Financial Aspects All aspects of a business are affected by how well that business handles the financial portion of its strategic plan. Before starting your business, you need funding. Even before you ask for funding, you need to be able to show what your financial projections are going to be with your business. In order to put in a funding request with a financial institution, you need to be able to answer the following questions: 1. What are my current financial needs? 2. What are going to be my future financial for the next five years? 3. How am I going to use this funding? 4. What is my strategy to manage the financial aspect of the business in the years to come? Financial Projection Video Building a Financial Budget Step-by-step Building of Financial Plan Developing a Business Budget Health care is a business and for any delivery modality within the health care industry, the leaders of that organization must practice solid financial management. This involves more than just maintaining the financial records of a business; it also includes activities such as planning for the purchase and sale of inventory (if the health care organization sells inventory), allocating scarce resources, planning for future expenditures and preparing for changes in the economic climate. When you are predicting your financial needs, there are a couple of variables to consider. They are the fixed and variable expenses. Fixed expenses are the expenses that are incurred regardless of the sales volume; these include expenses such as certain salaries, rent, insurance, etc. Variable expenses are the expenses that vary based on sales volume; these include expenses such as labor and utilities. Financial projections are considered from both a historical and a future growth perspective. For historical data, even though you are a “new” company, you want to include everything related to your company, income statements, and any and all collateral regardless of how “old” the company is. Financial projections should include both shortterm and medium-term projections. Other businesses also understand the importance of financial management as they also want to remain viable. In order to compete in today's health care marketplace, it is important to effectively manage both incoming revenue as well as outgoing expenses. Failure to do so can result in a significant likelihood that the business will not be successful. Budget Do you have a weekly, monthly or annual budget for yourself or your family? If so, good for you! Creating and maintaining a budget can help you reach the financial goals that you have established. Without a budget, another family member might spend money on a new sofa while you thought you were saving up for a vacation. The same financial idea applies to businesses. A financial manager has to know ahead of time the sources and amounts of incoming and outgoing funds. Managers must make many decisions regarding the budgeting process; these decisions include developing a general approach to the process, establishing the timeline of the budget, making forecasts, creating and implementing the budget and monitoring the budget for variances. Using the same scenario, let’s apply this to a situation that may occur annually each year in a family’s household. Every fall (timing of the budget), the family has two children who need clothes and school supplies for the upcoming school year. Last year, this family spent about $450 on these items for the two children. By doing some basic forecasting, the family determines that they will need to spend a minimum of $450 again this year. The manager (you) have decided that $500 will be deducted from the operational budget (checking or savings account) and used for back-to-school items. You can use the more authoritarian approach to budgeting (the “top-down approach”) where no discussion or negotiation is made between the departments/cost centers (the children) and management (the parent). Alternatively, you could employ the “participative budgeting” approach where the departments/cost centers and employees (the children) are included in the budgeting process. Taking this concept a step further you might even explore one of the profit centers and how it affects the budget. Let’s say one of the children has a newspaper route and is using some of his profits towards the back-to-school budget. This changes the form of the budget. As you explore the various budget concepts and apply them to your business, think about the impact each objective has. For most organizations, operating budgets are the primary focus of the budgeting process because they focus on a key financial indicator – profitability!
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