Sunday, December 31, 2006

Q. What are important factors to consider when preparing my annual budget?
A. Before you begin the process of projecting annual revenue, earnings or cash flow for the coming year, your first step is to establish the short- and long-range goals of the organization. These goals should be realistic and achievable. They should also be easy to communicate and easy to understand. Successful companies not only create meaningful plans but also engage their employees in the planning process and then expect them to achieve the projected results. To ensure that your goals are aligned with your employees, it might be wise to reward those who participate in the process and are instrumental in achieving the expected results. Incentives can be paid to the sales staff, for example, for achieving census growth.
The budgeting process should go beyond simply calculating profit and loss from operations. The most important measurement for most healthcare companies with slim margins, high capital requirements and, most importantly, challenging reimbursement rules is cash flow. The process of creating short- and long-term operating and capital budgets should consider the impact that the plan has on cash flow. You should also create a balance sheet budget to measure the impact that operations have on cash, accounts receivable, inventory, assets and short- and long-term liabilities. This will allow you to to anticipate changes and trends that may threaten your organization or introduce new opportunities. hme
HME consultant Joe Haley is a partner with Healthcare Strategies. Reach him at or 401-447-7123.