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