Do you know how much your independent practice spends on overhead every month? Do you have a clear picture of your monthly revenue? Have you set financial goals for your practice? As an independent physician, you are in the business of helping people become and stay healthy. You are also in the business of keeping your practice healthy. Learning more about budgeting for your small practice will enable you to do just that.
Your practice is a business. Budgeting for your small practice helps you understand how to more efficiently and effectively run that business. Operating from day to day without a clear understanding of your financial situation is like going on a trip to an unknown spot without a dependable GPS. A budget that is properly prepared and reviewed on a regular basis offers useful insights into the financial health—present and future—of your practice.
Budgeting for your small practice involves some basic steps:
- Keep your budget simple – and useful. What works for another physician’s practice might not work for yours. Your small practice has basic expenses each month and has a relatively stable source of income. Use those to set up categories that are meaningful to you and your practice.
- Track what you spend your money on, on a regular basis. For example, your categories might include staff compensation and benefits, office rent, equipment expenses, laboratory expenses, and office supplies.
- Use actual dollar amounts – percentages are relative and may be misleading. It will be particularly important to be able to review dollar amounts for increases or decreases when you look for trends in your practice’s finances.
- Review your budget monthly or quarterly. Periodically compare your actual expenses and income with your budget then make changes where necessary. Look for numbers that vary from what you expected, determine how much they vary, and then determine the reason. You can use this analysis to act on what you’ve learned and focus on a solution for financial viability.
- Look for trends. As you review your actual numbers from month to month and year to year (comparing the same months against each other), take note when a category appears to be increasing or decreasing significantly. If expenses are increasing, it might be time to review your suppliers. If income is decreasing, you might need to be proactive in marketing your practice to new patients.
It’s never too late to develop a budget. Rick Gundling, CMA, senior vice president for healthcare financial practices for the Healthcare Financial Management Association, relates budgeting for your small practice to preventive medicine. “If you think of a practice as a living body, the budget is like a vaccine,” he says, “Having one doesn’t mean your practice’s health won’t go off track, but the risks are minimized. And when you check in on a periodic basis, that’s like your financial stethoscope.”