short question

Budgeting & Forecasting

Budgeting & Forecasting Functions

Ø Fundamental Functions: -  Data collection -  Projections -  Budget analysis & monitoring

Budgeting & Forecasting Function

Data collection Ø Developing a budget requires data collection

e.g. -  historical data on costs and volumes by

accounting periods -  the volume of activities (patient visits, tests,

surgeries, etc) -  Current and anticipated expenses and revenues -  Capital needs -  Rates

Budgeting & Forecasting Function Budgeting – the process

•  Establish goals and objectives •  Determine the budget calendar •  Distribute budget instructions, input forms, and projected inflation rates •  Obtain historical data on costs and volumes by accounting periods •  Analyze internal and external forces that could affect historical patterns •  Project the volume of activities (patient visits, tests, surgeries) using all

the above information — a total budget will include statistics, operations defining expense and revenues, capital, and cash flows

•  Project expenses and revenues •  Determine the other capital needs (equipment, debt service, and

working capital) •  Establish revenue and rates schedule, net of reductions from revenue

required to generate sufficient cash to cover the operating costs and capital needs

•  Submit the budget if required to others for final approval

Budgeting & Forecasting Function

Projections Ø A critical feature of performance

measurement Ø Main objectives:

-  Forecasting cash needs -  Valuing an organization, products and

services -  Assessing actual performance to objectives

Budgeting & Forecasting Function

Ratio Analysis Ø Liquidity Ø Solvency Ø Profitability

Budgeting & Forecasting Function

Cash flow Ø Cash receipts, cash payments and net

change in cash resulting from operating, investing and financing activities

Ø Cash budgeting

Budgeting & Forecasting Function

Cash budgeting 3 component: Ø Total cash available Ø Total cash disbursements Ø Total cash needed

Budgeting & Forecasting Function

Cash management principles Ø Increase speed of collections on

receivables Ø Keep inventory low Ø Delay payment of liabilities Ø Plan the timing of major expenses Ø Invest idle cash

Budgeting & Forecasting Function Cash Budget

Capital Budget Operating budget

Finance

Budgeting & Forecasting

Financial Management

Operating budget Capital Budget

Cash Budget

Liquidity Solvency

Profitability