By Mark Wright, OD, FCOVD,
and Carole Burns, OD, FCOVD
Nov. 27, 2019
It’s that time of year when you should be finalizing your 2020 practice budget. Here is how to create the budget for the coming year based on your practice’s 2019 financial performance.
The easiest way to create your budget for next year is to take your profit and loss (P&L) statement for this year and simply calculate what you want to do for next year.
Here’s an example of what a practice might do on an excel spreadsheet to create a budget that increases gross revenue by 7 percent and does a better job of managing expenses:
Your next task is to specifically identify how next year’s budget changes are going to occur. You want a 7 percent increase in total revenue. How is that going to happen? What is your plan? Are you going to increase your contact-lens sales? If so, specifically how? Do the same thing with expenses. What is your exact plan to decrease COGS from 32 percent to 25 percent?
You want your budget to be helpful to the practice. It should not be an exercise you do once a year then put it away until the next year. It needs to be a dynamic document you utilize at least once a month every month. As your new numbers come in next year, compare them to your budget. From a management standpoint, you should look at what you wanted to achieve and what you actually achieved, then address, through planning, what happened.
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Sometimes you will do significantly better than you planned. In that case, adjust your budget so that you account for the change. An example would be that you planned for 7 percent growth and you achieved 12 percent growth. Can you sustain this higher amount? If so, then adjust your budget so that you are now planning for the higher growth.
There are two types of profit that can happen in a practice – accidental or intentional. Using a budgeting process combined with planning and management will ensure your profit is intentional.
(* NOTE: Optometric Net is Doctor Payroll + True Net)