For long-term post-acute care providers with a December 31st fiscal year end, budgeting season is upon us. Financial professionals have likely already been asked to compile data in preparation for the 2025 operating budget. The careful planning and allocation of resources for the new year can be cumbersome and problematic for some organizations, especially if information is disorganized, incomplete or inaccurate. How well an organization budgets will impact their ability to anticipate revenue, manage expenses and navigate unforeseen challenges. 

Projecting revenues and expenses can be completed with more ease and confidence if providers learn to avoid these common budgeting mistakes.

1. Using inaccurate historical financials

If you plan on using your historical financials as the base for your budget template, make sure those figures are accurate. A key component of proper bookkeeping is the documentation that must accompany your processes, transactions and other financial activities. Also known as work papers, these capture and substantiate your organization’s entire balance sheet, and they can be requested in the case of an audit by a lender or another governing entity. Providers can have greater confidence in their financials when following these best practices:

• Keep up-to-date files in an organized, electronic format
• Conduct bank reconciliation monthly, or at least quarterly if activity is slow
• Address any revenue assigned to miscellaneous accounts
• In a system conversion, ensure historical data is accurate and accessible
• Consider any unusual activity that occurred throughout the year

2. Assuming no changes

Providers should absolutely use their historical performance to plan for the years ahead, however it would be a big mistake to automatically assume the same figures from year-to-year. As you prepare your 2025 budget, take the following items into consideration:

• Review your census and occupancy payer mix, which drives a large portion of both revenues and expenses
• Update all payer rates accordingly; any known funding issues need to be reflected when calculating revenue
• Update wage expenses to reflect employee counts, and account for raises, overtime and new positions
• Include new vendor contracts, as well as contracted staffing
• Plans for capital expenditures including any new equipment or renovation projects
• Costs for software transitions or system conversions

3. Setting unrealistic goals

While every organization aims for high revenue and low expenses, this is not always feasible. Adopting a more conservative approach to your projections will help you avoid hardships and disappointment when the actual numbers come in. Including organization stakeholders in the budget-setting process, like operations and department leaders, gains buy-in and engagement for meeting financial goals. 

4. Failing to verify your work

Once you have compiled your proposed budget, double-check your workbook by ensuring all formulas are calculating correctly and all general ledger accounts have been accounted for. If there are large variances compared to historical data, verify the reasons for the discrepancy and if helpful, include a list of assumptions used to prepare the budget. Once you are satisfied, share with leaders and allow department heads to review their respective budgets, as they are usually more aware of their departmental spending habits. 

5. Waiting to clean up accounts receivables 

The state of your AR at the end of the year is significant since these figures will be accounted for in your bad debt expense budget. It is also important for providers who are planning to seek out lending. These numbers shed light on your financial stability, so it is in your best interest to give your outstanding receivables proper attention before going into the new fiscal year. The longer you wait to address your AR the larger your liabilities can grow, which can impact your lending opportunities and affect your financial planning. To position yourself for a healthy cash flow, always conduct a timely review of outstanding invoices and consider an outsourced cleanup team such as Richter before writing off bad debts.

6. Not reviewing the budget periodically 

A budget is not a “set it and forget it” task that is completed once a year. To be effective and accurate, providers must continually review and compare the initial budget to the actual. Conducting a periodic review of your actual numbers will allow you to see areas that are underperforming and make operating decisions accordingly.

Enhance Outcomes with Richter

Budget planning can be a tedious process, and learning how to realistically project revenues and expenses while adjusting to market fluctuations is no easy feat. Working with providers of all sizes and scopes on financial statement preparation, budgeting, cash management and forecasting, Richter’s accounting professionals provide customized support based on your unique needs. To learn more about how we can help position your organization for long-term financial success, contact us here or call us at 866.806.0799.