Budgeting is no easy task. It is cumbersome, slow, frustrating and most
often wrong by the time you finish with it. Most of us are really bad at budgeting, therefore we avoid it like the plague.
But we should all agree that budgeting is very important and quite frankly a must when running a business.
The way that I’ve approached budgeting for the practice over the years is by keeping it as simple as possible. And then, once I’ve mastered the simple, or at least feel comfortable, I’ll add another level of complexity.
If you are feeling a overwhelmed about this budgeting thing, I’m gonna share my KISS budgeting process. Hopefully, you’ll realize it isn’t that difficult
So here we go.
Start by determining your expenses for the previous year and write that number down. Some people include only the operational cost (ie rent, employee salaries, advertising, medical supplies), while others include owner’s salaries, malpractice health insurance etc.
Because we are keeping it simple, we are not going to debate which one is better than the other. So pick your total yearly expense number – whatever that may be – and don’t worry about which one has more merit than the other.
Think hard about the year ahead. Do you think you will spend more or the same amount of money in the coming year? Things to consider that will increase cost: moving the practice, adding staff, adding a physician, buying equipment, advertising more, buying an EMR, transitioning to another practice management system.
I would also throw in here how much money you’d like to put away for a rainy day. For example, a rainy day fund in case ICD-10 transition goes worse than we anticipate.
NOTE: Always account for more than what you think you’ll need. Remember that cost always rises. So even if you think you are going to replicate the previous year, take into account price increases from your vendors, employee raises or even a payer paying less for a CPT out of the blue.
REVENUE PER PATIENT
Once you have that “cost” number, you’ll need to know your average payment per patient seen.
Formula: Total Revenue (12-month period) / Total Number of Patients Seen (12-month period) = Average Rev Per Patient.
COST/AVG REV PER PATIENT
Take the cost number you came up with and divide it by the average rev per patient. What does this result gives you? Number Of Patients.
Cost / Average Rev = No. of Patients
This Number of Patients result is in essence the amount of patients the practice has to see in order to cover your cost.
If you want to get a little fancy, you can divide the No. of Patients number into number of months, weeks or days the practice is open. This will give your practice specific patient counts that will help your practice stick with the budget.
Few things to keep in mind.
Many things can alter a practice’s Rev Per Patient number. For example, if the practice start seeing more of the patients that carry less than ideal insurance plans, your average will drop.
If you happen to see more of the better paying patients then your average will increase; which may result in having to see less patients a day stay within budget.
If the practice miscalculates cost or doesn’t anticipate a big expense, the numbers will shift as well.
Types of visits will also sway the numbers. Office visits generally pay less than wellness visits.Remember, we are talking about averages. Averages are, well, they are averages.
Now, I’m not suggesting this budgeting method is perfect or comprehensive. But at the very least following these steps will put you on a better path than doing nothing at all.
The point of this exercise is to try to help those of us that struggle with budgeting, or have no idea where to begin, and to think about how to approach this in a less overwhelming way.
Second, the simplistic approach will motivate readers to give it a try. Doing some budgeting is better than none at all.