When speaking about making data-driven decisions, we often discuss forecasting and predictability. This process should not involve throwing a dart, and guessing what your next quarter will look like. A doctor and their practice manager should never get to the end of the month and discover a cash flow problem. And one of the best tools to use as a guide is a “run rate.”
Run rate forecasting is a method of measuring revenue during a specific time period (usually monthly or quarterly) in order to calculate a business’s projected annual earnings. For example, if a practice earned $250,000 in January, with a total of $750,000 in revenue for Q1, their predicted earnings for the year would be a run rate of $3,000,000.
Younger practices can use run rates as a viable statistic, presenting them as predictions for future revenue and earnings. More established practices can use run rates when looking to expand or when preparing to make significant changes to their day-to-day operation and would like to quantify statistics with a fresh perspective. Run rates are a handy metric that help doctors and managers make quick calculations about projected annual earnings, and can be very useful when making marketing and capital expense decisions.
On the whole, run rates can be a useful statistic and using them can have advantages for business owners – as long as it’s being used correctly. Variables like seasonality, year-end sales, and large one-off sales can lead to understating or overstating your projections. Make sure you know what you’re calculating and that you need to check your data often to avoid any mistakes when forecasting revenue.
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