How to create a budget for your private practice

By Jamie Frew on Feb 02, 2025.

Fact Checked by Karina Jimenea.

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Budgeting and finances are some of the most important aspects of every business, and this is no exception when it comes to healthcare. While you may be familiar with personal budgeting, the organization of your practice's finances is a whole new ballpark that you need to quickly become acquainted with. The right budgeting plan ensures you can deliver high-quality healthcare solutions without breaking the bank and keeps you on track to meet your goals and client needs. 

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Why is budgeting important for a healthcare practice?

Effective budgeting is a cornerstone of efficient corporate operations for several key reasons. By developing precise budget plans tailored to the needs and resources of a private practice, organizations can exercise greater control over spending and identify areas for cost savings. Strong budgeting practices also facilitate effective delegation, ensuring management responsibilities are distributed across multiple individuals.

Budgeting significantly enhances decision-making efficiency in resource allocation while keeping stakeholders and internal teams informed about financial matters. As a vital element of the planning process, it promotes alignment across the organization and ensures that long-term goals are communicated clearly and effectively. Additionally, well-structured budgets can boost motivation by enabling employees to see how their contributions support meaningful organizational objectives.

For telehealth services, no matter what kind of therapy practice, robust budgeting is also critical in achieving financial sustainability and operational success, making it an indispensable tool for long-term growth and performance.

General expenses for running a private practice

Before drafting up a budget, it's essential to keep these general expenses in mind:

  • Incorporation costs: Setting up your practice and adding the essential licensing and registration needed to ensure the business is legally running.
  • Rent: Consider rent prices for the office space if you're thinking about operating from a physical office; there are alternatives, such as telehealth software, if this is not feasible.
  • Insurance coverage: In cases of accidents, malpractice, and other events, it's an important safeguard to protect you and your business. It is important to have a good understanding of health insurance terminologies and insurance coverage in telehealth.
  • Website hosting and marketing costs: These are essential for getting the word out and ensuring a steady stream of clients. However, it is important to remember that setting up a website with a domain is expensive.
  • Taxes: These are essential to ensure that you're legally compliant. Failing to set aside taxes can result in severe consequences, including fraud charges or, worst-case scenario, jail time.
  • Training costs: These depend on the size of your business in terms of employees and the gaps in your knowledge and/or skill sets. To be competitive, you need to provide the highest-quality service, which may entail further education to reach a higher level.
  • Practice management software costs: This can automate tasks and streamline business processes to enhance and boost the quality of your services. It is highly efficient and has an abundance of features.
  • Equipment costs: This includes anything from ordinary stationery resources to high-tech X-ray tools necessary for your operation.

What does an ideal business budget include?

While every budget can look a little different, depending on the size, resources, and goals you have, there are some universal factors that you must include for it to be considered a comprehensive financial plan:

Income/revenue

A comprehensive income projection is critical for effective financial planning. This forecast should be based on in-depth market analysis, historical performance, patient visit trends, and other revenue-generating activities. It’s essential to consider multiple revenue streams, such as service fees, insurance reimbursements, and any ancillary income sources.

Fixed costs

Fixed costs are predictable and consistent expenses that remain largely unaffected by practice activity or patient volume. These include essential operational items such as rent, utilities, employee salaries, insurance premiums, and equipment leases.

Variable costs

Unlike fixed costs, variable costs fluctuate based on the level of business activity. For medical practices, these may include expenses such as clinical staff wages (if they are paid per patient or on an hourly basis), medical and office supplies, and tax obligations.

Operating expenses

Operating expenses encompass the day-to-day costs required to run the practice smoothly. This includes routine expenditures such as office supplies, facility maintenance, marketing, utilities, IT support, and minor repairs.

Capital expenditures

Capital expenditures refer to significant investments in long-term assets that contribute to the growth or enhancement of the practice. Examples include purchasing new diagnostic equipment, expanding facilities, or acquiring company vehicles.

Contingency fund

A contingency fund acts as a financial safety net for unexpected expenses or emergencies, such as equipment breakdowns, unplanned repairs, or economic downturns. Maintaining a well-funded reserve mitigates risks and prevents cash flow disruptions.

Current and projection numbers

Including current figures and projections in your budget is vital for effective financial planning. By comparing actual income to anticipated earnings, you can track progress toward financial goals and identify overspending or underperformance. Reviewing bank statements helps ensure monthly expense accountability, allowing your business to make smarter, goal-driven decisions.

Covers a certain timeframe

A clear timeframe, such as a monthly or annual budget, is essential for managing cash flow and aligning with financial goals. Time-bound budgets help monitor monthly expenses and compare them against benchmarks. Regularly reviewing bank statements and performance data ensures your business stays on track with effective financial planning.

Tips to build a budget for your private practice

Now that you know what to include in your budget, here are some tips to enhance it. You must ensure you provide all relevant details without missing any crucial aspects. 

Track your expenses competently

To prevent overspending, maintain rigorous bookkeeping to track all expenditures within your budget. Establishing a detailed chart of accounts beyond the Internal Review Service (IRS) ensures accuracy and helps detect discrepancies. This should include costs like malpractice insurance, disaster recovery, and nonphysician providers. Proper tracking also supports compliance with the Health Insurance Portability and Accountability Act (HIPAA) in medical practices.

Use benchmarks while creating your budget

To ensure you're not overspending or failing to create value where you could be, it's important to compare your budget to common benchmarks within your healthcare industry. Good resources include the Medical Group Management Association (MGMA) cost survey. This way, you can make necessary adjustments and ensure you're up to speed with other healthcare businesses and their operations. 

From time to time, compare the actual finances with your budget

Every now and then, it's always recommended to set aside time and check in with your budget. Compare whether the numbers in your current finances make sense and whether they're on track with what you originally planned. This way, you can make amendments where appropriate, with the budget holding you accountable and guiding you on the right track. 

Maximize your tax deductions

Many businesses fail to realize the missed tax deductions that they could be receiving. With the right business record systems in place, you can ensure that you keep track of all spending and be rewarded with eligible expense returns such as business property, health insurance, and business expense returns, as well as retirement contributions. 

Review your personnel needs

It's important to review your staff's performance and salaries and evaluate whether they are efficient. If you have underperforming staff, investing in the right training can lead to better customer service and higher-quality solutions, which in turn generates higher revenue. 

Scale your budget as you grow 

Within the healthcare space, it's important to recognize that you'll likely encounter considerable growth as you enroll more patients in your clinic. As a result, you may need to scale your budget to accommodate such growth. 

Final thoughts

We recognize that budgeting can be tricky, as finances accompany a ton of risk. However, with the right budgeting plan, you can ensure that you're transparent with your spending and are held accountable for all your decision-making. You'll be able to stay on track to achieving your business goals and work towards increasing efficiency and efficacy within your practice without compromising quality. Budgeting can be tricky, but with the tools in place, you can optimize your operations and maximize profit in no time. 

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