Over the years, we’ve written a lot about the importance of creating a budget, but we’ve focused our attention on PT marketing budgets—not global practice ones. And surprisingly, there aren’t a whole lot of resources out there to help private practice PTs develop overall budgets as part of their physical therapy business plans. So, we collected a lot of information from resources dedicated to other medical professionals and adapted it to suit rehab therapists’ needs. Without further ado, here’s how to set a rehab therapy practice budget:

Cashing In on Private Pay: The PTs Guide to Going Out-of-Network - Regular BannerCashing In on Private Pay: The PTs Guide to Going Out-of-Network - Small Banner

Understand the purpose of a budget.

According to Paul Angotti—the author of this Physicians Practice article—“At its essence, a budget is a tool to measure and track revenue and expenses. While expenses are vital to the process, revenue's where it all begins. After all, the only reason to incur expenses is to support revenue-generating activities.” Angotti suggests practice owners think of their budget as a “mini business plan” that addresses the current year and the year that follows. And if you think your practice is too small to benefit from a budget—or that you can get by with comparing last year’s numbers to this year’s—then Angotti believes you’re sadly mistaken, because a well-organized budget “helps you establish a plan and adds a level of discipline to operating and spending.” The insights that you’ll glean from your budget can enable you to create new service offerings, “eliminate money-losing activities, and discover and fix inefficiencies.” Barbie Thomas, MBA, MT—the author of this article—agrees that a “well-thought-out budget” is an asset for practices: “With a budget, you have a benchmark of what you’re supposed to be making and spending,” she said. “If, through your budgeting process, you determine that revenues will be insufficient to cover anticipated costs, you can pursue other patient markets or managed care contracts to generate more revenue or you can rein in expenditures.”

Identify what’s coming in.

Now, you should already have a general idea of what you expect to bring in each month based on your payer mix, fee schedules, the average number of patients you see each day, and your most frequently used CPT codes. In fact, Jill Franks, CPA, CGMA—who wrote this article—recommends practice administrators use their billing software to produce a report with the amount of revenue each code generates. That way, they’ll be able to determine where their “time is most profitable and which activities can be delegated to...assistants”—depending, of course, on payer supervision rules and state practice acts. When you’re organizing the revenue side of your budget, you may want to dig in even deeper. According to Angotti, you should also:

  • Identify the number of sessions and services necessary to meet your earning goals.
  • Explore potential services that could be more profitable and/or “attract more desirable patients.”
  • Be on the lookout for services and/or payers that are no longer cost-effective.

You may also want to explore other strategies for increasing your top-line revenue—with or without renegotiating your payer contracts.

Calculate what’s going out.

According to Keith Borglum—the author of this article—many providers “don’t know the costs of doing business, much less what their costs should be.” Don’t be one of those providers. Instead, track your spending and set realistic bounds for the money going out of your practice. Angotti notes that much of the information you’ll suss out as you create the revenue side of your budget will impact the expense side. For example, the number of sessions and services you’ll need to perform to meet your goals will directly influence staff, space, and supply needs. Adding in a new service—or cutting an existing one—will also have expense-related implications. “In short,” he said, “be sure to coordinate your revenue and expenses—changes in one area affect the other areas.” With that in mind, he also recommends considering several other things, including:

  • Changes in routine expenses that result from price or patient volume changes
  • Changes in staff salaries and benefits
  • New equipment, software, and vendor services
  • Expired maintenance or service contracts and/or paid-off loans and leases

Expense Categories

Borglum’s article also includes a super-handy sample chart of common expense categories, including:

Business Insurance

Legal, Accounting, and Consultant Fees

Repairs and Maintenance

Donations and Contributions

Marketing

Retirement Fees

Dues

Meals: Business/Staff Meetings

Supplies: Clinical

Janitorial/Maintenance

Postage

Staff Benefits

Loan Payments

Rent/Utilities

Staff Wages

And the list goes on. For the complete sample chart, check out the full article here. Whichever expenses you decide to track, though, Borglum says you should go beyond the “limited categories of expenses that IRS tax forms and CPAs use to calculate your taxes.” Instead, put together a detailed list of expenses that fits your practice. According to Angotti, “Finding the right level of detail for your budget is a balancing act: Too little detail and trouble spots won't be apparent. Too much detail and it's hard to analyze and make decisions.” He recommends providers create budget line items at a “level of detail required for appropriate data collection, analysis, and decision making” and “give separate lines in the budget to items that are significant because of volume, unit costs, discretionary use, or that are controlled by more than one person.”

Percent of Revenue

To give you an idea of how much you should be spending on your larger line items, consider this: according to this article—which uses data from the Medical Group Management Association—the average family medicine practice spends 59.74% of its total revenue on overhead expenses, including:

  • 26.28% on staff salaries;
  • 6.81% on building and occupancy; and
  • 5.52% on benefits.

While specific line items for physical therapists will differ—for example, therapists will surely spend more on equipment and less on drug supply than their physician counterparts—these numbers should give you a general framework to start building your budget. And while you can certainly figure out baseline percentages for each of your expenses yourself, it may behoove you to seek out the expertise of a professional accountant.

Monitor regularly.

According to Borglum, “A budget serves no purpose if you don’t periodically compare your practice’s actual finances with your budget and make necessary changes.” In other words, you should be regularly performing a “variance analysis” in which you “look for any numbers in your actual practice finances that vary from the expected norm (your budget), how much they vary, and for what reason.” Borglum says that “performing this type of analysis and acting on what you learn from it by appropriately directing your attention to a solution is what makes a practice budget useful.”

So, just how frequently should you be performing this comparison? The answer differs depending on whom you ask. Angotti recommends practices review their budget monthly; Borglum, on the other hand, recommends a quarterly review cadence: “Quarterly review tends to smooth the monthly statistical variation closer to normal with less false-positives for abnormalities,” he said. But that doesn’t mean you should leave your budget unattended in the meantime. “In addition to the quarterly variance analyses, you should also adjust your budget any time your practice environment changes, such as in the event of a rent increase or workers’ compensation premium increase,” Borglum said. Angotti also points out that a budget is a “living document,” so, don’t feel like you’re stuck with what you originally created if it’s simply not working for your practice. “If an item was badly estimated or an item was unrealistic or circumstances have changed, modify the budget,” he said.

Hint: If you already have a profit and loss statement—like the one on page 20 of this business plan—you could essentially use that as the basis for your budget. After all, both show revenue and expenses.


What experiences have you had with creating a rehab therapy practice budget? Tell us in the comment section below.

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