You entered the healing arts because you have the heart to help and heal people. But your practice is a business and must be managed as such. You learned about the body in school but not about budgets.
Here are a few tips to help you establish and manage your chiropractic office budget.
Understanding Your Income Statement
You know how to assess the health of your patients. But do you know how to diagnose the health of your practice?
One of the most helpful financial tools you can use is the income statement. This financial statement shows you what money is coming in and going out. Along with cash flow projections, this tool is crucial to determining earnings before taxes. The major elements are income and expenses.
Income
In consultation with your accountant, you’ll choose either a cash basis or an accrual basis to book your transactions. Most practices use an accrual basis. With this method, you record your income when it is earned, not when it is received.
At the top of your income statement, you capture all sources of revenue. A successful practice will rely on multiple streams of income. For example, you may have income from patient care, income from speaking fees, and income from nutritional supplement sales.
You always want to be on the hunt for new revenue streams to maximize income. Adding income is how you grow your business. If income comes from the direct sale of goods, you’ll subtract the cost of these goods from the amount generated. The subtraction is called Cost of Goods Sold (COGS) and only includes direct costs associated with income (so it excludes salaries, rent, etc.).
Income less COGS = Net Income
Expenses
It’s crucial to keep track of all expenses associated with your practice. These expenses include salaries, rents, insurance, supplies, and utilities.
Early in your practice, you’ll decide whether to operate with high or low overhead. Both approaches have their advocates. No matter the approach to overhead, it’s important to track expenses and keep them in check. You can’t grow your business by cutting costs. Remember, growth comes from additional revenue.
In addition to expenses for utilities, salaries, and marketing; you must recognize that as you use certain fixed assets, they lose value. This expense is a depreciation expense.
Net Income – Expenses = Gross Profit
Gross profit lets you know if you are making or losing money. You can make the most of the income you generate by controlling expenses, but the only way to make more money is by increasing revenue.
Efficient Billing Is Crucial for Cash Flow
Unfortunately, you won’t collect in full for services on the day rendered. You may collect daily copays or payments for products you sell like supplements, but you’ll need to bill insurance companies to receive payment for care.
To keep cash flow positive, you need to manage your revenue cycle. (Learn more about healthcare revenue cycle management.) The key to managing the revenue cycle is efficient billing.
Bill promptly and correct errors as soon as you receive a notification. Reworking a claim only costs about $25, but less than half of rejected claims are corrected and resubmitted.
Leverage the power of technology to help increase billing efficiency. There are many products on the market to help with billing. Take advantage of them.
SBA Loans and Lines of Credit
Whether you are a start-up or purchasing an existing practice, you’ll most likely need financing.
Talk to a local bank (not the large national banks) about an SBA loan. You’ll find the terms and application process more agreeable with a local or regional bank.
In addition to an SBA loan to purchase property or fund the start-up, you may find a line of credit beneficial when cash flow lags.
Once again, your local bank is the place to start.
Pick An Accountant That Understands Medical Practices
You aren’t going to manage your chiropractic office budget alone. You may have a bookkeeper in the office, but you’ll need the services of a certified public accountant (CPA) to prepare your official financial statements and tax filings.
It’s important to connect with a CPA that has experience working with medical practitioners. Your CPA should do more than just keep records, they should provide advice for managing tax burdens and may have insight into ways to reduce expenses or increase income.
Create Your Chiropractic Office Budget and Personal Budget in Tandem
It’s important to create your personal budget and your chiropractic office budget at the same time. If you determine that your personal budget requires X amount to live, then your office budget must be able to pay you X amount.
For example, if your lifestyle requires an income of $125,000 per year (or $80,000 a year – the number isn’t relevant), you need to make sure you generate enough income to support that salary and pay your overhead.
Review Regularly
It pays to review your chiropractic office budget regularly against actual income and expenses. In the beginning, you may want to look at your financial reports monthly.
As your practice grows and you get a better feel for the key performance indicators (KPIs) you should be monitoring, you may look at your budget versus actual reports quarterly and monitor your KPIs monthly.