The median pay for healthcare practitioners was $83,090, according to the U.S. Bureau of Labor Statistics. While this can seem like a reasonable expense to add to your budget, this pay doesn’t take into consideration recruitment costs, employer payroll taxes, training expenses, and benefits, like health insurance and retirement matches. With all of these factors combined, it’s not uncommon for a new hire to cost well over $100,000. Specialized roles, like a physician, can exceed $200,000 per year.
Instead of overworking your team or pushing off expansion, properly allocating resources can help you afford to add valuable team members to your practice. In this article, we’ll walk through a six-step process for growth budgeting.
Step 1) Forecast Revenue and Set Financial Goals
Before you reach out to a recruiter or post an opening on a job board, you need to understand your expected growth. How is revenue trending? Are you expecting a 10% increase in revenue by next year? Knowing upcoming revenue forecasts and setting financial goals are crucial to solidify sustainable growth to support expansion and new hires.
Step 2) Identify Key Investment Areas
Once you have a baseline understanding of your revenue and financial goals, it’s time to identify key investment areas. What resources are needed for expansion? Do you need to purchase new machinery, enlist a marketing team, or hire new staff? Make a comprehensive list of key investment areas. Consider large expenditures, like adding a new team member, and small expenditures, such as purchasing new laptops.
Step 3) Make Data-Backed Decisions
With your key investment areas identified, rank them from highest priority to lowest priority using data. How much additional revenue would another healthcare professional add? Could automation replace the need for another staff member? Analyzing the ROI of investment areas will help you find the best use of your resources.
While data can be great at maximizing ROI and financial benchmarks, it doesn’t always take into consideration non-financial factors, such as overworked staff. For example, a study found that health professional burnout was associated with worsening patient safety. Upgrading computers might maximize your ROI, but adding another team member to lessen your staff’s load may be the best course of action.
Step 4) Plan Cash Flow
Now that you’ve identified which investment areas your practice will start with, it’s time to plan cash flow. What is the expected capital expenditure of the investment? For example, if you are hiring a new staff member, will you offer a sign-on bonus? What will their salary or hourly rate be? What is the additional cost for payroll taxes, retirement matches, and insurance offerings? Break down these costs on a monthly basis. Do you have the cash flow to support the expense?
Part of cash flow planning is identifying reserve funds and preparing for contingencies. For example, if hiring another staff member costs $10,000 per month, how much should you have in reserves? Ideally, you would have three to six months of operating expenses set aside to cover any unexpected payment delays. This may result in the need to add more cash to your reserve funds.
Step 5) Evaluate Financing Options
In conjunction with planning cash flow, consider your financing options. For large, upfront purchases, like equipment, it might make sense to finance the purchase instead of using cash. For one, financing offers set payments, providing more visibility into cash flow. Financing can also spread out your costs, allowing you to potentially make more investments.
Let’s say that you want to hire another staff member and purchase a new piece of machinery. You have the funds in your account to purchase the machinery outright, but you wouldn’t be able to hire an additional staff member for another six months. By financing the equipment over two years, you are able to hire a new staff member and purchase the equipment right away. Consider term loans, lines of credit, and leasing when going through your financing options.
Step 6) Track Performance and Adjust
The budgeting process isn’t complete once you make your investment. In fact, effective budgeting requires you to track performance and adjust as needed. Did the actual ROI match your estimates? Is revenue growing as you predicted? Is the new piece of equipment improving productivity and efficiency? If not, it might be time to adjust your resource allocation and realign your goals.
Summary
Effective expansion doesn’t happen on a whim. Instead, it takes careful resource allocation and planning. If you have questions about budgeting for growth and how to allocate resources for expansion or new hires, please contact us.