How to put together a budget for your practice
When was the last time you put together a budget for your medical or dental practice? Did you meet this budget? If you’re among the many business owners who make one but never look at it again, do you think that there’s any point to creating a budget in the first place? In this article, we shed some light on the importance of budgeting and outline the key steps to show you how to put one together for your practice.
A BUDGET IS A KEY TO SUCCESS
“I know I should have a budget for my practice, but I never seem to get round to it.” Does this sound familiar? Many practices never manage to establish a yearly budget and the ones that do, many tend to make one and never look at it again anyway.
This is a crazy thought when you think of all the benefits that creating a budget brings your practice:
It helps you run a successful business while also providing a high level of care to your patient base. It helps you make better purchasing decisions. It helps you manage your practice so that it runs both efficiently and effectively. It helps you achieve your goals as reviewing your budget every month allows you to make positive changes.(What are your medical practice goals?) It offers an insight into how your revenue is generated and what expenses you can actually control. It avoids large overheads, not having enough money left for the physicians at the end of the month, and having to call in a practice-management consultant when finances go awry. It avoids over- or under-staffing, supply waste, inappropriate purchasing, compensation debates among physicians, inadequate savings for practice improvements and higher-than-necessary income taxes. Now, doesn’t taking some time to plan and review your dental or medical practice budget seem worth it to you?
QUICK TIPS TO PUTTING TOGETHER A MEDICAL PRACTICE BUDGET
If creating a medical practice budget seems daunting to you, break it down into manageable chunks and tackle it one at a time. The end result and the benefits it will bring your practice will be more than worth your time.(Plan for a profitable and enjoyable year!)
Track your expenses – you need to know how much your practice is spending to budget effectively so create a practice-specific list of expense categories (chart of accounts) that you will track. Fortunately, standards and best practices have already been established for tracking expenses in a medical practice so you can easily find information on which expenses you should track, how to track them, and the bookkeeping protocols to use. You can also use the national statistics on practice overheads to create and modify your budget.
Review your revenue sources – as well as expenses, you need to know how you are generating revenue in your practice to create an effective medical practice budget. Take a look at the codes that you most commonly bill for and use your practice management software to produce a report by CPT code. Reviewing this, you can identify where your time is most profitable and which activities you can delegate to dental hygienists, physician assistants or nurse practitioners.
Use benchmarks to create your budget – using your chart of accounts, you now need to compare these with benchmark data to create your medical practice budget. There are two main sources of family practice cost data: the Statistics Report on Medical and Dental Income and Expense Averages and The Medical Group Management Association’s (MGMA) Cost Survey. Using these sources, you can compare each category in your chart of accounts (such as staffing counts, accounts-receivable levels and contractual disallowance percentages as a percentage of revenue) and adjust those benchmarks in your baseline to suit your practice.
Regularly compare your actual practice finances with your budget – after the physicians and office manager have created the budget, it should be maintained and regularly reviewed by the office manager or bookkeeper. By comparing your actual finances with your budget through quarterly budget reports and variance analysis, you can foresee any potential cash flow problems that may arise and make the necessary changes to prevent them from occurring.
TAKE CONTROL OF YOUR FINANCES AND CREATE A MEDICAL PRACTICE BUDGET
While budgeting isn’t typically taught in medical schools, it’s a skill well worth developing especially when you own your own practice. After all, you can’t run a successful practice without knowing your costs of doing business. Invest in the effort of budgeting and use these tips to create a solid budget plan. You’ll soon see that your practice is a lot smoother, more profitable, and under a lot less stress for it.
IF YOU WOULD LIKE SOME ASSISTANCE WITH YOUR PRACTICE BUDGETING, PLEASE FEEL FREE TO CONTACT ME VIA MITCHELL@AFFLUENCECA.COM.AU