THE economic turmoil of the last few months is starting to spread throughout the whole economy and we decided to conduct a small survey to get a view on practice owners’ perception of the effects of the downturn on veterinary practice.
Five hundred practices were sent an online questionnaire concerning their views on the economic situation facing them. Of these, 54 practices responded fully and their answers utilised. As such, this only gives an impression of the views of practice owners concerning the economic climate over the period May 2008 through to October 2008.
We plan to repeat the survey for the period November 2008 to April 2009 and compare the results.
Practice workload: companion animal 73.58% (39 practices), mixed practice 29.27% (13), farm animal 3.77% (2).
Practice size: 1 vet 18.52% (10 practices), 2-3 vets 29.63% (16), 4-7 vets 27.78% (15) more than 7 vets 24.07% (13).
Practice location: East Anglia 5, East Midlands 5, London 3, Northern England 4, Northern Ireland 2, NW England 1, Scotland 6, South East 7, South West 7, West Midlands 8, Yorkshire and Humberside 6, Wales 0.
The practices were asked whether they had noticed a reduction in income over the period: 13 (24.1%) had noticed a reduction and 41 (75.9%) had not.
Of the practices noticing a decrease in income, all were classified as companion animal, representing 33% of the companion animal practice respondents. The practices affected were asked where their perception of the income reduction originated:
- a decrease in clients numbers, 5(38%);
- a decrease in routine procedures, 4 (31%);
- an across the board decrease, 4 (31%).
Practices were asked whether they had noticed clients taking longer to pay.
- practices noticing clients taking longer, 24 (44.4%);
- practices not noticing 30 (55.6%).
Of the practices noting clients taking longer to pay, 18 (46.2%) were companion animal practices; 4 (30.8%) were mixed practices; and 2 (100%) were farm practices. This produced the most definite response with almost 50% of practices noting an increase in payment times.
Owners were asked whether they had noticed an increase in practice overheads: 31 (57.4%) had seen a slight increase; 21 (38.9%) a marked increase; and 2 (3.7%) no noticeable increase. Nearly 96% noted between a slight and marked increase in overheads. All the practices were asked if they had noticed an increased pressure for wage increases: 15 (28%) had and 39 (72) had not.
All the practices were asked how they would respond to the present economic position. On fees changes:
- 3.70% would reduce fees
- 33.33% would increase fees by up to 3%;
- 53.70% would increase fees by 3-5%;
- 9.26% would increase fees by over 5%.
When asked how they would maintain cash flow:
- 3.70% would freeze staff wages;
- 24.07% would reduce their own income;
- 72.22% would put off all capital expenditure.
The perception of the future
Owners were asked how they saw the veterinary economy developing over the next year (on a scale of 1-5):
1 = get much worse 1 (1.9%)
2 = get worse 20 (37.0%)
3 = stay the same 33 (61.1%)
4 = get better 0 (0.0%)
5 = get much better 0 (0.0%)
- 61% were optimistic about practice prospects in the coming year.
- 39% saw a worsening situation.
Having enjoyed a 15-year period of economic growth, many practices do not have the experience of living through recessions such as those in the 80s and 90s.
Having started my first practice in 1975 until the sale of my last in 2006, I have been through the effects of both of these as well as the “boom” of the last 15 years.
The causes of the first (1980-83) were more due to a rebalancing of the structures of the UK economy, changing from a manufacturing economy to a service economy, combined with the downturn in the US economy, the latter being a consequence of a credit boom.
The financial benefits to practices have been due to the increased willingness of clients to spend on their pets and an increase in farm incomes, with a resultant increase in practice profits.
Large animal practice has changed with many practices who undertook some LA work giving it up for costeffective SA work combined with a lack of graduates willing to undertake the more unsocial commitments of LA work.
In SA practices, although there was an increase in client numbers in the early years of the boom, most increased profits and turnover has been due to continually increasing fees combined with an increased range of services offered. The effect has been to increase the transaction fee per client rather than increasing the client base.
Changes in the fee income of practice have compounded this with extra charges to clients for outsourced emergency services, insurance funded operations and specialist centres being used on a more regular basis.
A percentage of practitioners think that the profession is immune to outside economics, but I am afraid they are probably in for a very rude awakening over the next two years as the recession will affect the practice exactly as in the last two years, but without the volume of clients to handle the associated changes.
Major risks are tightening credit and lower consumer spending.
How will the client base cut back? Booster vaccinations, not replacing pets, delay in attending clinics, shopping around. All this may develop over the next two years. The pre budget 2.5% reduction in VAT will not make a lot of difference.
Although inflation is expected to reduce to below 1% next year, the cost of imported goods will rise dramatically due to the falling value of the pound (12 year low against the dollar and alltime low against the euro – bad news for importers) which will have a marked effect on profitability. Remember, in the UK we manufacture very little, a lot of our improved profitability has been based upon cheap imported goods.
It all sounds a bit bleak, but economies all have cycles, which like every other business we must go through.
Recessions often sort out the weak businesses from the strong, no matter how the government attempts to mask the effects.
In the end when the upturn comes, the better practices will have improved structurally and should benefit more from the future opportunities.