Vet360 Vet360 Vol 05 Issue 05 | Page 23

BUSINESS Capital Expenditure in a Vet Practice Andrew Christie BComm (Business Management) What is Capex? Capital Expenditure (Capex) differs from Operating Expenditure (Opex) in that it refers to an outlay of funds that will produce benefits for a period longer than a year. Opex refers to an outlay of funds that will produce benefits for less than a year. Generally, Opex refers to expenses such as salaries and stock while Capex refers to money spent on vehicles, property, equipment etc. 1. Introduction One of the weaknesses in many vet practices is the evaluation of the purchase of equipment and other large-scale purchases when little return can be expected. Vets rationalise purchases of newer, better equipment by claiming that they must remain competitive in their market and that better equipment leads to better animal care. However, the reality is that a practice’s clients know very little about equipment used and, in the current tough economic climate, the client is likely to choose a lower consult fee regardless of the equipment used. Council or something crucial to the day-to-day running of the practice. b. Should I choose between 2 or 3 or more alternatives? If Machine A is selected, are there alternatives and which will make more money for the practice. c. Should I choose between several types of projects? Machine A could be purchased, but how does it weigh up against Client Management System B or Strategic Marketing Plan C? 3. Net Cash Flows Nevertheless, capital purchases remain a necessary component of practice’s operations and it is critical for practice owners to begin evaluating their options from a profitability perspective as opposed to the more traditional ‘need-to-be-up-to-date’ approach. The starting point for CEE is to look at the cash flows that will be generated by a Capex item. Normally this would be an increase in sales but could also be a reduction in costs – for example, a new practice management system reducing shrinkage (theft). 2. What information do we want from the Capital Expenditure Evaluation (CEE)? So far so good. Three questioins need to be considered with CEE in a veterinary practice a. Will the item(s) make money? Simply put, if Machine A is purchased, will it make or lose the practice money. This is particularly important when purchasing something prescribed by But very often the additional expenses incurred are overlooked. Purchasing a new bakkie may save fuel costs, but the insurance and services will be more expensive. More subtle expenses must also be factored in – a new x-ray machine may produce wonderful images, but it may take longer to operate – certainly in the first month or two, anyway. Issue 05 | NOVEMBER 2018 | 23