A financial budget should accomplish three things.
A financial budget should accomplish three things:
1. It should help you plan for the future. How can the owners or managers of a veterinary practice properly plan for the future without an idea of where the practice is headed financially? How can the owners or managers of a veterinary practice make major decisions – buying a large piece of equipment, hiring a new associate, for example – without an idea of whether the practice can or will be able to afford it?
2. It should help you get a better handle on your revenue and expenses. Nothing helps a practice owner understand where his or her money is coming from and going then a financial budget. Sitting down and producing a budget will force the owner to understand the finances of the practice. This is always a good thing.
3. It should be a motivating tool for the owners and staff. The budget not only helps the owner chart where his or her practice is headed, but helps motivate the staff to get the practice there. Setting revenue and expenses goals is a key reason to prepare a budget.
A few ground-rules/misconceptions about budgets:
What you need to begin the budgeting process:
The most difficult and time consuming part of preparing an accurate budget is the projection of revenue. How do you gauge how many clients will walk in the door? How to predict what procedures they will accept or reject?
Revenue budgeting can be as elaborate or as simple as you would like. Some practices like to project one number: total deposits for the month. Others like to project out different revenue sources, broken down by days open, clients seen, procedures performed, etc.
The most accurate approach is the more detailed approach. Monitor prior year numbers to project out where you think things will go.
The other more difficult area relates to staff costs. Usually the largest of the expense categories, staff costs can be unwieldy to anticipate, but usually if there are costs overruns in a practice, this is the area they are in.
Staff costs budgeting should be detailed by employee. A separate schedule broken down by doctors, back office, front office, and management should be prepared.
Include in staff costs section all payroll related costs: payroll taxes, workers comp insurance, benefits, continuing education, dues, all other employee related costs.
Animal care costs should be a percentage of gross, based entirely on historical averages. If you are trying to lower these percentages or alter your spending in the future, then the budget is where you should attempt to do this. The new percentages, however, should be realistic goals.
Occupancy costs should be fairly simple to project, as most of these expenses are fixed or quasi-fixed costs (rent, utilities, telephone, maintenance, property taxes, etc.)
Likewise, administrative costs are generally pretty fixed and should be pretty easy to project.
Other areas that should be considered in your budget:
Finally, once you are happy with your budget and feel it is reasonably attainable, remember to compare the budget on a monthly basis to actual numbers.
Analyze all discrepancies and determine why the numbers are different.