A budget – it’s the key to success for any business. And for a medical practice or business in the allied health industry, it’s no different.
Putting together a budget should be an annual exercise, but many medical practices never establish one, or if they do, never look at it again, deeming the entire budget useless.
Medical practices like these, face a magnitude of problems from over and understaffing, supply waste, inadequate savings, incorrect or unnecessary purchasing, and that’s just the beginning.
By tracking your expenses and comparing them to benchmarks, you can create a budget that’s useful and easy to maintain. An effective budget could mean incredible things for your business and a healthier practice overall. But what is an effective budget and how do you begin putting it together?
We’re here to get you started.
What does a practice budget consist of?
Budgets involve the allocation of financial resources and should be developed as part of the practice’s strategic (long-term) and business plan (one year).
There are four elements to a budget:
- Income forecast
- Expense budget
- Profit and loss budget
- Cash flow budget
How do you put all this together? By starting with a few important steps.
Step 1: Track expenses for your budget
An effective budget doesn’t have to be complicated; you can start putting it together by simply tracking your practice expenses.
Many Doctors or allied health professionals, don’t know the costs associated with their business, much less what their costs should be. Granted, Doctors aren’t usually taught to budget in medical school, but perhaps they should be.
So, a great place to start is by appropriately tracking your expenses. How do you do this? By listing every single expense associated with your business, and putting these into categories, detailing them as much as possible, and putting these in what is referred to as a ‘Chart of Accounts’. Depending on the practice, the number of expenses and categories will differ.
Once you’re clear on all your expenses, you can begin tracking these.
Step 2: Use budgeting benchmarks
The next step is to use the Chart of Accounts you’ve created to establish a budget for your practice.
What is benchmarking? It’s a process where key items of your practice are compared against other similar practices. This is typically done by obtaining national or regional family practice overhead statistics for each category in your Chart of Accounts and then adjusting those benchmarks to suit your practice.
Many practitioners believe the primary role of benchmarking is to compare your practice against competitors. If you only do this, you’ll miss out on the full power of benchmarking for your budget and your business.
Step 3: Regularly compare your practice’s finances with your budget
A budget serves no purpose if you don’t periodically compare your practice’s actual finances with your budget and make necessary changes.
To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas.
This type of evaluation is referred to as a “variance analysis.” Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed.
An effective budget could mean incredible things for your business and a healthier practice overall.
“If you think of a practice as a living body, the budget is like a vaccine.”
(Rick Gundling, Healthcare Financial Management Association, CMA)
Are you a doctor who needs help putting together a budget for your Queensland practice? We can help.
Crest Accountants are experienced in medical practice accounting , we have over 40 years’ experience in working with doctors and allied health professionals and can help you put together an effective budget for your practice. We take the time to get to know our clients so that can you feel confident we have your best interest at heart. Crest Accountants, accountants you can trust.
Contact us and book an appointment to discuss your practice budgeting needs today.