All nurse practitioners (NPs) can enhance their careers with a strong financial background. At some point in every NP's professional life, business skills will be needed. Whether you use them for salary negotiation, in a management role working for someone else, or for considering self-employment, these skills are vital. Do you feel that you have such business skills now? If not, to better understand finance, start by learning about budgeting.
Budget Basics
A budget is a tool that tells you how much money you think you need to operate a business for a specific period of time-usually 1 year. Let's start with something basic-your household. The skills you need to operate a financially sound household are the same skills you need to use to prepare a budget for a department or your own business. You need to know how much it will cost you to live for a year (expenses) and how much money you need to do so (income). No one knows exactly what will happen in the upcoming year, so you need to realize that these numbers are a best estimate, and you will need to plan for unforeseen events (savings).
How will you know how much it will cost to run your household, department, or business? Start with some research. List the major, known expenses for your household-rent/mortgage, taxes, heat, electric, food, auto loans, auto upkeep, auto fuel, healthcare, savings/retirement, entertainment and vacations, educational loans, and so forth. Do not forget quarterly or yearly bills such as taxes and insurance. This list will be different for a department or business. Seek the help of other colleagues who have experience in this area for assistance.
Most budgets are set up in monthly increments. List all the monthly bills. Take your quarterly or yearly bills and divide them into monthly expenses. Take your yearly tax bill and divide it by 12; list each unit as a monthly expense. Add it all up each month and total it for the year. There are many resources in books and online for budget ideas and formats, as well as some excellent computer software programs for home budgeting and small businesses that are very quick and user-friendly.
Evaluate Income
Now, how are you going to pay for all this? Where are your income sources (revenue)? Income for operating a household is usually from salary and interest income. If you are responsible for a department, you are given a figure that you must operate under. In some departments you may come up with measures that reduce your costs and may discover new revenue streams. A small business obtains income from the products it produces, such as office visits, continuing education classes, consultation services, and flu vaccine clinics. The small business owner may also rent a room within their space to another colleague and generate several thousands of dollars in additional revenue per year.
For you to have a financially sound household, department, or business, your revenue must exceed your expenses. Although this sounds basic, in our society many people live beyond their means by use of credit cards and loans. The current crisis in the subprime-mortgage market is an example of how this can lead to devastating consequences. Four out of five new businesses do not survive 5 years.
If you prepare a budget, you need to compare actual-to-estimated income and expenses and continue to analyze your data. It is safer to overestimate expenses and underestimate income. If you are not able to understand the budgeting process, you will not know if you are getting into financial trouble early enough to intervene. Once you learn the basic concepts and terminology, you are on your way to understanding the fiscal side of the NP profession.