Preparing an Operating Budget
Creating a Six-Month Operations Budget for Metropolitan Memorial Clinic
Understanding the Scenario:
- Expansion: The clinic recently expanded into a rural community.
- Budget Review: The Senior Accountant is reviewing the previous year's budget.
- New Budget: The goal is to create a six-month operations budget for the clinic.
- Revenue and Expense Projections:
- Revenue growth: 3% due to a new managed care contract.
- Expense increase: 1.5%.
- New roof cost: $50,000.
Excel Spreadsheet Setup:
Create an Excel spreadsheet with the following columns:
| Month | Revenue | Expenses | Profit |
|---|---|---|---|
| Month 1 | |||
| Month 2 | |||
| ... | |||
| Month 6 | |||
| Total |
Data Entry and Calculations:
- Historical Data: Enter the previous year's monthly revenue and expense data into the corresponding cells.
- Projected Growth:
- Revenue: Multiply the previous year's monthly revenue by 1.03 to account for the 3% growth.
- Expenses: Multiply the previous year's monthly expenses by 1.015 to account for the 1.5% increase.
- New Roof Cost: Allocate the $50,000 evenly across the six months.
- Profit Calculation: Subtract expenses from revenue to calculate the profit for each month.
Memo to Chief Administrator:
Subject: Six-Month Operations Budget for [Clinic Name]
Dear [Chief Administrator's Name],
I am writing to present the six-month operations budget for [Clinic Name] for the upcoming fiscal year.
Review of Previous Year's Budget: [Summarize key findings from the previous year's budget, such as revenue and expense trends, profit margins, and any significant variances.]
Analysis of Upcoming Changes: The clinic is anticipating several changes in the upcoming year:
- Revenue Growth: A new managed care contract is expected to increase revenue by approximately 3%.
- Expense Increase: The cost of expenses is projected to rise by 1.5%.
- Capital Expenditure: A new roof will be installed at a cost of $50,000.
Impact on Budget: These changes will have a [positive/negative] impact on the budget. While the revenue growth will contribute to increased profits, the expense increase and capital expenditure will offset some of the gains. The overall impact on the budget will depend on the specific amounts involved and the clinic's ability to manage costs effectively.
Conclusion: The six-month operations budget presented here provides a preliminary forecast for the clinic's financial performance. It is important to monitor the budget closely throughout the year and make adjustments as needed to ensure that the clinic remains financially sustainable.
[Attach the Excel spreadsheet containing the detailed budget]
Sincerely, [Your Name] Senior Accountant Metropolitan Memorial Hospital
Note: This is a basic outline. You may need to add more detail or analysis depending on the specific requirements of your organization.