For long-term post-acute care (LTPAC) providers, it’s already time to think ahead to the coming year. Specifically, it is budgeting season if your organization has a December fiscal year end. Budgeting is critical for purchasing decisions, and having an accurate budget is necessary when it comes time to analyze financial performance. Instead of just assuming the same performance from year to year, we recommend focusing on the areas below and adjusting your budget projections as necessary.
Key Financial Items to Review:
Census: Census drives revenue. Census also drives a lot of operating expenses. It is extremely important to be realistic with your projections, as this drives the majority of your budget for the coming year. Review your occupancy over the last year. Carefully consider the payer mix of this occupancy as well. The payer mix causes large variations when it comes to total revenue dollars and cash flow planning.
Rates: Make sure all rates are updated accordingly. If there are any known funding issues, those need to be reflected when calculating the revenue. It is best to budget on the low end to avoid any hardships if rates decrease at some point down the road.
Wage accounts: Wage accounts are tedious components of the budget process. Your projected census directly correlates to your budgeted full-time employees. Not properly budgeting this can cause large variances in your monthly numbers. Have you accounted for any new positions? Raises? Overtime pay? Check that months with holidays are properly accounted for. Are there certain times during the year where people will be working longer hours? All of these things need to be considered when planning out the wage expense for the year.
Vendor Contracts: If you have signed any new contracts with insurance providers or contracted staff, make sure any increases or decreases have been broken out properly in the correct months of service.
Capital Expenditures: Are there plans for any renovation projects? Are you aware of capital items that need to be replaced in the facility or facilities? Review your depreciation expense to make sure any planned capital expenditures are being accounted for in the totals.
After finalizing the budgets and assumptions, review the file to ensure all formulas are calculating correctly and all general ledger accounts have been accounted for in your budget. Allow your department heads to review their respective budgets to ensure they agree with the amounts and there won’t be any surprises. They are usually the ones making departmental decisions, so they have a good idea of what they are spending each month. Compare your yearly budget total to what has happened historically. If there are sizeable differences, verify the reasons behind them in order to make sure these variances are legitimate. Ideally, every LTPAC organization wants to have high revenue and low expenses, but it is necessary to be as accurate as possible to avoid disappointment when the actual numbers come in.