Question

Describe the budget development process for an actual nursing facility. Include the nature of the budget process (i.e., whether it is a master budget, including operating, cash, and capital budgets, or one or more of them separately). When the budget development process begins and finishes each year, and who is involved in developing the budget. What type of information is used in developing projections for the coming year.

Answer 1

A nursing facility would typically have an operating and cash budget, both of which together would be a part of the master budget. A capital budget would most likely not be necessary, as a nursing facility would not require much capital expenditure year after year. The only capital expenditure required would be to replace the wear and tear of existing equipment. However, if the nursing facility is in an expansion mode, and is investing heavily in fixed assets, then a capital budget would be necessary.

The budget development process should ideally begin in the last quarter of the financial year, and be completed well within the end of the financial year. Adequate time must be spent in the development of the budget, and thereafter in the management discussion of the budget.

Key managerial personnel, and senior management must be involved in budget development. Also, taking the inputs of nurses, and other operational staff is very important as they can have key inputs for budget improvement.

The information used to develop projections for the coming year is :

• Estimated occupancy for the year
• Estimated average length of stay per occupant
• Average revenue per day per occupant
• Estimated operational expenses
• Increase in expenses due to inflation