What is one of the most hated tasks business owners face this time of year? Preparing next year's budget.
It's a fact: Most owners hate it so much that they simply decide not to do it. How do I know this? At our seminars, we ask the participants how many of them prepare annual budgets, and at our most recent event, only one doctor out of 50 responded that he did.
The main excuse was that neither they, nor their accountants, took the time to prepare a budget. And even if they had considered doing one, what would they do with it once they had it? They simply did not see the value in preparing a budget.
Some of you may be thinking that a budget is, at best, a weak attempt to foretell the future. If properly done, however, the process of preparing a budget can create a sense of freedom. For example, you could estimate the best time for scheduling seminars and vacations, making major purchases, and what months to cut back on expenses.
Bottom line, a budget can help to:
- Analyze past business performance
- Evaluate how the business is currently performing
- Prepare for where the business may be going
- Prepare you for those unexpected changes that will inevitably occur
Why, who, what, how, when, and where
So take the steps necessary to know where your business is going. Start by understanding the following:
- WHY is a budget helpful? A budget is a useful road map to direct you toward good management and sound planning.
- WHO needs a budget, and who is responsible? Every business needs a budget. You should take the lead in preparing a budget but be sure to include input from staff responsible for controlling income and expenses.
- WHAT should be included? A typical budget contains three main elements: revenues, expenses, and profits.
- HOW should you prepare a budget? Evaluate your current year-to-date financials and estimate what is forecast for the remainder of the year. Based on this review, develop new goals and objectives. These objectives should fit into your long-range plans and help you progress towards your goals. Don't forget to ask these questions:
- Have I been realistic with revenue estimates?
- Did I do "what if" scenarios for expenses or revenue that may be unexpected?
- Does my budget reflect an operating reserve to guard against cash flow shortfalls, and if a deficit is anticipated, how much will I have to contribute and when?
- How will I measure performance as the year progresses?
- WHEN should you prepare a budget? Prepare your budget several weeks before the start of the next year.
- WHERE can you get help in preparing your budget? Many practice management companies prepare customized and individualized budgets for dental practices. They can also arrange to monitor and make recommendations for adjustments each month, as changes inevitably occur during the year.
Paul Pavlik, D.D.S., is founder and president of Tracker Enterprises, a practice management organization for dentists and other business professionals. His experience includes more than 35 years as a dentist, speaker, author, researcher, and practice management coach. To receive a complimentary issue of his monthly practice management e-newsletter, Tracker Tips, send a permission e-mail to [email protected]. You can also reach him at [email protected].
The opinions expressed are those of the author. All information contained herein is intended to be general in nature and should only be considered after consulting an appropriate expert, including an attorney and/or accountant.
Copyright © 2009 DrBicuspid.com
