When clients can't pay

The doctor tells Ms. Lonely the grim news: Her Chihuahua, Tiny Tim, needs costly, life-saving surgery. You present several payment options, but Ms. Lonely insists she can't pay. It's another appointment where sad eyes on both ends of the leash implore you to offer care they can't afford.

While it's impossible to help every client and pet in need, you can manage some requests with a compassionate care fund. It allows you to establish criteria for who you'll help and how. There's the easy way and the tax-exempt approach. Here's a quick review of both.

Option 1: Do it yourself

The simplest approach designates money for pet owners who request assistance. The practice owners may contribute practice funds, but your account can grow faster if you involve others—and it's an opportunity to rally your clients, team members, and friends around a good cause. Most clinics collect money through client and team member donations and targeted fund-raising events. You must report money collected as taxable practice income, but the cost of labor and supplies used while caring for recipient patients are normal, deductible operating expenses.

6 ways to pay

Remember, clients and team members who contribute to the fund can't deduct their donations as charitable contributions for income tax purposes, since your practice and the fund aren't qualified charities under U.S. tax law. However, this fund's simplicity makes it the logical choice for practices that infrequently encounter these situations.

Option 2: Get friendly with Uncle Sam

Create a 501(c) (3) charity under U.S. tax law granting exemption from federal income tax to qualifying nonprofit organizations. Your nonprofit organization collects, manages, and disburses the charitable funds. State law governs the creation and management of this entity, so procedures and paperwork vary from state to state. 501(c) (3) organizations must meet strict guidelines about soliciting and spending money for a qualified charitable purpose. Having tax-exempt status means there would be no income tax due on money that you receive in donations or most fund-raising activities. An added benefit: Any contributions to the charity are generally deductible for federal income tax purposes.

How much are you giving away?

If you wish to form a true nonprofit organization, you must develop a mission statement, select a board of directors, file legal paperwork with your state, and submit a lengthy application to the Internal Revenue Service (IRS). The IRS web site, www.irs.gov, outlines the steps to get started. Look for IRS Publication 557, Tax Exempt Status for Your Organization, which explains the pre-application process and filing requirements, application procedure, and annual reporting requirements. Also obtain Form 1023, Application for Recognition of Exemption (the application), and its related instructions. Because rules for forming and maintaining a 501(c) (3) organization are complex and vary state to state, it's best to seek local legal and tax advice.

Please note, this is a formal process to establish a new charitable organization separate from the veterinary practice. You must meet specific requirements, and the process is onerous at best. And there are ongoing compliance requirements to maintain your tax-exempt status. Unless you're planning to create a sizeable fund and solicit donations from the general public, this probably isn't the route to take. Sadly, the added expense of the record-keeping and annual reporting obligations can deplete the money intended to help needy pets. So if you choose this option, be sure you understand all rules and requirements.

Grow your fund

There are as many ways to fund raise as pets that need your help. As animal lovers, many of your clients are sympathetic to pets in need and may appreciate the chance to donate spare change or round up their payments to help another pet receive much-needed care. Place a sign in your reception area that tells clients you welcome their donations. Devote a portion of your reception bulletin board to pictures of pets you've helped and thank-you letters from their owners. Add information about your fund to your Web site and publish a feature article in your practice newsletter. Real-life examples of your generosity in action can generate interest in your practice and your compassionate care fund.

One caveat: Resist the urge to notify the local newspaper. An article will likely inspire more requests for help than donations for care.

Of course, to launch your fund, you'll need more than spare change. Fund-raisers increase awareness of your practice and earn community recognition for your hard work and humanitarian efforts. And they're terrific team-building exercises. Invite your team to generate fun fund-raising ideas, such as dog washes, bake sales, and pet parades. You might also conduct dog training classes for a fee. Just remember to tell participants you'll use part or all of the fees for your compassionate care fund. Clients may be more willing to pay for and attend these classes if they know the money is earmarked for a benevolent purpose. When you market these events, tell clients whether their donations are tax-deductible.

Give it away now

So now you have a fund, but how do you manage it and decide who you'll help? We recommend establishing a committee to set fund-raising goals and determine criteria for eligibility and distribution of money. This group may choose to disburse a certain amount per month or quarter or use the funds for specific causes. Just be sure to discuss general guidelines first. Remember, the criteria should match the practice's philosophy and prevent arbitrary or discriminatory procedures. For example, if the practice owners have a special interest in internal medicine, a passion for ferrets, or a focus on current clients only, find an approach that supports these goals.

Unfortunately, there will always be more requests than you can afford to answer. But once you establish a procedure, you'll find these situations easier to handle. While you want to help as many animals as you can, there's only so much you can do before this generosity threatens to overwhelm the practice's finances. Veterinary practices run on a narrow profit margin. Between 84 cents and 92 cents of every dollar you collect from clients pays doctor and staff salaries, rent, drugs and supplies, prescription diets, lab tests, and overhead costs like advertising, utilities, your Web site, and office supplies. That leaves the practice owner with between 8 cents and 16 cents to spend on new lab equipment or repaving the parking lot. There must be money left over at the end of the day, or the practice won't be able to help any animals at all.

Whether you establish an in-house fund for compassionate care or create a separate nonprofit entity to manage requests, your practice will be better able to support the community without hurting the bottom line. Besides helping pets and their owners, generous acts bring positive energy to the practice, boost staff morale, encourage teamwork, and promote community involvement and pride in the practice. Most important, you'll have the satisfaction of saying "yes" to those sad eyes at both ends of the leash.

Leslie A. Mamalis, MBA, MSIT, and Lorraine Monheiser List, CPA, CVA, are consultants with Summit Veterinary Advisors in Littleton, Colo., a firm that seeks to make veterinarians more successful, both personally and professionally. Please send questions or comments to firstline@advanstar.com