Did you know that building a better budget can boost your practice’s performance? Your medical or dental practice’s budget is a tool that tracks your revenue and expenditures, but also helps you plan for the future. When it comes time to make decisions about adding or reducing staff, moving to new space or purchasing/leasing new equipment, your budget will be invaluable in helping identify which options will work best and when. Your budget can also provide warning signs of financial trouble or suspected fraud, and make big changes less disruptive to cash flow.
The budget for your medical or dental practice is just as important as your personal budget. A well-constructed budget acts as a guide on where to focus cost-cutting efforts and can also be used to forecast returns on larger investments. Changes in revenue will affect your expenses, and vice versa, so you can’t just look at one side of the coin. Don’t get worried just yet, to be effective a budget does not have to be overly complicated.
Start with planning the revenue side of your practice budget. Look at the number and flow of patients and what services you provide to them. Evaluate the services you currently offer, as well as those you could offer that might be more profitable, or might attract additional patients. Look at the expenses associated with those services when determining whether changes are merited. Incurring expenses to support revenue-generating activities is okay. When considering revenue, also look at dropping some unfavorable contracts if the administrative work is too great to collect your money.
Try to organize and divide expenses into categories like supporting staff compensation and benefits, occupancy expense, furniture and equipment expense, medical expenses, miscellaneous expense, mid-level provider expense and physicians’ or dentists’ expense. These broad categories make a budget easier to understand, and see if and when variances occur. For example, medical or dental supplies could be one broad category, or broken down into specific subcategories for greater detail. When considering expenses don’t forget any changes in practice contributions to profit sharing.
Be sure to compare last year’s numbers to the current financial snapshot, and then compare that to what is projected toward the end of the year. If a particular category is much higher or lower than it was previously, start asking questions. Are we overstaffed? Why are supplies costing more this year than last? It may be time to look at vendors or procedures.
At Fuoco Group we feel it best that larger practice budgets should use separate revenue lines for each physician in your practice. When you create the budget, take a look at the payors mix as well. It’s not practical to say you’ll increase revenue by 10% next year, because when your patients are 50% Medicare your revenue may be flat.
Some larger medical and dental practices break it down even further, using separate revenue lines for different types of services provided. This can help clearly identify if too much, or too little, of the budget is allocated to a certain service or area.
However you choose to organize your practice budget, review it at least monthly and adjust periodically as needed. And, make sure it makes sense for your practice. Creating a pie-in-the-sky budget you’re unable to stick to won’t add value or revenue to your practice.
CONTACT US: Pulling together a budget shouldn’t be painful, even for a smaller solo practitioner. Our healthcare CPAs and medical accounting professionals have the perfect prescription for you and your practice. Let’s have an honest conversation about your budget so we can help to minimize the surprises and maximize your cash flow – then help you keep more of the profit in your pocket. Contact us toll free at 855-534-2727.