Hitting the budget bull’s-eye

Practice leaders have many ways to budget. Many take the path of least resistance and simply reforecast the past year’s expenses — perhaps with a percentage increase, perhaps not. Others choose to use elaborate budget templates and forecasting techniques, and unfortunately a few choose to “fly by the seat of their pants” and don’t budget at all.

Preparing an accurate budget and using the budget as a management tool through the year can instill cost discipline in the practice and, most importantly, helps to avoid disconcerting (and perhaps career-limiting) surprises at the end of the year if the practice misses its profit forecast.

Experienced administrators know that preparing a budget provides excellent insights for what will happen during the next year and provides managers the opportunity to affect the eventual bottom line by controlling expenses, launching new product lines and taking other actions. However, as the practice moves through the budget year, a static budget built months earlier becomes more of a historical document than a road map guiding the practice to its goals.

To improve its accuracy, a budget needs constant attention and sometimes adjustment to reflect actual expenses and revenue. More experienced managers realize that practice revenue and expenses are related directly to the volume of patients and will create a flexible budget from the start. A flexible budget starts with a static budget forecast and adjusts the initial budget as the volume of work differs from the initial forecast.

A flexible budget recognizes that revenue and some expenses such as drugs or staff costs will be directly affected by the volume of services while other costs such as professional liability insurance are not affected by a change in patient volume.