Wednesday, September 14, 2011

Starting a new vet clinic - depreciation of expensive equipment

"Why don't you just pay for the general anaesthetic machine and the blood pressure monitoring machine instead of getting them free?" I spoke to a vet who started a new clinic yesterday Wed Sep 14, 2011. "It will cost less than paying $60,000 for some blood test machines as you will not have the sufficient numbers of blood test cases in the first year of practice?"

Blood tests can be out-sourced for the time being. It costs about $100-200 per blood tests and many Singapore pet owners are not keen on this. It depends on the spending power of the location and his location was in the heartlands.

Buying a package may be cheaper per item, but money must be spent on essential items first. If money is not a problem, buy digital X-rays, ultrasound, CT scan, MRI scan.

Many new vets don't consider the economics and depreciation of expensive equipment affecting the bottom line. No large crowd of clientele will rush in when the clinic starts up as many pet owners appear to be selective of vets. This gives existing older practices an advantage. So, start ups charge much lower fees to attract the pet owners. This leads to lower profits if any and cause a downward spiral in a business that should be giving a decent income to the vet.

With over 45 vet clinics in Singapore, vet fees will be much lower for most procedures. It is just not possible to recover costs from expensive equipment for a start up. Depreciation of 5 years of equipment is used.

I still remember some 40 years ago when the first two vet practices were started as I did some work in one of them in the evenings. Essential items like X-ray machine (2nd hand) were bought. No big blood test equipment, ultrasound, MRI scan.

Times have changed now but caseload/vet clinic has decreased due to the explosive increase in numbers of practices.

Collaborate with other practices with such equipment may be the wise strategy as the clinic must sustain its profitability. If there is a rich supporter, the practice still can't afford to lose money over many years. So it has to charge higher fees but gets less clients as many pet owners are price conscious. So, it is difficult to sustain the practice (staff costs are high too) unless the vet has deep pockets for the next 5-10 years and have other sources of income.

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