What is a financial run rate?

May 7, 2014 | Education and Optimisation

Finance is on the minds of aged care providers, and will continue to be, especially for the next few months. Key to navigating this period will be an understanding of important financial terms.

Though many terms should be understood, aged care providers need to have a detailed understanding of what exactly a run rate is, and how it impacts a facility.

What is a run rate?

A run rate is essentially a process used to gain an idea of the financial performance of an aged care facility. By extrapolating current financial results over a length of time, a provider can see whether current results would be sustainable.

For example, an aged care facility can extrapolate the current revenue for a quarter over the course of a year to gain an idea of financial performance. While obviously not always 100% accurate, accounting for different factors such as resident increases or purchases can create a fairly detailed picture.

Aged care providers will need to be cautious, however, as extrapolating incorrectly can be a dangerous practice. By doing so, there could be an overestimation of finances.

Run rates can also be especially useful for new businesses without a back log of past revenue data to review.

What's the best way to track it?

It is sound financial practice to review run rates either weekly or monthly. Monthly is good but weekly is better, as the frequency will assist aged care providers to gain an even greater degree of control over revenue.

Weekly is essentially managing revenue and profitability in greater detail, and can be used to build weekly reports of revenue. In addition, the frequent nature of the reports can mean business finances are always a paramount consideration.

Whatever frequency is decided, aged care providers should give consideration to the viability of run rates, and how they can impact financial operations.

What are the most important financial indicators in managing your organisation? Please let us know or contact us for further information about run rates.