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Practical Budgeting Tips
Presented by: Rachel Gaylord, CPALacher McDonald & Co., CPA’sCourtesy of: Live Oak Bank
What is a Budget?
An estimate of income and expenditure for a set period of time
Why is a budget Important?
• Control over spending• Aware of dollars spent• Make informed decisions
Why is a Budget Important (cont.)?
• Prioritize spending• Identify wasteful spending• Adapt to different financial situations• Achieve financial goals
Setting Attainable Goals
Questions to consider:• What kinds of services do/will you provide?• What is your take on technology?• Do you want to grow the practice?• Any changes in the veterinary profession?• Are demographics of your location changing?• Is competition becoming tighter?
Current Spending Habits
Current Spending Habits (cont.)
Current Spending Habits (cont.)Double click on the amount $7,092.74 to see this detail
Modify the Profit & Loss
Must have a written plan
• Categorize• Summarize• Organize
How to track your budget
QuickBooks Budget
QuickBooks Budget (cont.)
Excel & QuickBooks Budget
QuickBooks exported to Excel
What is your projected revenue?
• Increase• Decrease
• Stay the same
Prior year revenue comparison
Fixed vs. Variable Expenses
• Fixed costs are not dependent on revenueExample: Rent expense
• Variable costs change based on revenueExample: Salaries and wages
Fixed Expenses
Do not change as revenue changesExamples include:
• Licenses & dues• Legal & professional• Continuing education
• Loan payment• Real estate taxes• Utilities• Insurance• Laundry & cleaning
services
Fixed Expenses ‐ Loan Payments
Portion not on the Profit & Loss Statement
Variable Expenses
Change as revenue changes
Examples include:• Non‐DVM salaries and wages• Cost of goods sold• Advertising• Merchant services
Variable Expenses – Non‐DVM pay
Industry Benchmark = 18‐20% of revenue
Variable Expenses – COGS
COGS = Cost of goods soldIndustry benchmark = 20‐23% of revenue
• Medical supplies• Prescriptions/vaccines• Lab expense• Food • Retail• Miscellaneous items such as
cremation, rabies tags, & oxygen
Variable Expenses – COGS (cont.)
Example of how much $ to spend on COGS with revenue of $90,000
Percentage of revenue to spend on inventory ordering
Dollars to spend on inventory ordering
How Much Inventory Should You Carry?
• Ideally 30‐45 days of inventory on hand
• How to calculate your Inventory Turnover:
To have 30-45 days of inventory on hand it should turn 8 to 12 times each year!
Inventory Turnover Calculation
Cost of Goods Sold for 2013 = $130,000
Beginning Inventory (1/1/2013) = $10,000
Ending Inventory (12/31/2013) = $12,000
Average Inventory10,000 12,000
2 11,000
Inventory Turnover130,00011,000 11.82times
Monitor Progress
Review budgeted vs. actual
• Positive variance could indicate growth
• Negative variance could indicate increased costs
Equipment Purchase
Therapy Laser Example:
• It needs to generate its own revenue• Determine what financial resources are needed – will this fit in the budget?
• Set up timeline of goals• Monitor revenue
Helpful tips
• Factor in some slack• Amounts are estimates• Visit the budget every quarter at a minimum• Put away money for the yearly expenses like Real Estate Taxes
Helpful tips (cont.)
• It’s a planning tool• Help attain short and long term goals• Awareness of money spending• Managers can make purchases without authorization on every purchase
• Gets easier with practice
Questions