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From: joanne holland <joandvmmd@yahoo.com>
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Date: Sat, 17 Dec 2005 10:13:45 -0800 (PST)
Subject: Re: [Practiceimprovement1] WHY NEGATIVE INCOME ??
Reply-To: Practiceimprovement1@yahoogroups.com

From Joanne, the old vet in Drain, Or,

  I've been watching this line of conversation, and it appears that many of us are mixing two different things;  start-up costs reimbursment and salary.  The way I was taught to think about it is: 1.  start up costs are long term investment and are paid back later, with interest, once the practice is on its feet.  You can't be mad that you didn't make a lot on that in a year any more than you can be mad that some stock didn't make a lot of money for you in that time.   You can count that in your "Negative income" if you want, but then you have to count the money you put into a mutual fund as negative income too.

 2  Salary is what you think you should pay yourself.  Probably you start by just doing a draw on your salery...you take what you need to live.  Well, you should keep track of that against a planned salary, and what you didn't get paid is a loan to your business.  That also has to get paid back later with interest. 

One reason it is important to think of these things separately is that a salary is taxed with a self employment tax added on.  Repaid loans with interest, investment money repaid with interest, is not taxed with self employment tax added on. Self employment tax (for those who don't know) is your regular withholding tax plus the amount your employer used to dive up in matching money to send to social security. That is a lot of money and you should not be dinged with self employment tax for a loan repayment.

As I have said earlier in this site, the rule I was taught is that there is a two year start up curve for a practice with a six month bump up.  You should max out the available income/space/time/patients as you can with a given  system in a given place in two years.  So asking how much salary someone makes in the first year will be asking them to average what must be the worst time of their  practice life (the first six months of practice) with the second worst time (the second six months).  I hope no one plans to use that kind of number to evaluate any system.  What you want is income curves, so you can see the trend early on.   

Especially for the folks associated with a hospital, there are probably exceptions to the rules I was taught, but this kind of thing is what happens to most vet offices that start solo independant offices.  It is what happened with the offices I was part of  and I see my medical office doing the same curve. 

You should get your planned monthly salary by about a year out with maybe a month that you hold back a little due to some glitch (repaving the road out front, some local disaster, etc)  and you should start to get your loans repaid after the second year: or else you choose to expand and reinvest your money in your business in some other way to make it produce more income for you.  Start repayment slow, and keep the money fluid so you can invest it back in if you need to for the next five years.

                  Joanne Holland  DVM/MD