If you are not managing your rehabilitation business to budget, you may be leaving money on the table.
A budget planning process forces you to think through your whole business model. White it’s not written in stone, a budget acts as a benchmark for you to compare actual activity to projected activity. A monthly review of your Financial Budget and a weekly review of your Operations Budget quickly identities problems and allows you to nimbly make strategic adjustments.
Metrics That Matter the Most
In the rehabilitation business, there is a direct correlation between operations (productivity) and financial results. If you have never done a formal budget before and do not have a budgeting tool, start by creating an Operations Budget that defines your targets for volume indicators (referrals, visits, units and charges) and for performance metrics that matter the most: Cash/Visit, Visits/Referral and Visits/FTE/Day.
By using volume indicators and performance metrics you can build your Operations Budget based on prior history and current trends in your business. This should provide you with a starting point for your financial budget, as your operations drive your top line revenue. Then you can build your expense budget by analyzing historical expenses and salary trends.
Now look at your Operations and Financial Budgets side by side. Are these numbers in line with how your business should be performing operationally and financially? If you find disparity between the two budgets, you need to figure out why. This can be a very laborious process if you do not have a budgeting tool to show your operation metrics feed into your financial results.
Don’t Let a Buyer Lower Your Valuation Because You Do Not Have a Budget
Managing your business to a budget is the best way to make sure all of your years of hard work pay off in an eventual sale of your business. Here’s why. In an acquisition situation, buyers look for three years of financial statements in order to determine future performance. If all you can provide is an end-of-year accounting statement that only shows expenses and revenues, you’re doing yourself a great disservice.
These kind of accounting reports allow the buyer to make false assumptions about performance and assign a higher risk, thus lowering the price of your business.
On the other hand, if you can show operations and financial budgets, and how you manage performance to budget, the value of your business will increase because the guesswork, or risk, has been minimized.
We have developed a budgeting tool that takes the operations budget and pulls it into a financial report, basically automating a manual process. Our tool shows very quickly what profit will be achieved when certain operational targets are met. The result is business owners making decisions based on objective data and overall profit improvements of anywhere from 25-150%.
