The Practicon Viewpoint by Ann Page Griffin

ANNUAL BUDGET? HOW? WHY? WHEN?

AN ASSIGNMENT FOR FALL, AND A VITAL STEP TOWARD INCREASING PROFITABILITY

A budget is a master plan to reach production and collection goals and to contain expenses.

There are two ways to increase practice profits: earn more and spend less. A budget can help with both.

How?

Set production and collection goals for next year. Note that these are not the same (unless your practice has a 100% collection rate, in which case, congratulations!). The targeted collection amount is the sum of (1) projected overhead costs, (2) dentist's compensation, (3) debt service, and (4) desired profit, or the doctor's return on investment (ROI).

Divide that sum by the number of days to be worked next year to determine the daily collection goal. Multiply the daily collection goal by the average collection percentage rate (typically 93% to 97%) to determine the daily production goal, the amount that must be produced daily to assure collections are sufficient to meet the financial plan for the year (in other words, the budget).

Why?

Would you set off on a cross country road trip in unfamiliar territory without a GPS, or at least a road map? Of course not! Then why begin a year of practice that affects not only your current income, but your family's future and your retirement without a financial GPS by which you can plot your course and make corrections as the year progresses? In their book Budgeting Basics, Jackson and Inez Ramsey write, "A budget is the translation of the future plans of a business into dollars. A budget is the financial portion of your business plan."

When?

September and October are the best months to plan for next year. Consider all aspects of the practice:

• Personnel needs (additional team members? increases in staff compensation? new benefits?)
• Changes to doctor's compensation?
• New equipment?
• Other increased or reduced expenses?

Following this assessment, set monthly totals to be spent in each of the seven categories of expense: personnel, administrative, occupancy, clinical supplies, lab, equipment/furnishings/contingency fund, and marketing.

Daily goals for production and collections combined with monthly overhead expenses are the skeleton of your budget. Make adjustments quarterly. The first year of the budgeting process is the most difficult. Subsequent years will be much easier and predicted goals and expenses will be more accurate. Working from a firm financial plan has brought about significant positive change in every practice that I have worked with.

Try it, and enjoy the results.