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How to Be Flexible with Your Budget: Variable Budgeting for Medical Practices

Financial Yoga 101 - Be Flexible!





Maybe a sunrise yoga session won’t help you gain financial clarity, but you can still get flexible with your finances through flexible budgeting. As a medical practice, you probably spend a lot of your time working through your annual budgets for the year. However, by the time you complete your budgeting process, your predictions are out of date. That’s one more reason why it is so important to have a financial expert on your side - they can help you stay flexible.


To respond to this challenge many practitioners face, new methods of budgeting like flex budgeting and rolling budgeting helps you stay responsive.


Variance, Shmariance. Why Do I care?



Sometimes, life happens. If nothing else, the year 2020 has called us to witness how easily everything can change. Most of the time, however, you can generally estimate your budgets. However, budgeting for your practice shouldn’t be an annual event. If you broke your leg tomorrow, there are a lot of variables involved with your healing enough to go cliff diving by the end of the year. Flexible budgeting is like the physical therapy appointments to help your financial legs get back to fully functional. It’s a system that allows you to regularly analyze and improve your financial health.


This is one of the (many) reasons why a fractional CFO might be ideal for your company. You likely don’t need someone managing this full-time, and it's helpful to have Adam Kae & Associates to help you analyze the variances and introduce solutions to keep more revenue in your pocket. We help you diagnose your numbers to find solutions for your financial wounds.


In the first few years of your business, you likely saw trends in your patient volumes. The fixed costs were easy, but the variable incomes and variable costs may have been trickier to pinpoint. How can you prepare for those unforeseen variables? In the best case scenario, your patient volumes increase and you’re bringing in more income than expected. Do you have a plan for reinvesting that extra capital into your growth vision? Worst case scenario, your patient volumes are lower than expected or you have a large expense pop up. Do you have an action plan to stay afloat?


Vocab to Know


Actual Budget: The real numbers derived from your incomes and expenses


Static Budget: The budget you create based on your estimations


Variance Analysis: Analyzing the difference between your actual and static financials,

pinpointing their sources, and making an action plan to heal your financial wounds.


To Find Revenues Variance = Actual Revenues - Static Revenues


To Find Expense Variance = Static Expenses - Actual Expenses


To Find Net Income Variance = Revenues + Costs


What Happens After the Math



It’s simple to calculate your variance. It’s more difficult to pinpoint why those variances exist. It’s even more difficult to set forth a comprehensive financial plan for the future. Variance budgeting is merely a tool, not necessarily the solution. We can help you pinpoint the areas causing financial distress and use variance budgeting. We understand there are many moving parts to managing your practice, and we work regularly to manage and guide your budget toward your vision of growth


Here’s an example of one area variances could affect your revenue:

It’s important to know the different variations of your revenue. You might have Medicare/Medicaid patients, third-party insured patients, and non-insured patients. Are you building your budget around estimations? Your patients’ insurance quality are variables that may be difficult to regularly estimate. We can help you pinpoint why certain insurance holders may be coming to you more. Perhaps you’re in an area with more coverage by a certain insurer, or perhaps you’re in a premium area where you only service a small number of high-paying patients. Depending on your location, patients, and more, we can help you build a strategy.


We can also use your variances to model future scenarios for your business. For example, perhaps you’re not sure if you should open an additional location. Adam Kae can help you model different scenarios to consider time frames, situations, and financial scenarios to make your dream come to life!


Conclusion


Variance budgeting is a great tool for success, but it’s even better if you can take it a step further to build a financial strategy for your practice! Adam Kae & Associates can help you heal your financial wounds and build your bridge to success. How has variance budgeting changed your practice? Share with us by commenting below!



Resources

The Next Generation of Budgeting for Healthcare

How to Make a Medical Practice Budget - Introduction to Variance Analysis

Flexing your budget







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Disclaimer: This article contains information and opinions from Adam Kae & Associates, and the information and opinions should not necessarily be seen as the best possible solutions for your business. Please contact us at info@adamkae.com to help you find the best solutions for your business.


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