit (by payroll adjustment and cash management measures), we need to identify ways of improving the general well-being in order to facilitate recovery. This is where revenue management comes in: the practice needs to identify how to minimize the expected reduction in client activity. In order to obtain good results, we need to use a diverse selection of tools; a combination of common sense, generosity, creativity and service orientation can make a real difference.

Do be aware that these are very emotional times, and consumers in general (including pet-owners) are very vigilant about the roles played by governments, corporations and brands during the crisis. Veterinarians should be extremely careful with their client communications during this period: there is a very thin line between being perceived as friendly, committed and service-oriented, and being seen as opportunistic, commercially aggressive and insensitive to your patients and clients’ real needs. When evaluating potentially new or creative revenue-generating initiatives to put in place, it is advisable for the practice management to first perform the following “control check-list”:

• Does this initiative enter into any possible conflict or “grey zone” with the current ethical and legal regulations in my country?
• What is the potential impact of this initiative on the safety of my team, my clients and my patients; is it positive, neutral, or negative?
• What kind of feelings will this initiative generate amongst my clients; will they be positive, neutral, or negative?
• When I (as the practice owner) and my team have overcome this crisis, and look back at the things we did during it, how will we feel about this initiative – proud, indifferent, or uncomfortable?

With this checklist in mind, here are a number of ideas that could be considered by the practice team.

Review and remake scheduled procedures 

During the weeks of public confinement or lockdown there will already be a number of pre-booked appointments in the diary of every practice. In some cases the clients will automatically assume that these events are cancelled; in other cases hesitant clients may call to ask what is happening (or expect to be called!), whilst some clients may simply forget about the appointment altogether. It could be a good idea to proactively telephone all of these clients and (depending on the reason for the appointment) either directly suggest a rebooking (i.e., “we will book you and Rocky for the same day and time 4 weeks from now, and don’t worry if the lockdown is extended, because we will call you again a few days beforehand and suggest a new date”) (Figure 3). When dealing with vaccinations, it may be appropriate to follow a different approach, especially with puppies and kittens – for example, telling the owner to keep the appointment but reassuring them about the safety measures implemented in the practice to minimize risks.

Database mining and home delivery

If the workload is less than usual, invest some time in mining the practice database to identify patients or owners who would benefit from a follow-up call from us. Some of these calls – apart from generating a very positive reaction from clients – may also end up generating revenue in a natural way:

• Calling owners of overweight dogs and cats to check how they are adapting to the new situation, and sharing with them some basic tips about “nutrition during confinement”. During the discussion check that they have a sufficient supply of their pet’s regular diet, and if they need to order more ask if they want to “click and collect” it from the practice or if they would like it delivered to their home.
• Calling older owners just to check if they are doing well, ask if they are coping with the daily dog walking routine, and if they need any help from us with their pet’s supplies.
• Calling owners of patients with chronic conditions that are on repeat medication to reassure them that the practice is still open and to offer (where possible) home delivery for their prescription.

Pet taxi or pet ambulance service

This could be a convenient and welcome option for many owners who may be confined to their house or who prefer to stay at home themselves, while at the same time enabling their pets to receive the medical attention they require without delay.

Telemedicine

Telemedicine is now definitely a service (both in human and in veterinary medicine) that is here to stay. If used properly (i.e., where the patient is already known to the practice, and within the correct context) it can be a great asset for most practices. The legal framework for veterinary telemedicine varies from country to country, but it is becoming better understood – and accepted – by most national veterinary bodies which normally require a pre-existing veterinary-patient relationship for it to proceed. There are now a variety of new commercial solutions in many countries that can offer on-line appointment booking, video-consultation and fee collection, all integrated with the clinic PMS (Practice Management Software).

Educational webinars 

If we have the team, the knowledge, the technology (there are now plenty of software products for video-conferencing) and the time, why not organize thematic webinars? These can be targeted, whereby you selectively invite maybe 20, 30 or 50 clients with a mutual pet profile (such as the same breed, same clinical condition, or a common interest) to participate (Figure 4). Alternatively consider doing a webinar on a relevant topic of more general interest, such as “behavioral adaptations of dogs and cats during and after confinement”. This could be a great way of maintaining the bond with clients and – very likely – lead to revenue opportunities, a real cross-selling opportunity.

Adapt wellness plans

For practices that have clients enrolled in wellness plans, now may be the time to take some positive steps. For instance, an e-mail to your entire database (and/or a statement on your website and social media pages) announcing that you have decided to extend the duration of all current wellness plans by (say) one month, at no additional charge, as a courtesy to your clients. This could seem like a way to lose or delay revenue, but it will probably have a positive return, both in terms of goodwill and in the form of increased renewal rates in the wellness plans that finish in the coming months.

To conclude, all the propositions presented should be considered depending on the time frame. It is of paramount importance that all practice owners take early, appropriate and considered action in order to come through this unprecedented storm and recover from it in a form that is ready to move forwards and upwards. Whilst no business can expect to emerge unscathed from this global threat, the better prepared a practice is, the more robust it will be to withstand the problems this pandemic poses.