Now that the Medicare fees for 2007 are locked in (assuming President Bush signs the Tax Relief and Health Care Act of 2006), you can now revise and finalize your practice operating budget for 2007.
Using prior performance is a reasonable starting point. I would suggest that you start with 2-3 years of history for each account category – office supplies, staff health insurance, utilities, rent, medical supplies, etc. For internal budgeting purposes, I like to be rather detailed, much more so than I would be – nor need to be – for tax purposes.
From this history, you can then trend the historical data to create a projected number for 2007. Now, Excel does have the capacity to develop a forecast (search using “trending” in Excel Help). You can also adjust this, depenidng upon your degree of intuitive “feel” you have for the data and your practice. Budgeting is not a science. I always add a contingency factor of 3 percent of expenses to the expense total to allow for changing circumstances and the inherent unpredictability of looking into the future.
The biggest expense is most likely personnel. Your first step is to determine your overall budget for raises. For budgeting purposes, individual raises are not as material as the total of all raises.Secondly, plan for any new positions. For budget purposes, it is proper to budget for only the months a position will be filled; for example, a new position won´t start until the second quarter of the year, so you won´t need to budget for the full annual pay. HOWEVER, the following year will require the full salary, so you must account for this in your planning. The third personnel area to work on is a budget for overtime pay. Some of this may be routine overtime, and some is a budget to cover needs throughout the year (extra workload, vacations, etc). Here again, it is important to have an overall budget for overtime for the practice, accounting for the hours and the pay levels involved. Which individuals actually earn overtime pay is less material for budget purposes..
As you finalize the budget, work with your supervisors and get their input. They may have insights and knowledge that you may not be aware of, or have ideas and plans that they would like to pursue in 2007.
The last step is to present the budget to the board of your practice for approval. Share the final budget with your supervisors, so they also understand the parameters which they are working with.
A physician I once worked for asked me if the practice budget was like the one at home – when you’ve spent the budget, there is no more. Obviously, that’s not the case in a business. By the same token, if expenses are running higher than expected and cannot be explained by increased business and, presumably, revenue, then you will have to take steps to slow and stop certain spending. These decisions should also be made in conjunction with your supervisors and the board.
Have a good year!