AAHA credit survey: Most practices OK, but some cause for concern

A NEWStat survey of AAHA practice owners and managers shows that although the general health of the industry remains strong, significant percentages of practices are facing potential financial pitfalls. The survey, conducted in early December, asked a series of questions about how the credit crunch is affecting veterinary practices.

One out of three practices said they are not able to fully cover monthly operating expenses with monthly income, and nearly 40 percent said they regularly or occasionally need to negotiate delayed payments to suppliers. Nearly a quarter of practices surveyed said they sometimes need to use personal cash to finance normal operating expenses, and three out of four practices reported having to use business credit cards to cover operating costs.

AAHA Executive Director John Albers, DVM, said that while he was pleased that the majority of survey respondents were faring well, some items did jump out at him.

“I am surprised by the large percentage who are using credit cards to finance operating expense,” Albers said. “If the strategy is to gain frequent flier miles (or some related benefit) and the practice is able to completely pay the balance each month, then that’s fine. But if you are unable to pay the full balance, the high interest rates make this option a poor one, even if you are accruing miles.”

Albers advised credit card users to keep a close eye on the interest rates cards are charging, since companies can change the rates whenever they want to. He also noted the practices who are failing to meet their operating costs each month.

“I hope the 33 percent of practices that reported being unable to meet monthly operating expenses with monthly revenue are taking serious stock of both their revenues and expenses,” Albers said.

Fortunately, few practices are having to regularly use potentially perilous credits options like home equity loans (2.4 percent) or cash advances (0.9 percent) to fund their operations. Also good news was that only 5 percent reported that their bank or financial institution had reduced the amount of available credit, but 20 percent said they were in danger of failing to meet basic obligations like staff salary if access to credit were to disappear.

”In the face of declining revenue, additionally available staff time should be spent in contacting clients that are past due for recommended services, or producing newsletters or other communication tools reminding clients about their pets’ health needs,” Albers said. “In the face of high expenses, these practices need to look for efficiency gains and to prudently reduce unnecessary expenses.”

Several respondents said they have to defer their own salaries some months, while others said they have at least three months worth of operating expenses in the bank for emergencies. Most practices (75 percent) said they did not need to rely on credit options any more now compared with the first quarter of this year. However, nearly a quarter of respondents said they are seeing vendors tighten their credit terms.