Professionals in the veterinary sector paused when asked what single word describes the economic outlook for veterinarians in the new year.
It may have been a tough question after a year of slow economic recovery, growing uncertainty about how federal healthcare reform will affect veterinary operations and a national economy that has taken its time recovering from the recession.
It wasn’t surprising that two lending professionals who focus on the veterinary sector both chose the word “opportunity.” But they also expressed uncertainty about the coming year.
“Changing” was chosen by a practice management consultant who was most concerned about how the Affordable Care Act, or Obamacare, will affect veterinary practices.
Michael Dicks, Ph.D., director of the American Veterinary Medical Association’s economics division, chose the word “sensitive.”
“The economy is growing, but it’s extremely sensitive to any new piece of information,” Dr. Dicks said.
“In general, I don’t think there are any movements to break out. The economy wants to grow. There’s every sign it will grow, but every time that happens it will snap back.”
The debate among economists is whether the nation will see roughly a 2 percent growth in gross domestic product in 2014, or if it will be the 3 percent or more being predicted by some more optimistic economists.
In the veterinary sector, as in others, that growth must be driven by demand, which Dicks said has yet to present itself in full form.
“We haven’t seen a strong growth in demand across all service sectors yet,” he said.
Looking at durable goods, nondurable goods and services, Dicks said, “We’re not where we should be.”
While the economy is growing at what some may consider a “normal clip,” it is still considered anemic growth for a normal postrecession period.
“We should be making up ground and we haven’t seen that yet,” Dicks said.
Typically after a recession, the nation sees rapid growth within 24 months after things bottom out, but that hasn’t been the case following the Great Recession, Dicks noted.
“We’ve had five years where that demand has diminished,” he said. “We’re five years out from the recession and we still haven’t recovered.”
Dicks said it’s hard to pinpoint the reasons for the sluggish growth and lack of demand in service sectors like the veterinary market.
“People may be saying I don’t need to take my dog in twice a year to the vet, maybe once a year is fine,” he said.
Those unknowns prompted Dicks to also offer the words “uncertain” and “volatile” when talking about 2014’s economy.
Still, despite the clouds in Dicks’ forecast, he said there are good indicators that 2014 could be a breakout year if all goes well.
“I personally feel like the economy is going to do real well (this) year,” he said.
He based that assessment on pent-up demand, the fact the average work week is now over 42 hours for Americans – a sign that employees are working more to make up for a lack in hiring—and indications that many companies are sitting on a lot of cash.
But as slowly building demand pulls down inventories and thinned-out workforces begin delivering goods and services more slowly, companies will be forced to hire more people, Dicks said.
“When that happens, things will really move quickly,” he said. “I personally think that will happen (this) year. The index of leading indicators has been very strong the last three or four months.”
Those indicators tell Dicks, “There’s enormous growth about to happen 12 to 18 months out.
“I think we’re off to the races and it’ll probably [happen] around summertime.”
Bill Murray, senior vice president and northeast region sales executive for Bank of America Practice Solutions, sees the new year as the time to look at opportunities lying ahead and plan to take advantage of them.
“The turn of the calendar always presents an opportunity to look at your business and analyze what has worked and what hasn’t,” Murray said. “Try new ideas, and look for new opportunities to enact positive changes to your business and yourself.”
Travis York, a senior loan officer for Live Oak Bank, headquartered in Wilmington, N.C., sees the this year as one for opportunities for those who want to grow their businesses, or even those wishing to streamline their businesses and become more efficient.
“There’s an opportunity to grow and develop and streamline your practices because of the access to capital,” he said.
York is hearing from practices that are striving to become more efficient and making moves toward that end, such as bringing two or three doctors into one practice to allow them to share equipment, staff and facilities.
“We’re seeing lot of practices focus on streamlining,” he said.
Expect positive reinforcement for growing or streamlining from banks, York said, because lending institutions on the whole have a positive view of the economic landscape.
He noted that streamlining may require investments to add staff or expand to enable clinics to operate more efficiently. “Banks are anxious to lend,” York said. “I think you’re going to continue to see very favorable borrowing opportunities to expand and streamline your business.”
York also believes that as more baby boomers reach retirement age, more practices will become available for veterinarians who want to move up from the associate ranks.
“There’s a large amount of qualified veterinarians who want to be practice owners,” he said. “I think we’re going to continue to see more practices coming to market.”
The boomers born at the end of their generation will be turning 50 in 2014, while those at the front of that generation are nearing 70.
“We will start to see a lot of those people retire and it will drive more practices to the market,” York said.
Karen Felsted, DVM, MS, CPA, CVPM, who provides financial and operational consulting through Felsted Veterinary Consulting, agreed that 2014 brings opportunity, and agreed that clinic owners may see it as a good year to add staff or equipment.
“If you’re one of those practices that has outstanding growth, then you might want to add staff and add equipment to keep up with that,” Dr. Felsted said, adding that clinic owners may want to add equipment to replace aging equipment or to offer a new service.
“If you’re growing and growing and growing, you may have to add new equipment just to keep up with what you’re doing.”
Clinic owners who find that their operations have grown stagnant may want to consider the new year a good time to add staff, equipment or offer new services to get out of their slump, she said.
Felsted chose “changing” as her word to best describe 2014.
“I think our economy is not fully recovered, and even if our economy [were] fully recovered, I think the veterinary profession has changed forever,” she said. “And I think practices are still learning how to adapt to the new reality.”
That “new reality,” Felsted said, has been brought about by the shortage of demand touched on by Dicks, advances in technology and services that are coming quicker and more frequently, the changing demands and expectations from pet owners and an uncertainty over the effects of Obamacare.
“If you’re a (clinic) owner, the biggest thing you have to realize is the constantly changing expectations by pet owners of what they get from the veterinary practice. I don’t think that level of change is going to go away,” she said.
Clinic owners will be forced to continually take heed of what pet owners want and they will have to continually seek to grow their practices, said BofA’s Murray.
“Becoming complacent and not listening to your clients (the consumer) and what they want or need and then reacting to those needs is a huge issue for any small business owner—veterinary hospitals included,” Murray said.
And in Felsted’s eyes, harboring a little fear about falling behind may not be such a bad thing.
“A little fear is healthy,” she said.
Felsted and York said one of the biggest fears for veterinary clinics in the new year is Obamacare.
“That’s the thing that would keep me up if I was a practice manger,” York said.
One of a veterinary operation’s biggest expenses is employees, plus health insurance for those employees.
While the Obama administration has insisted the impact to small businesses is negligible or nonexistent, York said that doesn’t appear to be the way it’s playing out for businesses.
“They’re going to continue to see impacts from Obamacare,” he said. “You can see some of the larger practices having to manage staff around that, and expending resources to ensure they’re meeting those requirements and being compliant.
“I think business owners will have to focus on that next year,” York said. “They’re going to have to make sure they understand how those new rules could potentially impact their financial statements.”