Protecting Profits from Increasing Labor Costs

Protecting Profits from Increasing Labor Costs

It’s a catch 22. You need to expand your staff to increase income, but additional labor costs have the potential to cut into profits and cash flow.

There is an option: complement your recruiting plan with a proactive business plan to manage the impact of potential labor cost increases.

Let’s start with what you need to consider when developing your recruiting plan. We’re all familiar with the data. There are more veterinary jobs than candidates and according to the 2023 AVMA State of the Profession report new graduates are experiencing the highest rates of job offers ever.

Competitive pay and meaningful benefits are table stakes for Millennials and Gen Zers. In fact, pay and benefits are the number one reason Gen Zers left a job in 2022, and many indicate they won’t apply to a company that doesn’t include pay information right in a job posting.

While a number of factors impact pay, according to the American Veterinary Medical Association (AVMA), veterinarians who graduated in 2022 received an average salary of  $111,242 ($124,686 at corporate practices and $105,637 at private practices). In addition, 81% of corporate practices offered a sign on bonus (averaging $27,181) while 42% of private practices offered one (averaging $10,678).

As for benefits, medical and 401(k) plans top the list, but they are only the start. Considering the amount of student loan debt many new vets carry, student loan repayment and financial advisory services are also of interest. (The AVMA reports, “Among new veterinarians, 38% had $200,000 or more in debt from earning their veterinary degree, inclusive of 13% who had $300,000 or more in debt. Another 18% had no such debt, while 10% had debt of less than $100,000, and 34% had debt of $100,000 to less than $200,000.”)

In general, new generations of workers put more value on working to live rather than the other way around. So, work-life balance via time-off benefits and flexible schedules are priorities. According to the American Animal Hospital Association (AAHA), paid time off is one of the biggest negotiation points of recruits resulting in demands for weekends off, four-day/ 32-hour work weeks, and three to four weeks of time off.

As for the actual job, new workers want stability and are looking for an employer that offers learning and development (especially mentoring), a career path, and a sense of purpose/opportunity to make a difference. In fact, reported, “A Linkedin Learning report found that 94% of employees say they would stay at a company longer if their employer invested in their personal and professional development.”

Beyond the work, new employees are looking for fit and how a potential employer treats employees. Many are defining their own professional brand and values and using that criteria to see how a potential workplace aligns. (Remember, these digital natives grew up with social media and smart phones and will no doubt go online to check out your reputation as an employer and a place to work.)

With these factors top of mind, how can you design an employment offer that enables you to compete for talent without putting profits and cash flow at risk? Consider your options and potential financial impact before ever making an offer. For example, can you negotiate lower pay for more time off or flexibility? How can you work differently to fulfill a new hire’s mentoring, learning and development needs? Do you really need that non-compete agreement or can it be a negotiation point?

Once you’ve developed an offer, calculate its potential impact on profits and consider whether operational changes can help offset cost increases.

  • Financial management: Do you regularly track and update your budget, expenses, and revenue? Are there ways to reduce expenses (i.e., group purchasing for supplies)?
  • Fee structure: Is it competitive? Do you review it regularly?
  • Operational efficiencies: Have you used process mapping to identify potential process efficiencies (i.e., scheduling, billing, inventory management, etc.)?
  • Billing and collections: Review procedures to promote accuracy and timeliness; promptly follow-up on outstanding payments; and institute a process for overdue account collections. Consider whether payment plans or an online payment channel can help.
  • Inventory management: Track inventory levels and reordering; review usage patterns; and negotiate with suppliers.
  • Expand/diversify revenue streams: Consider offering additional services (i.e., telehealth or pet grooming/boarding).
  • Tax strategy: Consider conducting a cost segregation study to determine the impact of increasing depreciation of facility components on new construction.

If you need support to create a winning employment deal or more insights into business changes that can help pay for higher salaries, more benefits and other new hire demands, RBT CPAs and our affiliates are here to help. Give us a call to find out how we can help you with financial planning, cash flow management, accounting, taxes, audits, pricing, recruiting, retention, and more.


RBT CPAs is proud to say all of our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.