By Nick Hernandez bio
It is once again time for medical practices to be working on their operating budget for the next calendar year. Unfortunately, too few practices actually take the time to create a meaningful budget, instead seeing the endeavor as complex and time-consuming, and usually resulting in something that won’t be used.
Creating and following a budget involves self-discipline and sacrifice, but it will help you develop wise spending habits to better manage your practice’s finances now and into the future.
An accurate, useful budget can be a valuable decision-making tool to analyze potential business threats and opportunities and help physician owners and practice administrators make sound, strategic, and disciplined choices. Having a business budget in place enables you to plan ahead, prioritize your allocation of funds, and gauge whether your financial predictions are being met. It will also enable you to make educated decisions to enhance your business operations with added clarity and efficiency.
How to create a well-planned budget
If you’re continually seeing failure at budgeting, usually the best place to look is at the fundamentals. It only takes a fundamental misstep or two to derail a well-planned and well-formed budget.
As you build your budget, follow these three guidelines to help keep you on the right track.
1. Be clear on why you are budgeting.
This might sound obvious, but if you’re developing a budget just because someone says it’s a good idea, it probably won’t help your practice very much. Similarly, if you’re just following the steps in a practice finance workbook because it suggests this is a great way to move toward financial success, your budget won’t be very useful to you.
The reason for budgeting is to help your practice spend less than it earns. It shows you where your spending weaknesses are and provides the structure for you to get stronger in those areas. If you’re in the dark about how much your practice spends and where you spend it, changing habits will be difficult. And even if you’re financially comfortable, a budget can help you identify unnecessary expenditures and suggest ways to redirect funds toward your priorities.
2. Be realistic.
Your budget won’t work for you if you make huge, unrealistic assumptions right off the bat. Small steps work; big steps result in failure. Operating a medical practice can be unpredictable at times, and often things happen that are out of your control. Consequently, you need to look at where money can be moved around within a budget.
For example, practices often use budgets to plan for future business growth and expansion. Capital saved on regular business expenditures may be placed into a special reserve account designated for selecting new business opportunities.
Budgeting for future growth opportunities will ensure that you practice has capital on hand when you need to make quick decisions to expand business operations. This capital may also be used during slow economic times as a safety net for paying regular business expenses.
3. Be flexible.
There may be moments when you discover that some element of your budget is just not right. Maybe you forgot some key piece of information, in which case your budget won’t work. Don’t panic. Don’t abandon your plans. Just go back, make the needed adjustments, and start over. This happens to everyone. It does not mean your budget was a failure; it just means it needed to evolve a little bit.
Regularly revisiting your practice’s budget will help you better control financial decisions because you will know exactly what you can afford to spend versus how much the practice is projecting to make.
Conclusion
Budgets should be realistic, flexible, and consistent with practice goals and objectives.
When properly executed, a practice budget will quickly become one of the most valuable resources in a practice’s decision-making toolbox. A proactive, comprehensive budget gives a practice the ability to properly track results, identify areas of concern, and quickly intervene when issues arise. And don’t be afraid to seek out the professional advice of a healthcare consultant or CPA. They have worked with many practices and can help identify budgetary items that you may be inclined to overlook.
Nick Hernandez, MBA, FACHE is the CEO and founder of ABISA, LLC, a consultancy specializing in strategic growth initiatives for physician practices. He can be contacted at nhernandez@abisallc. com.
