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Budgets can strike fear into the hearts of non-financial people, including veterinarians. Here’s how to manage the budgetary process so it works and doesn’t cause stress. By Lynne Testoni
When running a successful veterinary practice, it’s always important to keep on top of your financials, and in most cases that will include managing a budget.
The Christmas/new year period marks the halfway point in the financial year and is an ideal time to do a bit of a budget check-up to make sure your systems are up to scratch and your business is performing the way it should be.
With six months to go before the end of June, there is still enough time to tidy up your systems and put processes in place to ensure that your practice is profitable and under control financially.
Tip 1 Look at last year
While 2021 has been a strange year in many ways, begin the budget process by looking at last year’s expenses and income in detail.
Many cloud-based accounting software solutions aimed at small businesses, such as MYOB or Xero, can create a budget within their programs.
“History is a great place to start budget planning, so take a look back at what has happened in the past before you begin,” says Jane Betschel, head of Marketing & Digital at MYOB.
“What are your regular incomings and outgoings and do you see any seasonal changes? Digital solutions will help you keep track of your income and expenses and provide interactive records that will be a great starting point for your budget planning.”
Take a note of any additional costs relating to COVID-19 too, and make sure you include these in your projections.
Veterinary finance specialist at BOQ Specialist, Luke James, recommends the use of accounting software to monitor your practice’s financial performance.
He says it can also assist with providing interim financial information to your financier or the government should you need to show any effect on your business due to COVID-19 when applying for grants.
Tip 2 Keep up to date
Don’t leave all your paperwork to the last minute. It’s much easier to update your income and expenses weekly so you don’t face a big backlog at the end of the month. Being up to date will also mean that you can assess your financial position at a glance and in real time, so you can catch minor problems before they become big issues.
Consider making an appointment with your accountant at the halfway point of the financial year. January is often a quieter time for accountants, in contrast to May/June, so they might be able to devote more time to a good analysis of your business and cash flow.
Luke James says that while financial reports/tax returns for the most recent full financial year don’t need to be lodged with the Australian Tax Office (ATO) before May 2022, it’s a good idea to have them prepared by your accountant in advance so you can be aware of any looming tax bills or issues.
“Having them readily available will help you if finance is required for both your practice and personal funding requirements,” he says.
Speaking to your financial adviser now might also give you the opportunity to invest in your business, if necessary, and allow you to purchase tax-deductible assets or equipment this financial year.
Tip 3 Explore different scenarios
Once you have a basic budget, you can start playing with the numbers and investigate different opportunities for your practice. It’s a good idea to look at various scenarios, such as:
What if your income goes up by 10 per cent?
What if you need to close the clinic for a month?
What if you negotiate lower rent?
What if you bring on additional staff?
Plugging in different numbers and seeing what happens to your bottom line will help identify possible pressure points in your business, and where you might be vulnerable, or when you need to invest in elements such as more clinicians, space or equipment.
Tip 4 Do regular forecasts
It’s important to realise that a budget is only half the equation. If you don’t track your actual income and expenditure against your budget throughout the financial year, it is next to worthless.
Ideally you should take time every month to check your actual costs and income against what was budgeted and predict if these trends will continue during the next month, which will also give you enough time to make any necessary changes.
Cash flow forecasting can help you keep on top of your bills. It is also useful if you’re trying to get finance—it shows lenders you can pay them back.
Tip 5 Use online tools
There are lots of free online tools available for small businesses, including handy templates from the Federal Government and the ATO. The Australian Government’s Business website has a wealth of useful information and financial templates, including their ‘Create a budget’ page.
The ATO also has a smartphone app, which allows you to record tax-related information including mileage, receipts and income. Cloud-based storage systems such as Dropbox or Google Drive are helpful to store financial details such as receipts, contracts and other important documents, so they are readily available for your accountant at tax time.
Both MYOB and Xero have extensive reports and templates within their programs, so take the time to discover them and see how they can assist you.
Jane Betschel points out that vets don’t go into business to track the numbers—they decide on their careers because they have a passion for helping animals.
“What’s been fantastic over the last 10 years is that all the different financial tools that were available to big enterprises and big companies are now becoming available to small businesses in apps and so many things that they can use to make it easier,” she says.
“If you think about the depth and breadth of the MYOB accounting software, the level of features that they have, and how easy it is to use, that’s a game changer for small business. And if they’ve got a good accountant and bookkeeper, then they’re sorted.”
Disclaimer: This is a general overview. Please check the ATO website and consult an accountant because details between businesses and individuals can and do vary.