7 Key Steps for Better Budget Planning in the Medical Office

Posted by Practice Management Institute on Jul 17, 2019 12:01:59 PM
Practice Management Institute

Managing the day-to-day finances and budgetary needs of a busy medical office is a huge responsibility. Medical office managers should have formal training in accounting and financial best practices like cost analyses, financial reports, and financial forecasts. Managing the budget is a major undertaking but learning this one skill will set you up for success in other areas of financial management.

Budget Basics

A budget is a framework from which to make sound business decisions. A budget planning worksheet is a critical tool in the process, and to use it effectively you must understand and itemize the major revenues and expenses associated with running a medical practice. Generating enough revenue to cover expenses is mission critical.  Once you have a handle on the budget, you can develop both long- and short-term financial forecasting and set realistic goals for the future. Fine tune this process with these seven steps to better budget planning:

Step 1: Start by gathering past historical financial data.

Three years of history is optimal. Include monthly financial statements with a clear history of both income and expenses. A monthly breakdown will help you to plan expenses and forecast projected revenues. Furthermore, a quarterly breakdown will allow you to trend forward. Consider these factors when formulating a budget: increased revenues based on additional patients, better collection percentages, decreases in medical and office supply costs, and salary increases for physicians and staff.

Step 2: Review expenses carefully. Regarding cost control, address those areas of expenses that have been on the upswing. Use the budget planning process as an appropriate time to review and renegotiate contracts with managed care providers. In addition, review those contracts provided by other service contractors such as janitorial and laundering services, credit card companies, and your answering service to name a few. Are you satisfied with their level of service and the amount of money they charge? If not, to reduce costs it may be time to change vendors.

Step 3: Evaluate both your standard and managed care fee schedules. To get it spot on, purchase a physician fee schedule analyzer. It will assist you with this crucial task. And provide you with the most accurate information in relation to your practice’s specialty and geographic region.

Step 4: Formulate, review, and discuss a wish list of purchases that will help to improve the efficiency of the office and increase its bottom line. Consider both the clinical and administrative sides. Narrow down the list to those items that will best meet the goals of the practice. Then, do your homework and ask these questions: How will it increase efficiency? Will the patients benefit? Will the item reduce costs? Can we afford it?

Step 5: After assessing all factors you should be able to enter calculated projections for the upcoming year. Keep both variable and fixed expenses in mind when developing projections. It may also be necessary to do a cost-analysis on certain services or specific departments. Are you charging the right fee? Is the department operating at a profit or loss? How can the problem be fixed? Keep your report simple so that it can be easily read and understood by those with the need to know.

Step 6: Review and adjust projections based on new information. There’s no doubt that budgets are a work in progress. Therefore, it’s imperative to use any new information you have to adjust the plan. Scheduling a mid-year budget review meeting with executive staff and department managers is a great way to keep on track and maintain financial stability.

Step 7: Monitor the budget. A budget is a valuable tool to have but only if it is consistently monitored. As the office manager, make it your priority to review it at the end of each month. When successfully monitored it will assist you in identifying any target project fluctuations. Remember, a budget consists of predictions based on past data of expenses and revenues so fluctuations are expected.

Be the Expert in Financial Management

As a medical office manager, you need to be familiar with so many areas of financial management. Download the ebook Best Practices For Medical Administration for insights on practice, personnel, and financial management. Learn what’s needed to succeed in your role and the steps to take to advance your career.

 

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Topics: Practice management, CMOM, medical office manager topics, budget planning, financial management