In veterinary medicine, case rounds are where teams sharpen their clinical skills and uncover key insights. At VetBooks, we believe your profit and loss (P&L) statement deserves the same treatment. In our latest webinar, Diagnosing Your P&L, Martin Traub-Werner and Dr. Joy Furman walked through real practice financials to reveal what’s healthy, what needs attention, and where to look first.
Financial controls are the foundation for every other decision in your practice.
With clean, detailed books, you can make better choices about everything from supplier contracts to hiring, banking, insurance, and long-term growth. Without that clarity, every other decision rests on guesswork.
The Five Buckets Framework
Each dollar of revenue has only five places to go:
- Cost of Goods Sold (COGS)
- DVM Labor
- Other Labor
- Operating Expenses (OPEX)
- Profit
It’s a zero-sum game—if one bucket grows, another must shrink. This “Rule of 20” model (roughly 20 percent per bucket) provides an intuitive starting point for analyzing your practice’s financial balance.
Case Round #1: A $5 Million Practice
VetBooks analyzed a nine-month P&L from a five-doctor small-animal hospital in California.
Year-to Date at-a-glance results:
- Revenue: $3.7 million (projected $5 million annual)
- COGS: 22 %
- Labor: 54.6 %
- OPEX: 17.8 %
- Profit: 5.6 %
Revenue Reality Check
According to Dr. Furman, each full-time DVM should generally produce $1.0–$1.2 million per year in medical revenue. This practice’s output—about $1 million per doctor—was right on target.
Tracking revenue by category (services vs products) helps pinpoint high-margin areas. Ideally, about 75 % of total revenue should come from services rather than product sales.
Cost of Goods Sold (22 %)
For most general practices, COGS between 22–25% is reasonable. Inflation in drug and supply costs has made the historic 20% goal challenging, but reviewing profitability by category—such as in-house vs reference labs—can highlight where small pricing changes yield real margin gains.
Labor (54.6 %)
The largest expense category varies by market. High wages in California and richer benefit packages push totals upward. Martin cautioned against rigid benchmarks:
“The best benchmark is yourself. Know your numbers, understand your goals, and build a plan that works for your business.” — Martin Traub-Werner
A higher labor ratio may be acceptable if the practice meets owner-defined income and lifestyle goals.
Operating Expenses (17.8 %)
Facilities typically account for 8–10 % of revenue, with administrative expenses filling the rest. Rent and utilities are largely fixed, but practices that own their real estate must ensure the rent charged to the business is realistic—too low can inflate apparent profitability.
Case Round #2: A Georgia Practice
A second hospital shared a P&L not organized under the VMG/AAHA Chart of Accounts. Its reported metrics looked solid—COGS 28 %, Labor 44 %, OPEX 16 %, Profit 10.6 %—but key expenses like depreciation, interest, and amortization were embedded in OPEX. Removing them instantly boosted operating profit by several points.
The takeaway: consistent structure matters. Without standardized accounts, comparing and improving performance becomes guesswork.
Finding the Missing Profit
The California practice aimed to raise profit from 5.6 % to 10 %. Where could that $150,000 come from?
- Capture missed charges. Audit lab work and consumables regularly.
- Revisit pricing. Ensure markups keep pace with rising supplier costs.
- Review discounts. The hospital gave away $75,000 in discounts—over 2 % of revenue. Reducing that amount would lift profit to 7.6 % overnight.
- Leverage staff. Increasing technician utilization can improve DVM productivity without adding payroll.
Why the Chart of Accounts Matters
Both Martin and Joy underscored the value of the VMG/AAHA Chart of Accounts (COA). Its standardized structure allows every revenue and expense line to be matched—so you can calculate true gross margins for vaccines, labs, imaging, and more.
“When you know the revenue of a thing and the cost of that thing, you can measure its profitability. That’s where insight begins.”
Final Takeaway
Diagnosing your P&L isn’t about comparison—it’s about curiosity. Clean, consistent data transforms the P&L from a spreadsheet into a decision-making instrument. The more you review it, the stronger your “financial diagnostic” skills become—and the healthier your practice will be.
“The P&L is a muscle. The more you use it, the stronger your business becomes.”
Ready to Diagnose Your Own P&L?
VetBooks can help you interpret your numbers, identify growth opportunities, and gain the clarity you need to make confident decisions.