To maintain a thriving applied behavior analysis (ABA) practice, you have many things to juggle, from ethically marketing your practice to contracting with payors and more.
But there’s one element that you must stay on top of to protect your organization’s financial health – and that’s your budget.
Fortunately, there are key steps organizations can take to build an effective, efficient budgeting process. In BHCOE’s recent webinar, Fernando Sarria, CPA, CFO at Alternative Behavior Strategies, and Sam Madden, VP of Finance at Propeller Industries, shared best practices for budget creation and management. Here’s a recap of their advice.
Establish a Budget Framework
Before diving into the nuts and bolts of building your budget, you must establish a budget framework, which involves understanding your data, strategic planning, and establishing a budgeting timeline.
Analyze Your Data
To get a handle on your financial data, determine whether you’re accounting under a cash or accrual basis. In addition, look at your chart of accounts to see if you have good visibility into how and where you’re spending money across your organization. Finally, review your 2020 expenses and ensure you’re confident they are allocated correctly.
The non-financial data that informs your key performance indicators (KPIs) is also important. Look at metrics such as scheduled direct care (DC) hours per week, converted DC hours per week, and unique ABA patient count per week.
Develop A Strategic Plan
Once you have a good handle on your data, conduct some level of strategic planning for the coming year and beyond. “This sounds really complicated, but it could be just a couple hour exercise for a smaller organization. For a larger organization, strategic planning could be a multi-week exercise” says Madden.
An effective and actionable strategic plan includes three components:
- Your organization’s vision, goals, and strategy for the next one to three years. If your board-certified behavior analysts (BCBAs) and behavior technicians (BTs) aren’t at full capacity, for example, a goal might be to maximize utilization.
- A list of all the initiatives you need to undertake to reach those goals.
- Prioritization of those initiatives and placing value on each one to determine needed funding.
“Begin your strategic planning by focusing just on the upcoming year” adds Sarria. “Be deliberate and intentional with your initiatives and metrics in order to reach the goals you’ve set for yourself.”
Establish a Budget Timeline and Identify Owners
The budget framework’s final piece is building a budget timeline and identifying owners who will be accountable for respective initiatives. For most ABA organizations, a 60-day budgeting cycle at the end of the fiscal year is sufficient.
The budget timeline can be a simple spreadsheet with a list of to-do items, due dates, and people responsible for each item.
Building Your Budget
Once you’ve established a budget framework, the fun part begins: building your budget. According to Sarria, examining your revenue productivity is the heart and starting point of creating a budget.
Understand Revenue Productivity
Some of the revenue productivity elements to consider include:
- Average revenue per billable BA and BT hour
- Historical collection rates and improvement opportunities
- Number of business days per month (total number of weekdays excluding holidays)
- Prescription fidelity: the percentage of actual direct care hours per patient per week vs. the initial prescription.
Download BHCOE’s checklist, 7 Revenue Elements to Rev Up your ABA Organization’s Productivity, for a comprehensive list of revenue elements to analyze during budgeting.
Estimate Your Revenue
Next, estimate your revenue for the upcoming year. Revenue can be estimated using a variety of methodologies. A common method is to look at projected DC hours and then apply a conversion rate to determine converted hours. This data can then be used to determine the number of patients to be served, and BCBAs and BTs needed.
Another way to estimate revenue is by projecting BCBA headcount, which can then be used to determine the number of converted DC hours to be serviced, patients to be served, and BTs needed.
Project Operating Expenses
The next step in building a budget is to pencil out all of your operating expenses. Evaluate your cost of services, including the average BCBA cost per month, average cost per BT hour, and what tools or resources clinicians need to do their jobs better.
For sales and marketing expenses, think about how you’re tying your investments here to expand your referral base, what your channels are for growth, and what resources you need to support increased growth. For general and administrative expenses, consider all of your support staff needs as well as rent, office space, and equipment.
Determine Cash Flow and Capital Needs
As part of the budgeting process, anticipate your cash flow and capital needs for the coming year. First, take a look at expected operational cash outlays, such as new clinic locations and capital improvements. Also, look at your working capital, including invoicing and payment terms, contracting rates, and other payables. Finally, evaluate your capital structure. Do you need a capital infusion to reach your 2021 goals? On the flip side, if your cash flow is healthy, does it make more sense to pay down debt in 2021?
Evaluate how the COVID-19 pandemic impacted your revenue cost structure in 2020 and anticipate what may happen in 2021, given the fact that COVID-19 vaccines are now available.
“Cash flow problems can sneak up on you if you’re not looking a few months ahead” notes Sarria. “It’s important that you or an outsourced resource has the skillset to project your cash flow over the next coming months. It’s one thing to project revenue and expenses, but what does that really mean in terms of cash?”
Do a KPI Reality Check
Once you’ve outlined all of your budget assumptions for the upcoming year, assess what that means for your KPIs. Ask yourself how your KPIs are improving month over month and year over year. Understand how your KPIs compare to benchmark organizations and assess whether your KPIs are strong enough to meet some of the goals outlined in your strategic plan, such as opening another clinic or hiring more BCBAs. Iterate your budget based on what your KPIs are telling you, coupled with the goals you established for your organization.
Managing Your Budget
As you move through the budget year, managing the budget is an ongoing effort. To do that, designate clear owners responsible for each initiative and the corresponding budget.
Hold performance management reviews throughout the year. Determine a cadence for these reviews that meets the needs of your organization. Performance management reviews can occur every one to two weeks to assess core KPIs via email or a short meeting. They can also take place as you close the books each month, looking at different departments in your general ledger.
Your organization may choose to hold quarterly business reviews or rebudgeting meetings. “These are longer-form meetings where department owners would present a little more granularity in how their team or initiative did that quarter compared to expectations” says Madden.
Some of the reports and outputs that should guide all performance management meetings are financial statements, monthly trend reporting, actual vs. budget variance reporting, rolling forecast updates vs. fiscal year budget, and KPI dashboard.
Madden and Sarria emphasize that budgeting is culture-driven and must be a priority among leaders. They also stress the importance of KPIs in promoting accountability, as well as making data-driven decisions when developing a budget.
Checklist: 7 Revenue Elements to Rev Up Your ABA Practice’s Productivity
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