Part 2 of a two-part primer for your practice.
You don’t have to wait for a new calendar year to begin a budget. This indispensable management tool helps you make strategic operating decisions and deal with things that can adversely impact the financial success of your practice. Budgeting quantifies expected income and expenses based on the financial goals of your practice. Detailed budgets are normally created on an annual basis, then reviewed and compared to actual results to analyze variances.
Identify Your Needs
When creating a budget, a good starting point is to outline where you want the business to go. You’ll need to make certain assumptions, and some of them will involve factors you can’t control. In order to manage these assumptions, clearly identify and document them so you can reevaluate them when reviewing a budget throughout the year.
Here are some questions to consider when forming budgeting assumptions:
- Could there be fluctuations in your patient load?
- Will you be adding a new provider?
- Are there plans to add more locations?
- Do you foresee any regulatory issues?
- What about technological advancements?
Once you have your list of assumptions, begin creating your budget model by delineating fixed expenses like rent, insurance, interest and utilities. The next step is to identify variable costs. As revenue grows, you can expect a bump in theses expenses—things like payroll, medical supplies and billing services. As patient load increases, for example, so does the need for staffing, resulting in payroll increases.
Wrap up your budget by projecting expenses you have the most control over. Identify the discretionary costs you might cut if times are tough, or areas you’ll develop if you exceed your financial expectations.
To help plan for growth, monitor your progress and identify potential problems, monthly financial statements should be reviewed. In addition to using budgeted numbers as a point of comparison, it’s always helpful to compare the current month’s statements to those of the previous month. As the months go by, you’ll pinpoint trends and spot potential issues. Along with balance sheets and income statements, don’t forget to include your cash flow statement in this process, as it shows the uses and sources of cash and the changes in your cash position.
Budgeting is essential to any practice, if used judiciously. That said, it’s best to rely on key members of your staff for help with this process, as they have knowledge of critical business practices and functions.