The word budget can feel “limiting”, but in reality, creating a budget leads to higher cash flow and the ability to meet the goals of your mental health practice more efficiently.
Let’s take a closer look at how to build and manage a budget and why it’s an essential tool for your mental health practice.
The Importance of Creating a Budget
A budget is a fundamental tool for any business. It gives every dollar you earn a purpose and serves as a guide for spending.
As expenses arise, your budget will act as a tool to sift through your spending. It will help you determine whether or not your spending helps you meet business goals, professional success, or neither. Additionally, a budget ensures you’re spending within your means as overspending can lead to cash flow issues.
Your budget will also help you to create revenue goals. To further explain, if you calculate your expenses and determine you need $7,000 each month to live comfortably, you can create a plan to help you reach a revenue goal of at least $7,000 each month.
When you stick you your budget, you’ll also see improvements in your cash flow, considering your spending will correspond with your revenue – as long as you hit your goals.
Overall, when built correctly and followed closely, your budget is one of the best tools for ensuring your practice is healthy financially.
How to Create a Budget for Your Mental Health Practice
Here are a few steps to follow when building a budget for your mental health practice:
Calculate Your Total Expenses
You need to know precisely what it will cost to run your business. Factor in everything:
- Bank fees
- Continuing education
- Marketing costs
- Software tools
- Financial management technology
Then factor in what you need/want to live your ideal lifestyle and the cost of employees if your practice has reached that level. If you’re using contract labor because you can’t yet justify full-time support, don’t forget these.
Be careful to include any misc. expenses. You may even want to set aside a specific amount each month to cover one-time, random expenses that may arise.
Calculate Your Total Revenue
Next, calculate how many clients you can realistically serve each week within the number of hours you want to work. And don’t forget to include hours for paperwork, client communication, billing, etc.
With that info, project your monthly revenue. You’ll need to make sure you generate enough revenue to cover your expenses.
If you find yourself falling short of what you need, it may be a good time to evaluate your pricing structure. Are you charging enough for your service? Are you seeing enough clients? How and where can you make changes to reach your required revenue?
Don’t Forget About Cash Flow
Breaking even shouldn’t be the goal. If you continue to break even, you lose money over time.
Make sure your budget leaves room for you to have more money coming in each month than going out. This indicates a healthy cash flow and, therefore, a healthy business.
How to Manage Your Budget Once it’s Made
Stick to Your Budget
Your budget won’t help you if you don’t follow it. Sticking to your budget ensures your spending is on track and you aren’t living/operating outside your needs or means.
Since you spent the time to work through it, crunch the numbers, and build it to suit your needs, following it should be doable. If after a while it still isn’t working, consider reviewing your budget.
Review Your Budget Often
You might not get your budget right the first go, but don’t scrap it completely. Identify the areas you are overspending or consistently underspending.
Do you find yourself struggling to keep up with your personal financial obligations? Is paying the rent for your office a burden each month?
If you answer “yes” to questions like this, then you may need to rework your budget to give yourself more flexibility or raise prices to better meet your needs. It’s all about understanding the finances of your mental health practice and addressing them head-on.
Remember, it’s OK to make changes, if fact, you should check your budget at least quarterly to ensure it still works for your business and personal needs.
Need Help Creating a Budget for Your Mental Health Practice?
Budgeting can be an overwhelming task on top of your already lengthy to-do list. However, creating and following a budget sets your mental health practice and personal finances up for long-term success.
If you need help building a budget, reach out to Leichter CPA. We will work with you to understand your personal and professional goals and then create a budget that will help you get to where you want to be. Contact us today to learn more!