Budgets should an integral part of your overall financial plan. With budgets in place you are more likely to control the financial
destiny of the practice. The question always is; are you controlling your financial affairs or is the practice controlling
you? While preparing a budget may not fully answer the question, it can certainly play a part in determining its financial
success. It is the tool that quantifies the practice's goals and serves as a yardstick for measuring its degree of success.
It will also relieve your sense of frustration resulting from a lack of direction.
What else can a budget be used for? Well not only can it be used for predicting income; it can be used to assist in controlling
expenses. It can be used in such a way, that once completed, the information can be given to department heads or others who
are put in control of practice areas such as payroll, inventory control, and administrative supplies to assist in controlling
their areas of responsibility. If you hold them accountable, it is also very important that you provide feedback of actual
expenses to budget so that they can see and measure how they are doing.
How do you get started preparing your budget? Set the budget utilizing a spreadsheet program like excel where it is easy to
set totals and other calculations by formula. Budgets are meant to be flexible and subject to change so when you do so you
want to make it easy on yourself for all other results to change as well. "What if" situations can easily be handled in this
way. An alternative to the excel spreadsheet would be the utilization of QuickBooks®. See the May, 2004 issue of Veterinary Economics, page 16 for setting up a budget in QuickBooks®. QuickBooks® have easy to use budget preparation tools that allow you to
format your information the same way the QuickBooks® chart of accounts is set up. Setting up your budget tool in the same
format as you report historical is important so you can make easy comparisons to actual data.
Where do the numbers come from? The past is always a great predictor of the future and finding past financial results and
having them in front of you is important.
The starting place for your budget is income. The easiest way to project it is to do so by utilizing your veterinary software
to determine your past year's monthly income. Enter these amounts onto the spreadsheet. Note the number of invoices generated
each month and the average invoice. Then project this year's variable by looking at each component and determining how it
will increase. When projecting invoices, consider any new programs or marketing you will be doing that will increase the number
of invoices. For instance, you may be planning a big dental promotion next February so you should take this into consideration
when projecting how many invoices will be generated in the month of February. At the same time look at changes in the average
invoice and take into consideration new marketing of services to existing clients or maybe changes in vaccine protocols. Also,
don't forget to also consider any changes in the pricing structure that may take place. Once the revenue budget is complete,
also prepare a budget for each doctor based upon the same methodology. Income budgets as a component of the entire process
should be shared with staff and doctors. Once the process is complete also remember to benchmark the actual results with the
budget and share that information. This way, doctors and staff will have an ability to measure their performance in terms
of what was anticipated. Significant variance between the budget and actual should be explained.
Once the income is complete, it's time to move to expenses. Expenses should be looked at in terms of those that are variable
and those that are fixed. Fixed should be put into the budget as set dollar amounts in the month the expense is actually incurred.
For instance, if the rent is $6,000 per month, then this amount is put into the budget every month for the same amount. Insurance
may be a fixed amount but only paid in January, April, and July. If this is the case, then the amounts anticipated to be paid
should be input only in those months. The following is a list of fixed expenses which should be input into the budget based
upon a fixed dollar amount:
Expenses that are not fixed by dollars are considered variable and in theory move in direct proportion to fluctuations in
income. These expenses should be budgeted as a percentage of gross income. The following is a list of variable expenses that
should be budgeted based upon a percentage of gross income:
• Drugs and medical supplies
• Lab costs
• Radiology costs
• Dietary products
• Surgery costs
• Dentistry costs
• Anesthesia costs
• Animal disposal
• Salaries and wages
• Payroll taxes
The variable expense percentages that are used should be based upon the historical past or based upon an anticipated target.
For instance, a look at the previous year financial statements indicate that that drug and supply costs for 2009 were 18%
of gross revenue but the industry target is 16%. You can base the cost at the 18% or 16% depending upon the target you are
looking to achieve.
The following are industry benchmarks may wish to consider for both income and expenses when preparing your budget:
Once the budgets are complete, review them to make sure they accomplish your financial goals and objectives. Also, if you
prepared them with a spreadsheet program, transfer the data into your accounting program so you can print monthly actual to
budget reports. This will allow you to measure your performance and stay on track with your goals.