Starting a Practice: How to Develop a Budget
When starting up a practice, establishing a sensible budget is a primary concern. You need one that both launches the operation safely and serves it well going forward. Every budget has two sides: cost and revenue. Let’s take a look at both.
Defining your operational costs
Practice costs loosely break into three categories: space, equipment and staffing. You’ll need to determine expenses for the first six months and what you’ll need by the end of the first year. Decide:
- The type of practice you want,
- How much space you need and its location,
- What type of equipment you’ll need,
- Whether you plan to rent or own equipment, and
- Whether you plan to rent or own your space.
Another significant consideration is the type and number of staff, how much to pay them, and what benefits you’ll offer. Determining appropriate and competitive compensation can be challenging. Create job titles and descriptions to compare to Department of Labor data, as well as local and regional data. Create a range of compensation amounts, not a fixed number, because you’ll need to pay based on experience.
Benefits can be a complicated issue, too — especially with the uncertain health care market. Typically, it’s wise to rely on local standards as a benchmark, which will require talking to colleagues in the area.
Other costs to anticipate include outlays for marketing and advertising, different forms of liability insurance, facility repairs and maintenance, postage, contract management services, billing, security, medical waste disposal, and communications and technology.
The Medical Group Management Association has benchmarking data on specialties. It also has calculators for determining budgets and expenses compared to the national average. Various professional organizations within your specialty typically have benchmarking data as well.
Minding your personal expenses
Your own personal expenses also affect your practice budget. These typically consist of mortgage or rent; car payments, gas and insurance; credit card debts and other loan payments; and essentials such as food and utilities.
So, for example, you might calculate that it will take $15,000 per month to run your practice. At the same time, your personal budget is $6,000 per month or, in total, $21,000 per month.
Estimating your revenue
On the revenue side, you’ll need to estimate how much you’re likely to be paid for each patient.
For instance, if you plan to collect $100 per patient visit, you’ll need at least 210 patient visits per month to meet the aforementioned $21,000 per month budget. With this established, you can calculate whether you have enough funds in your budget to make contacts and develop referral sources to generate 210 patients per month via advertising, marketing and communications.
Getting off on the right foot
Clearly, some aspects of your budget will be decided by your practice’s economics and your own philosophy. Others will be set by your local economy and what the competition is for good employees in your area. Work with your CPA and banker to develop a solid budget that gets your practice off on the right foot.