Creating Your Sales Forecast and Operating Budget: Two Critical Financial Tools You Must Have

Posted By Mike Meyer, Wednesday, February 3, 2021

meeting with financials

By Terri Ross, CEO, Terri Ross Consulting and APX by Terri Ross

As we start the new year, it's important to make sure your practice starts off on the right foot. Creating a financial forecast and an operating budget is a critical step to set yourself up for success and growth.

According to the 2019 MGMA Datadive Cost and Revenue Report, non-surgical practices have experienced increases in operating cost over double the rate of their revenue increases. Stop and think about that. If revenue grew 10% and expenses increased 20%, this one piece of information is a pretty compelling reason to have an operating budget. In fact, an operating budget is the most important financial planning tool a business can have, and, sadly, most don't have one.

Here is how to actually build a forecast and budget and cover the fundamentals you need to know for both.

Tips to Build Your Forecast

A forecast is a model showing the expected result of how your company will perform. But, honestly, it is a best guess based on facts collected and believed to be true. It is a clear understanding of your revenue potential and becomes the roadmap for your business.

An operating budget uses your forecasted revenue and expenditures (not just expenses) over a set period of time. A budget is vital in terms of managing the end result and outcomes.

You must start with the forecast.

  1. The first thing you need to know to build your forecast is your revenue per hour per category of service in your practice. (Here is another blog about determining your revenue per hour.) This time, you will be doing a company forecast vs. a provider forecast. The company forecast will have the categories of services (here is another blog on this topic to review) that you provide and your revenue per hour per service.
  2. Next, you'll determine the number of hours available to sell, multiplied by the number of resources per category. Your maximum potential is the revenue per hour by each category multiplied by the fully staffed, maximum available resource hours—treatment rooms and/or device dedicated to each specific category. (Maximum potential = Revenue per hour per category ‚úï maximum number of staffed resource hours.)
  3. Once you determine these numbers, you then will want to look at some benchmarking data. Go back and see how you performed over the last three months, six months or whatever time period you want to use. Then, you can determine, based on the reality of your company, whether or not you can increase your forecast based on the additional hours available that you're not utilizing.
  4. So, first you multiply your revenue per hour of each category of service by the number of hours you have available to sell. Then, multiply that by the number of resources or rooms you have available. Finally, multiply 100% of those available hours to sell by each category, and that will give you 100% of your potential revenue.
  5. Now, compare that to what you did over the past 12 months, and that becomes your baseline for creating your forecast. You can increase your revenue per hour or increase your productivity based on what you believe you can realistically do. This becomes your forecast for the next 12 months.

The new APX by Terri Ross integrative, solutions-based training platform has a built-in tool called Abacus that features proprietary financial optimization calculators to help you easily determine the necessary financials to create your forecast and budgeting. This is just one component of APX's comprehensive platform/web-based software. To learn more, book a demo here.

Tips to Build Your Budget

Now that you'e created your forecast, you can use that to create your budget. There are five pieces of information you need to create a budget:

  1. Your forecasted revenue;
  2. Your current cost of goods and current cost of labor based on your revenue and service categories;
  3. Your current expenses, which you can pull from your profit and loss statements;
  4. Any monthly recurring payments or expenditures you have—for example, your lease payment or a loan payment—because a budget should also inform you of your cash flow. Profit does not equal cash flow; and
  5. Finally, you should always start with a month "zero." There are 12 months if you are doing a yearly budget, so start with a month "zero" that includes your ending amount of cash from the previous year or ending point of the last budget. That will flow right into your new budget and you'll have a cash flow statement.

This is just a brief overview, and this can get super confusing. You might feel a bit frustrated or lost when it comes to forecasting and budgeting. This is, frankly, where many clients start to pull their hair out—you are not alone. That is why APX by Terri Ross designed and developed a comprehensive Financial Foundations course to walk you through every step of the way and give you the tools, resources, instructional videos and calculator you need to develop your forecast and budget. This course is included in APX's Train component, and the proprietary financial calculators you need are part of APX's Abacus component. To learn more, book a demo here to see how this platform can help you be more efficient and more profitable.

Terri Ross is a renowned practice management consultant, international speaker in the aesthetic industry, and founder and CEO of Terri Ross Consulting and APX by Terri Ross. APX is an integrative, solutions-based platform for the medical aesthetics industry focused on sales, finance and operations, along with web-based software that features proprietary financial optimization calculators and analytical tools to keep a pulse on the most critical elements of a growing practice that has proven to increase efficiency and profitability. Ross has more than 15 years of experience working with Fortune 500 medical device companies, leading sales teams to peak performance, consistently ranking in the top 10%. In addition, she has more than 12 years of experience and a track record of success working with hundreds of aesthetic practices across the country to launch, grow and scale to upwards of 600% growth.

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