Vet Economics Midterm
For taxes what kind of accounting do we use?
CASH accounting
What are the two types of leases?
Capital lease and operational lease
Who governs control substances?
DEA
Who licenses new prescriptions to be used in animals?
FDA
What is the difference between GAAP and Cash?
GAAP is accrual and Cash is taxes
What is GAAP?
Generally accepted accounting procedures; usually for corporations
What is client utility?
How satisfied the clients are and how much value they are getting out of their money
Explain good will in terms of money:
If a practice is being sold for more than what the owner bought it for, that extra money that the owner is getting is the "good will"
What kind of business can a veterinary practice run and why?
S corporation; tax advantage
What are the three forms of businesses that vets do?
S corps, general & sole proprietorship
What are profit centers? Give examples.
different parts of the hospital that generate income: - office visits - x-ray - pharmacy - boarding - grooming
What are six factors affecting the veterinary market?
discretionary income cost of technology cost of skilled employees overcapacity slow-increasing pet population the internet
What brings in the most revenue?
exams and pharmacy
What is the theory of the firm?
firms exist and make decisions in order to maximize profits
Define the two types of financial statements
fixed (overhead) -> grant, salary, insurance variable -> things related to the number of clients and patients coming in
What does a graph of fixed costs look like?
fixed costs = straight horizontal line variable costs = straight line going up total cost = straight line going even more up
What is the overhead
fixed expenses - expenses that don't ever change like rent, utilities, etc.
What does it take to be a veterinarian?
graduate from AVMA school national exam state exam state fees live scan
What does it take to be a veterinary technician?
graduate from AVMA school national exam state exam state fees live scan
You would need a USDA certification to do what?
health certificates
What does the term liquidity mean?
how much cash you can raise in a year
Define net income
income after all the expenses have been met
What does the demand supply curve show?
it shows equilibrium is at the point where supply and demand meet
What is discretionary income?
leftover money
What percentage of net profit are most veterinary practices at?
less than five percent
Define current liabilities
liabilities that will be settled within one year or the operating cycle whichever is longer
What do we call it when we break down a loan overtime?
loan amortization
How do clients choose their veterinarians?
locations
Define capital
long term (building, car, ultrasound machine)
What is an example of a long-term debt?
long-term liability
Define depreciation
loss in value of equipment per year
What is a disadvantage of writing off the entire incentive in one year?
may have more taxes to pay next year
What is P/E?
measure of volatility; higher the P/E, the more speculative the stock gets
What are some barriers to entry and why do they help veterinary professionals and their clients?
money and equipment; keeps prices high, keeps clients because they're getting treated by qualified professionals
What is the formula to find your profit margin percentage?
net income/gross income
What are disadvantages of sole proprietorship?
no liability; you can't shield any income from taxes
What is an example of low client utility?
office visits
What profit center in the hospital is most profitable?
office visits and exams
How are prices determined? (formula)
overhead + labor + variable-cost supplies + 0.15P overhead = % of income variable cost = COGS x 0.4 profit margins = 15% x P
Define principal
paying back on the equipment
Describe the two kinds of software
practice management - takes account into the income you get from practice that day financial - takes account of expenses
How do you find your net profit?
profit divided by gross income after everybody and bills are paid
What is current ratio and what is it also for?
quick ratio; a way to see how companies are doing economically
What is an operating lease?
rental agreement; no transfer of ownership
What is book value?
shareholders equity
What is cash flow?
shows where the money is flowing
Why do we want to employ veterinary technicians?
so that veterinarians can do "vet" stuff and be more profitable
Which form of doing business is the easiest?
sole proprietorship
Name four methods of doing business and explain each:
sole proprietorship - one person practice general partnership - multiple vets, unlimited liability S corps - doctors, dentists, etc. C Corps - most businesses like apple
What is depreciation?
something that loses value over time such as a long term asset
What is a long term asset?
something you use for an extended period of time
What are the downsides of S corporations?
state fee and annual examinations
Define current assets
stuff that can be converted to cash within a year
Define earnings per share (EPS)
take the earnings of a company and divide by the amount of shares
Define amortization
the amount of taxes we write off
Who board certifies veterinarians?
the college specialty that they go to
What are indirect costs?
the monetary value that is charged beyond the cost of good for the purpose of earning profit
What is good will in a practice?
the value of the business (value of the clients)
Define salvage value
the value the equipment or item has after the end of the lease
Who issues the veterinary technician license?
the veterinary medical board (subdivision of state department of consumer affairs)
How do veterinarians base prices?
they base them off their perception of costs and difficulty without an economic basis
How are veterinarians paid?
through salary and 20-25% commission
What is the purpose of theory of the firm?
to maximize shareholder equity
Why does a veterinary hospital need to employ a veterinary technician?
to monitor anesthesia
What is the purpose of the graph of fixed costs?
to show the most optimal level of clients and how many you are gaining or losing to determine prices
What are items that are highly elastic (most asked about)?
vaccines spays office visit prices microchips flea products
What are variable expenses?
vaccines, medicines, supplies, labs, overtime
Define assets
what they have
What is overcapacity?
when there are too many employees and machines aren't being used enough
What is reciprocity?
when you pass both exams and are able to practice your vet tech license in almost all states
How do you calculate an average transaction fee?
you divide the income from the previous year by the total number of transactions
What is the break even quantity formula?
BEQ=FC/P-VC (FC - fixed costs) (P - price charged per unit) (VC - variable costs)
What percentage of the income should your practice use for advertising?
3-5%
What are the percent profit margins for good and bad?
3-5% not good 5-10% good 10-15% great 20% terrific
What indirect cost factor are we using in this class?
40% so indirect costs (VC) = COGS x 0.4
How much time do vet and vet techs spend making income activity expense?
50%
How many licenses should you have to open a practice?
6 - business, X-ray, DEA, DVM, RVT, Premise zoned and USDA (not completely required)
What is the production possibility frontier?
A curve that depicts the various combinations of two procedures that can be produced when all the available resources are fully and efficiently employed.
Who accredits veterinary school?
AVMA
What is a capital lease?
a purchased asset for accounting purposes
Define liabilities
amounts owed
If you are in charge of marketing, how much should you spend on your marketing practice?
between 3-5%
How does society allocated scarce resources?
charge more
What is a veterinary practice's target market?
clients
What is the purpose of the economic pricing model?
comparing your prices to competing prices and making sure you're above the 5%
What is an example of a good operating lease?
computer
What is COGS?
cost of goods sold
What is the formula to find the current ratio?
current assets divided by current liability
What is one example of a short-term debt?
current liability
