Internal Budget

The internal budget is separate and distinct from the Transfer Payment Agency (TPA)/Midwifery Practice Group (MPG) budget. This budget is completed to plan for income expenditures and to keep track of the MPG’s financial progress through the course of the fiscal year. It is good practice to develop a working or internal budget for each fiscal year based on the income the MPG projects to receive and the expenses it plans to incur.

Building an internal budget requires:

  • Forecasting income based on discharges, home births, number of midwives, etc.
  • Projecting fixed expenses (e.g., rent, paging system costs, staffing costs etc.) that do not change with small variation in case load volume.
  • Estimating variable expenses (e.g., office supplies, medication etc.) that vary based on usage.
  • Budgeting for optional expenses based on the practice’s priorities (e.g., additional professional development, team building, library purchases).
  • Being aware of the income and expenses that flow through the practice group and will generally always balance at the end of the fiscal year.

The internal budget equips practices with data to inform financial decision-making. It allows the person managing the practice’s finances to track how the practice is preforming against the projected income and expense. It can also be used to ensure that the expenditures do not exceed the amount the MPG is approved for in the fiscal year budget. Any amounts in excess of the approved budget will not be paid by the TPA and any shortfall will be the responsibility of the practice partners.

A suggested method of organizing the MPG internal or working budget is to divide the budget into two categories: income and expenses.

Income

When listing all the projected sources of income, the caseload in the approved budget is the starting point. Projections of amounts for which the practice will invoice the TPA within the fiscal year should be based on realistic projections of completed courses of care, not on the maximum allowed under the approved budget, and should reflect any expected monthly variations (e.g., planned vacations, lower client intake). As invoicing occurs monthly after clients are discharged, it can be difficult to project monthly incomes. This may necessitate cash-flow planning and the creation of a contingency plan to help balance variation between expenses and income throughout the fiscal year.

In addition to income from the TPA-MPG budget, the internal budget may also include other forms of income such as:

  • preceptor compensation from the Midwifery Education Program;
  • rental income from sublets;
  • prenatal class fees; or
  • any other income the practice receives.

Expenses

Projecting the practice’s expenses is a vital yet complex task. This can be particularly difficult for new or changing practices. Practices may wish to start by determining if the expense line item is fixed (i.e., not closely related to client volume or usage) or variable. Established practice groups can base their projections on the previous year's expenses; and assuming that an increase or decrease in caseload will result in the same percentage increase or decrease in variable costs (e.g., a 10% increase in supply costs if projecting a 10% increase in caseload).

When budgeting and planning, remember to factor in the cost implications of the 13% HST.

Review the budgets regularly throughout the calendar year, since actual costs may not reflect projections. This will help ensure the accuracy of records and assist in promptly identifying over- or under-expenditures. MPGs can then adjust their projected budget for the remaining months to ensure costs do not exceed income.


Costs that vary little with small caseload changes:

Rent Utilities

Paging system

Phone lines Clinic insurance Banking fees
Legal/accountant fees Security Information technology (not reimbursed through TPA)
Advertising Amortization Business fees
Internet Cleaning  

Costs that vary with caseload:

Clinical supplies Medications Home birth supplies
Reprocessing

Support staff and second attendants

Office supplies and copying


Discretionary Costs:

Continuing education costs for practice members (not reimbursed through AOM Professional Development Fund) and support staff Professional memberships of practice members Cell phone stipends or reimbursements for midwives

Social and recreational expenses of practice members

Consulting Gifts
Books and media Holiday bonuses  

Flow-Through Budget

Because operational expenses (e.g., rent, staffing) are funded through overarching fees, rather than item by item, they need to be budgeted to ensure that income exceeds or equals expenses.  However, other kinds of income that the practice receives are basically flowed straight through the practice. For example, the practice will flow compensation-related expenses to a midwife, professional liability insurance premiums to the AOM, and the benefits amount to the AOM Benefits Trust.

MPGs may choose to allocate the travel disbursement and the Midwifery Education Program preceptor compensation towards a particular midwife as compensation-related income or have it flow to the overall operational funds of the practice group (which are then distributed equitably). As a result, it can be assumed that this type of income is equal to costs and should always balance at the end of the fiscal year.