A budget can significantly reduce the stress associated with running a veterinary practice – especially during uncertain economic times – by helping you evaluate performance, set goals, measure progress, and make informed short- and long-term decisions and plans. With a budget, you can proactively manage your practice, making the most of it when business is good and successfully navigating more challenging times.
The best place to start is with the basics: Revenue minus expenses equals profits.
Revenue is how much money is coming into your business. You should set revenue goals and growth based on a number of considerations:
- Will your annual revenue goals on top line revenue help you achieve goals for profitability?
- Are you setting annual price increases for non-shoppable services high enough to absorb expected increases in prescription drugs, payroll, etc.?
- Are revenue goals achievable based on doctors’ current production levels?
- What can you do – from coaching to adopting new lines of business or services – to help doctors achieve revenue goals?
- Do you review doctor production with associate vets to ensure they reach weekly and monthly goals?
When it comes to revenue, plan on tracking it weekly, monthly, quarterly, and annually so you can see how it may be fluctuating in the short-term; compare it to past performance; and set goals for the future. (You can also use it to identify seasonal patterns so you’ll know when you can afford to increase spending and investments, and when to tighten your belt.)
Expenses represent money that is going out of your business. There are fixed expenses which don’t change from month to month and variable expenses. The more detailed you can be about your expenses, the more empowered you are to make informed financial decisions.
- Fixed expenses can include mortgage/rent; certain utilities (phone and Internet); base salaries; property taxes, insurance premiums; and debt repayments.
- Variable expenses depend on use. Certain utilities like oil or electric can vary, as can overtime costs. Account for office supplies, external lab costs, pharmaceuticals, vaccines, inventory costs, over-the-counter medicine (vitamins, flea and tick treatments, shampoos, ointments), pet food, preventive care products, electronic monitoring chips, professional fees (for a lawyer or accountant), new equipment, and cleaning services and supplies.
With expenses on the rise in recent years, it is important to budget for your expenses and expected increases before finalizing revenue goals.
Profit is the money you have left over. A portion should be used to build an emergency fund (covering three to six months of expenses) so unexpected expenses don’t put you into debt. You may want to allocate a portion for reinvesting into your business. The remainder is how much you make for running your business.
What if there’s nothing leftover or a negative balance? That’s considered a loss. Budgeting will either help you accommodate the periodic loss by planning for leaner months or help you identify immediate actions you can take to turn things around.
Depending on your bandwidth and capabilities, you may decide to set and manage your own budget using spreadsheets or templates; employ software to promote accuracy, insights, speed, and ease; and/or engage an accountant to operate as a part-time Chief Financial Officer to handle the whole process, helping you to understand results and your options for next steps.
If you need help creating, monitoring, or adjusting your budget, remember, your RBT CPAs client manager is just a phone call away. For more information, give us a call today.
RBT CPAs is proud to say all our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.