Budgeting – Part 1

Hosted by Pam Stevenson (PScvpm)
April 6, 1998

Log of the VSPN online chat of Monday, April 6, 1998.
The Monday Night management chat topic was budgeting, and was hosted by Pam Stevenson (PScvpm). Part 1 of a 2 week session. Pam looks at budgets like driving the Titanic: without planning and advance movements you run right into an iceberg! By examining past financial history, you can more ably equip yourself for handling future needs. Your practice can certainly benefit from implementing a budget or revising your existing one. Learn how to in this informative chat!

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Participants included:
PScvpm, SPIFFYcm, Scottidog2,
LVanceLVT, DCT JC, IMPonyII, Boater7188

PScvpm: How is everyone.... ready to talk about budgets??
SPIFFYcm: oh goody
LVanceLVT: Hi Curt! Yes, I need all the help I can get w/budgets.
PScvpm: This is a repeat of a session last year.
PScvpm: Welcome all....
PScvpm: Anyone have a budget yet?
SPIFFYcm: Still working on mine for the new hospital
LVanceLVT: The spouse of boss had an elaborate one that was just too "geeky".
SPIFFYcm: the one in this Hosp is still on hold. Working on getting
SPIFFYcm: everything on computer
PScvpm: They are hard to develop and even harder to stick to!
LVanceLVT: Now that I've switched accounting programs, it all needs to be redone anyway.
PScvpm: Want to start with how to develop?
LVanceLVT: okay.
SPIFFYcm: yep
PScvpm: OK, here is my "style"... start with the last 3 - 5 years Income and Expense
PScvpm: statements. (lets leave the balance sheet out for now)
PScvpm: Concentrate on the basic items that you have some control over...
PScvpm: Payroll, drugs, food, office supplies, postage, marketing, etc
PScvpm: Get a historical number for these and look at your trends.
SPIFFYcm: don't you find it hard if you are going thru any transition?
PScvpm: Then decide what your goal is... are you to high in payroll or to low in postage..
PScvpm: decide where you want these items to be and how to get there.
LVanceLVT: Are you comparing actual numbers or do you work as percentages?
PScvpm: I use percentages....
LVanceLVT: Percent of income or percent of expenses?
PScvpm: the ratio of income to expense is more important than the dollars involved.
PScvpm: Percent of income
LVanceLVT: (thanks)
PScvpm: For example if your postage expense is .06 you are going down the tubes and not marketing enough
DCT JC: ?
PScvpm: GA Dave
DCT JC: it seems like it should be a % of expense not income?
DCT JC: like postage is an expense GA
PScvpm: Can you elaborate Dave
DCT JC: I mean if you add up all your bills..
DCT JC: and then divide up the areas..
DCT JC: and then get your %'s would that work?
PScvpm: I have never looked at it that way... have you and what did you find.
LVanceLVT: !
PScvpm: GA Dave then Linda
DCT JC: I look at the %'s
DCT JC: and I had assumed they were based on expenses??
DCT JC: maybe they are not?
LVanceLVT: I think I have an idea. We have two goals - one is to live within our income, the other is
LVanceLVT: to look at where our money is going. If we use % of expenses we can still
PScvpm: If you are looking at the standard I&E it is % of income.
LVanceLVT: way outstrip our income. It's okay to spend a lot more money if you're making more.
DCT JC: I am not trying to confuse the issue but like in Vet Ec etc....
DCT JC: ok then lets stick with income
DCT JC: sorry for the confusion :)
PScvpm: No, maybe I am wrong... I have always thought that when they say..
PScvpm: payroll should be 22% .. I assume that is 22% of your income?
DCT JC: I think that it is
SPIFFYcm: yep
DCT JC: and I think this is a great topic by the way :)
PScvpm: Linda...can you expand on your idea?
LVanceLVT: I suppose they are pretty much the same. If your practice is growing, there probably isn't
LVanceLVT: much profit distribution in the equation. However, later you start having a percentage of .
LVanceLVT: expenses AND % of income that is profit.
PScvpm: OK, how about a big leap here..... how about a cash flow statement as opposed to a budget?
DCT JC: I like the budget idea
PScvpm: OK lets stick to that for now
PScvpm: I look at budgets like driving the titanic.....
PScvpm: without planning and ADVANCE movements you run right into an iceberg!
PScvpm: We cant wait till the year is over then go ... opps, we spent to much
DCT JC: ?
PScvpm: GA Dave
DCT JC: I agree but at the same time,
DCT JC: how many clinics have one?
DCT JC: I would guess not many
DCT JC: who does here? we do but didn't used to
SPIFFYcm: depends on size of the practice I think
PScvpm: I have one and it is looked at after the fact!
DCT JC: but as I talk to other folks, not many people do!
PScvpm: Each month it is well how did we do......BUT
PScvpm: at least we think about it the next month and try to conserve or spend!
DCT JC: well even in a small practice is makes good sense I think...
DCT JC: but I am amazed at how few people use them
DCT JC: we are about where you are Pam
LVanceLVT: I don't know of anyone who is disciplined enough not to spend $ on something important just because
LVanceLVT: the budget says we are all in for that month.
DCT JC: we look at it and shake our heads :)
PScvpm: It IS amazing how many clinics spend money without knowing if they have it!
LVanceLVT: E.g. our x-ray dip tank sprang a leak. We don't have $ in the bud. for an automatic
LVanceLVT: processor right now, but we bought one anyway. Better than buying a new dip tank when
LVanceLVT: the auto. proc. is the goal.
PScvpm: OK.. here is another concept for you.... decide how much $ is to be spent this year on
PScvpm: equipment and improvements. THEN make a wish list of everything you want...
PScvpm: Then PRIORITIZE the list and make your purchasing decision based on that!
DCT JC: that is what we try and do.....
PScvpm: How many of us can do that?
DCT JC: but often run over budget in areas
LVanceLVT: we TRY to do that, but the tank leaks, the fence blows down, etc.
DCT JC: the only one we can stay under budget in is profit :)
PScvpm: Have we looked at the repair cost average over the last 5 years and given it a budget?
LVanceLVT: I use the budget to see if I am in "normal range" with the nationwide averages.
DCT JC: it is under facilities for us
DCT JC: we figure that as part of it
DCT JC: so what should we be at for facilities or do you break it down too repairs?
PScvpm: I try to keep it simple and record it under repairs
DCT JC: so do you have a separate area for facilities like rent mortgage etc?
PScvpm: Yes, rent is on the I&E and mortgage is on the balance sheet/...
PScvpm: ever notice how a clinic can show positive cash in the I&E and
DCT JC: yes but are they on your budget too?
PScvpm: have NO cash in the bank??
LVanceLVT: Pam, Nuts & Bolts. How do you accomplish this w/o spending days every month doing math?
PScvpm: This is why I prefer a cash flow statement... let the accountant keep the I&E statement
PScvpm: OK... NUTS & BOLTS....
PScvpm: You need an opening balance from your accountant...
PScvpm: then figure in your projected income and expenses...
PScvpm: carry over the CASH balance (+ or -) each month...
PScvpm: then you will have a hybrid budget and cash flow statement.
PScvpm: Plan for the large bills due at certain times (property tax) and have the funds
PScvpm: in the bank (or money market) account...
PScvpm: example.... you have a 10K property tax bill every December...
PScvpm: you make the most of your income in the summer...
PScvpm: put a payable bill in your Quick Books System for 3K per month in your busiest months...
PScvpm: so that you are not tempted to buy that processor or paint the hospital
PScvpm: with the "extra funds" this summer.
DCT JC: ok so for folks that want to get started....
DCT JC: what should they do?
PScvpm: Make sense?... you can also plan on a desired purchase the same way.
DCT JC: go back and look at the expenses from last year?
DCT JC: and then project this years income?
LVanceLVT: I think that now that I have QuickBooks this is plausible. It would have been impossible
LVanceLVT: w/Peachtree.
PScvpm: Look at the last 3-5 years to see the spending trends of the practice.
DCT JC: oh great we just switched to Peachtree!
LVanceLVT: (I feel for you Dave)
PScvpm: YES, be conservative in your income projections and liberal in your
PScvpm: expense projections... But be reasonable... the true art of budgeting..
DCT JC: don't worry we are good at the expense side :)
PScvpm: is in how accurate you can be over time.
PScvpm: How often does it happen that your Workers compensation bill comes
PScvpm: due and you have to scramble for the funds?
PScvpm: every year?
DCT JC: we used to be in that category prior to our budget
LVanceLVT: Nope! (She says proudly) Every Quarter!!! <VBG>
DCT JC: but now we struggle with trying to keep under the projected budget
PScvpm: YES, it is like saying you are going on a diet, then sticking to it!
PScvpm: Linda... tell us about your budget.... how long did it take...
PScvpm: how much time do you spend on it each month.. quarter, year?
LVanceLVT: We don't have one right now. We used to have one on Peachtree that was linked to Excel, but
LVanceLVT: it was so complex that it just quit meaning anything.
LVanceLVT: Didn't give me USEFUL numbers.
DCT JC: Linda..if I may digress, what did you not like about Peachtree?
PScvpm: I understand.... had one that was unbearable to monitor BUT
DCT JC: just to complex?
PScvpm: it was helpful... it was unbearable because it made me tow the line!
LVanceLVT: Not user friendly, though to be fair our version hadn't been upgraded in years.
PScvpm: Each quarter I had to have an explanation for any deviations...
PScvpm: had to provide a statement to the owner and accountant (Owen) as to the deviations.
PScvpm: It was a lot of work and I hated it...BUT it was the best ting that
PScvpm: ever happened to the finances of the practice!
DCT JC: that is our problem, or was, we were doing it manually....
PScvpm: ouch
DCT JC: and it is time consuming
DCT JC: and so have switched to Peachtree
DCT JC: we will see?
LVanceLVT: Peachtree is better than manually, but I REALLY like QuickBooks after only 3 mos.
PScvpm: Excel and Quick Books will put it in black & red for you
LVanceLVT: (3 YEARS on Peachtree)
DCT JC: I keep hearing that about Quick books
DCT JC: I like it simple
DCT JC: so even I can understand it :)
LVanceLVT: Pam, have you used the actual budget function on QB?
LVanceLVT: It doesn't look too simple.
LVanceLVT: I prefer to do math in Excel.
PScvpm: OK.. for next week lets all bring our 1st quarter P&L's and discuss goals and percentages..
PScvpm: can we do that Dave?
PScvpm: Linda.. I still prefer Excel
LVanceLVT: (Then we need to talk sometime about exporting - I could use some help)
PScvpm: OK... networking at it's best :)
DCT JC: that sounds good to me
LVanceLVT: KEWL!
PScvpm: Or we could bring our budgets....
DCT JC: I would like to see us simplify this as much as possible
LVanceLVT: Dave, believe me. I'm into simple! One of my favorite mottoes is: If you want
LVanceLVT: something done efficiently, give it to the laziest person.
PScvpm: OK... so it is a date.... bring your info to the next session and we can
PScvpm: decide what to do with it... along the lines of simple...
PScvpm: lets concentrate on the important things..
PScvpm: Good night!