24 Oct How to Create a Budget for Your Practice
One of the keys to any successful business is creating, implementing and managing a budget. Although this process may take time and effort, it’s a smart investment that will help shape the goals and financial success of your practice as you move forward. If this seems like a daunting challenge, it helps to break down the process into a few manageable chunks. First, it’s important to know and understand the goals of creating a budget. Then, you can follow six general guidelines to begin the process for your own practice.
Goals of a Successful Budget
Simply put, a budget gives you a way to accurately gauge your practice’s actual performance compared to financial expectations. Create your budget with a few specific goals in mind to help guide you through the process and ensure that the outcome is an accurate and useful depiction of where your practice currently is, and where it’s projected to go financially. A successful budget should:
- Coincide with your practice’s strategic plan and marketing efforts. Use your budget in tandem with your strategic plan to communicate various milestones and goals. For example, if opening a new office is part of the strategic plan for your practice, be sure that the expenses involved in this are included in your budget, and vice versa.
- Create discipline. Without an active budget in place, it can be all too easy to lose track of where money is actually being spent. A budget that is constantly assessed and managed will help to add a level of financial discipline into your practice. Stating, for example, that you will not spend more than X amount of money on marketing, you’ll be much more likely to make decisions that reflect upon your budget, helping you make smart financial decisions that are based on solid numbers rather than gut inclinations or spur-of-the-moment choices.
- Facilitate the planning process. While the budget itself isn’t going to answer all of your questions, it can help to point the way toward those answers. For example, if you’re asking yourself, “Why is my practice losing money?” your budget can help you get to the bottom of that question by providing all of the necessary components, namely, what is the comparison between your revenue and expenses.
Preparing Your Budget
Now that you’re ready to dig a little deeper into the details of your budget, there are a few steps that you can follow to help facilitate the process:
- Forecast revenues and expenses. This is typically the first step of the process because it can give you an idea of your financial history, your present circumstances and where you project your practice to be in the future. Use past and current revenues and expenses to help anticipate the numbers in the future. Take into account any major changes that you’ve made to your practice, or that you’ve noticed in industry trends. For example, if you’ve been able to add another exam room to your office, you’ll want to factor in the projected increase in the number of patients per day you’ll be able to see, which translates into added revenue.
- Examine your goals and expectations. This can include both your personal goals (as a dermatologist/business owner) as well as yours goals for the practice. If there are certain changes that you know will be necessary in order to achieve these goals, be sure to include them in the budget. This could include such things as hiring additional employees, changing your hours of service or even changes in productivity.
- Develop a cash budget and balance. Determine your cash budget by removing any non-cash items that may be included in your list of expenses and revenues on the accrual basis. This will give you a better idea of the actual cash flow of your practice.
- Develop and manage a capital expenditures budget. On the other hand, your capital expenditures budget will determine changes in long-term assets, which may include property and equipment.
- Determine retained earnings. Finally, determine the overall “profit” or “loss” of your practice based on the difference between expenses and revenues.
Although it takes a bit of time and planning on your part to create and manage an accurate, successful budget, it’s well worth the investment in the long run. And remember that your budget isn’t set in stone. In fact, it should be monitored, assessed and amended regularly to ensure that your revenue and expenses still align with the goals and needs of your practice.
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