By Nick Hernandez
It is once again the time of year when medical practices should be working to finalize 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 a complex, time-consuming process that likely will not be used. Creating and following a budget involves self-discipline and sacrifice, but will help you develop wise spending habits to better manage your practice’s finances now and into the future.
If you’re continually seeing failure at budgeting, the best place to look is usually at the fundamentals. It only takes a fundamental misstep or two to transform a well-planned and well-formed budget into a complete disaster. Budgets should be realistic, flexible, and consistent with practice goals and objectives.
Here are three keys to consider that will point you on the right track toward success as you build your budget:
1. Know why you are budgeting. If you’re developing a budget just because someone says it’s a good idea, it probably won’t help 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 towards financial success, budgeting won’t help much at all. The reason for budgeting is to help you spend less than you earn. It shows you where your spending weaknesses are and provides the structure for you to get stronger in those areas. It can also help you determine whether you need a loan for your medical practice to keep operations running smoothly. 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 deduce ways to redirect funds towards your priorities.
2. Be realistic. It’s not going to work 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 things happen that are out of your control. Consequently, 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 ensures that practices have capital on hand when needing to make quick decisions for expanding 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 will usually be moments when you’re learning to budget when you discover that some element of your budget is just not right. Take time to readjust figures. It’s not realistic because you forgot about some key piece of information while making your plans, and that means the budget you developed doesn’t really work. Don’t panic. Don’t abandon your plans. Just go back to your plans, make the needed adjustments, and start over again. This is normal, it happens to everyone. It does not mean your budget was a failure at all, 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.
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.
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 which you may be inclined to overlook.