As a physician running a private practice, creating and maintaining a budget is crucial for the financial health of your business. However, many physicians struggle to establish a budget or overlook its importance. In this article, we will discuss three steps to help you develop an effective budget for your practice.
Step 1: Track Expenses Appropriately
To create a budget, you need to have a clear understanding of your practice’s expenses. Start by keeping track of all your business expenditures. It’s important to follow established standards and best practices for expense tracking in the medical field. These practices cover which expenses to track, how to do it, and bookkeeping protocols.
You can also refer to national benchmark statistics on practice overhead. These statistics can be used to create and modify your budget in just a few minutes. By using these benchmarks, you can compare your practice’s financial information to industry standards, providing valuable insights into your expenses.
It’s crucial to designate a specific individual or team responsible for creating and maintaining the budget. In most cases, involving the physicians and office manager in budget creation, and having the office manager or bookkeeper oversee the budget through regular reports and variance analysis, works best.
Start by deciding which expenses to track. Don’t solely rely on the limited categories provided by IRS tax forms or CPAs for tax calculations. Instead, create a practice-specific list of expense categories known as a "general ledger" or "chart of accounts." This detailed list will allow you and your accountant to easily extract useful information for both internal and tax purposes.
Step 2: Set Realistic Revenue Goals
Once you have a clear understanding of your expenses, it’s time to set revenue goals for your practice. Consider your desired income level, practice growth, and the services you offer. By setting realistic revenue goals, you can ensure that your budget accurately reflects your practice’s financial needs.
Take into account factors such as patient volume, reimbursement rates, and potential changes in healthcare policies that may affect your revenue streams. By analyzing these factors, you can make informed decisions about your practice’s financial future.
Step 3: Regularly Evaluate Your Budget
Creating a budget is just the first step; regularly evaluating it is crucial for its effectiveness. Perform a variance analysis by comparing your actual expenses and revenue to your budgeted amounts. This analysis will help you identify any discrepancies and determine areas where you may be overspending or missing out on potential revenue.
Make adjustments to your budget as necessary. This may involve reallocating funds, reducing unnecessary expenses, or finding opportunities to increase revenue. Regularly reviewing your budget will not only help you stay within your financial goals but also allow you to make informed decisions about your practice’s growth and development.
Creating and maintaining a budget is an essential practice for physicians running a private practice. By tracking expenses appropriately, setting realistic revenue goals, and regularly evaluating your budget through variance analyses, you can ensure the financial stability and success of your practice.
This page from the American Academy of Family Physicians offers a wide selection of budgeting tips and suggestions that may help your practice.
