PRACTICE MANAGEMENT

Andrew Christie BComm ( Industrial Psychology )

Regardless of the type of veterinary practice , access to funds is the difference between a thriving business and one that has to close its doors .

Introduction Regardless of the type of veterinary practice , access to funds is the difference between a thriving business and one that has to close its doors . This access is particularly important in the short-term as it is required to pay practice expenses ( salaries , electricity , etc ) and suppliers ( consumables and vet foods , etc ).

Loans for short-term expenses can be difficult to obtain as banks and other institutions will want to see that the veterinary practice can repay the loan and , of course , if the business had the money available to repay the loan , it wouldn ’ t need to borrow the money in the first place !

So , if a short-term loan is going to be difficult to obtain , this means that cash will be required to pay for day-to-day activities . And the way that cash is obtained is from a business ’ s working capital .

Working Capital = Current Assets – Current Liabilities

Current assets are assets which can be turned into cash within 1 year .

The main current assets in a Vet Practice are typically :

• Stock / Inventory

• Debtors / Accounts Receivable

• Cash

Current liabilities are liabilities which have to be paid within 1 year .

The main current liabilities in a Vet Practice are typically :

• Creditors / Accounts Payable

• Overdraft / Short-term loan

In other words , the main sources of working capital are current assets as these are the short-term assets

that the practice can use to generate cash . However , the practice also has current liabilities and these have to be taken into account when calculating how much working capital the practice has at its disposal .

Examining the working capital position enables the practice to foresee any financial difficulties that may arise . Little working capital leads to financial pressure on a practice , increased borrowing ( if lucky !), and late payments to suppliers resulting in a lower credit rating .

Analysing Working Capital Not analysing working capital is the most common reason for businesses failing in South Africa . And the increasing trend for small animal practices selling pet foods and accessories is making them far more susceptible to the risky working capital .

Consider the following figures from a hypothetical start-up Veterinary business :

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Issue 03 | JUNE 2016 | 4