Creating
a Budget for Your Practice 101
For any size medical practice, a budget is a useful financial control tool
because it can help you improve financial performance and ensure ongoing
profitability.
An annual budget makes it easy to track your practice’s expenditures and
collected income, as well as evaluate your profitability by comparing actual
spending and income generated to anticipated amounts.
Budget variance reporting prevents unpleasant financial surprises by letting
you identify issues that need to be addressed before they develop into major
problems. Moreover, a budget can become a mini-business plan for the coming
year and beyond. Working with a realistic projection of your costs and
revenue can facilitate making business decisions, such as whether to add (or
eliminate) procedures, equipment or staff.
Categorizing Current Spending
Budget creation typically begins with a list of expense categories specific
to the spending history of your practice. The categories you decide to track
might include owners’ draws/wages, owners’ benefits, other physicians’
wages, other physicians’ benefits, staff wages, staff benefits, rent,
utilities, malpractice insurance, business insurance, supplies, marketing,
capital purchases and repairs and maintenance.
Consider splitting certain categories for more exact tracking, such as
breaking down “supplies” into “clinical” and “office.” Such sub-categories
can make spending analysis easier. You also may want to use expense
categories that allow for meaningful comparisons of your spending with
benchmark cost statistics for similar practices, if available.
Baseline Budget
With your tracking categories established, you’ll need a corresponding
12-month expenditure history drawn from your accounting system’s records.
These figures can be used as the baseline for projecting the next 12-months’
expenditures. However, each category should be adjusted as needed to reflect
any changes you anticipate.
You might consider, for example:
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The degree to which anticipated changes in patient volume will affect your variable expenses for staffing and supplies
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The amount of any increase or decrease in salaries and benefits due to staffing changes or adjustments in your benefits package
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The cost and continuing support expenses for equipment to be acquired or new services you are planning
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Other anticipated changes in overhead expenses, such as insurance costs
You’ll need
to follow a similar process to create the income side of your budget. Be
sure to include any anticipated additional revenues from the growth of your
patient list or price changes for medical services.
Using Variances
Once your annual spending and revenue plan is complete, you’ll be ready to
start tracking results and using variance analysis—periodic
comparisons of your actual results with budgeted amounts—to
uncover differences from the plan that have occurred. It’s a good idea to
review the variance data monthly or quarterly.
Variance reporting should simplify the identification of any significant
departures from budgeted amounts and the percentage differences. As you
learn of significant items needing your attention and the dollar impact on
your profitability, you can determine why each variance has occurred and
decide whether and what remedial action is necessary.
Let Us Help
We can advise you about setting up an easy-to-work-with budget system that
fits your practice’s financial situation and needs. Please
contact us about it.
Health Care Commentaries is
provided by Somerset’s
Health Care Team
for our clients and other interested persons upon request. Since
technical information is presented in generalized fashion, no final
conclusion on these topics should be made without further review. For
additional information on the issues discussed, please contact a member
of our Health Care Team. This
document is not intended or written to be used, and cannot be used, for
the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
http://healthcare.somersetcpas.com
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