This is ninth in a series of articles from MONOC Mobile Health Services, New Jersey's largest provider of EMS and medical transportation and first CAAS-accredited agency. The goal of this series is to provide insight and solutions for the different managerial and operational challenges facing the EMS leaders of tomorrow. For more, see www.monoc.org.
Many agencies may be struggling to develop accurate budgets at a time when cutbacks are more prevalent. Here are some basics to help your agency develop a realistic budget that keeps you on track.
What is a Budget?
A budget is simply a financial tool to help entities follow a strategic plan to successfully achieve their visions. Developing a vision and strategic plan is much like using a map. A map is an invaluable tool in helping you get to where you want to go. Before the advent of GPS devices, travelers used to determine where they were going--a vision--and review a map to determine how they were going to get to their destination--a strategic plan.
Budgets in EMS can take various forms and have several limitations depending upon the entity involved. They can be detailed and involve hundreds of smaller measurable business units for a national, publicly traded company, or they can be a simple cost-control tool for a single-vehicle public agency. No matter the form of the EMS agency, numerous budgeting concepts can be utilized to help your team achieve its goals.
What to Budget
An operating budget is comprised of all of the revenues and expenses that are expected to be incurred. Start with revenue. For EMS agencies that bill for their services, take into consideration planned trip volume to develop the revenue budget. Most agencies start with historical volume and adjust it for known anticipated effects.
A successful budget is contingent upon the ability to predict these known effects. Thus, certain questions must be asked. Has the population expanded or contracted? Are there any changes in demographics? Are any new contracts won or lost?
In addition to population demographics, consider payor mix since rates vary depending upon the payor. For example, a payor mix with a large percentage of Medicaid patients will realize significantly less revenue than a payor mix with a high percentage of patients covered by private insurance. Lastly, are there any grants, government funding, or other revenue items to consider?
An operating budget focuses on all expenses including, but not limited to, medications, supplies, fuel, consultants, etc. The single largest expense incurred by EMS agencies is typically people: wages, benefits, uniforms and other personnel-related expenses.
A zero-based budget is exactly what it sounds like. Start by assuming zero and build your budget from the ground up. For instance, the cost of two EMTs at 24 hours per day, seven days per week, at $X per hour.
Another method to achieve your goal is to prepare an incremental budget. By definition, it starts with expenditure levels from last year and assumes any changes. For example, plan on spending X% more or less than last year on EMT wages.
After you add revenues and subtract expenses, the net result will be an operating income or loss.
Other Budget Items
The financial map you have now constructed is still missing some important items. As many entrepreneurs have discovered, a lack of proper planning can result in a shortfall of cash for your employees come pay day. Budget your cash flows, taking into account your operating budget, capital budget, bank borrowing or bonds issued, and general timing of each item you've considered. For instance, very little cash is "in the bank" in the same month as the trip you performed for a patient.
A capital budget is a budget of all of the capital assets the agency will be purchasing. This may include ambulances, major equipment, computers, etc. Capital budgeting is important to the entity, as it often requires major drains on cash or funds--usually requiring borrowing in some way.