If you're running a home health agency, you know that budgeting isn't just about crunching numbers— it's about survival. With razor-thin margins, regulatory changes, and unpredictable payor mix, getting your budget right can mean the difference between thriving and barely scraping by.

Let's talk about how to build a budget that actually works for your agency.



Start With What You Know

Before you start forecasting, you need a clear picture of where you are right now. Pull your numbers from the last 12-24 months and look at:

Revenue Patterns: When do you see spikes and dips? Are there seasonal trends? Which payor sources are most reliable?

Cost Structure: Where is your money actually going? Most agencies find that labor eats up 60-70% of revenue, but the breakdown between clinical staff, admin, and overhead varies widely.

Utilization Rates: How many visits are your clinicians actually completing versus what they're capable of? This gap is where a lot of money gets lost.

Once you have this baseline, you can start building forward.



The Big Cost Categories

Home Health budgets typically break down into a few major buckets:

Labor Costs (usually 60-70% of revenue): This includes your clinicians, intake coordinators, schedulers, billers, and leadership. Don't forget payroll taxes, benefits, and workers' compensation. A common mistake is underestimating the true cost per employee — it's not just their salary.

Clinical Supplies and Equipment (3-5%): PPE, wound care supplies, IV equipment, medical devices. These costs can creep up quickly it you're not tracking them closely.

Transportation and Mileage (5-8%): Whether you're reimbursing staff for mileage or covering fleet costs, this adds up fast — especially with gas prices fluctuating.

Overhead (15-20%): Rent, software, insurance, marketing, professional fees. These are often the first costs agencies try to cut, but underspending here can hurt you long-term.

Technology and Compliance (2-5%): EMR systems, billing software, compliance tools. This is an area where spending smart money upfront saves you from expensive problems later.



Build Your Revenue Projections Carefully

Revenue projections are where most budgets fall apart. Here's how to make yours realistic:

Start with Census, not Revenue: How many active patients do you expect to serve each month? How many visits per patient? Build up from there rather than starting with a revenue target and working backward.

Factor in Payor Mix: Medicare pays differently then Medicaid, and private insurance is its own beast. If you're planning to shift your payor mix, model it conservatively — these shifts take longer than you think.

Account for Authorization Delays: Not every referral turns into a billable visit immediately. Build in realistic timelines for intake, authorization, and SOC visits.

Be Honest about Collections Rates: If you're collecting 99% of what you bill, great. If it's closer to 85%, your budget needs to reflect that reality.



Watching Your Break-Even Point

Every agency owner should know their break-even number cold. How many visits per month do you need to cover your fixed costs? How many patients?

As you grow, this number shifts. Adding clinicians increases your capacity but also raises your fixed costs. Understanding this relationship helps you make smarter hiring decisions.



Plan For The Unexpected

Home Health is unpredictable. Build buffers into your budget for:

Regulatory Changes: CMS rate adjustments, new compliance requirements, state-level policy shifts. Set aside 3-5% of revenue as a cushion.

Staffing Fluctuations: Turnover happens. Budget assumes you'll need to use some contract labor or overtime to fill gaps.

Bad Debt: Some claims won't get paid. Period. Budget for it.

Growth Investments: If you want to expand to a new service line or territory, you'll need capital before you see the return.



Monthly Reviews Are Non-Negotiable

A budget is worthless if you don't check it regularly. Set aside time each month to review:

• Actual Revenue vs. Projected Revenue
• Labor costs as a percentage of revenue
• Utilization rates by discipline
• Days in AR
• Cash Flow

If you're off track, you need to know quickly so you can adjust. Waiting until Q4 to realize you're bleeding money doesn't give you many options.



Use Data to Drive Decisions

The best home health budgets aren't static documents — they're living tools that help you make better decisions. Track KPI's like:

• Cost per Visit by Discipline: Are your RN visits costing more than expected? Why?
• Revenue per Clinician: Who's hitting productivity targets and who needs support?
• Referral Source Profitability: Which hospitals or physician groups send you the most profitable patients?

This data helps you see where to invest and where to pull back.



The Bottom Line

Budgeting for a home health agency isn't glamorous, but it's essential. Get it right, and you'll have the financial clarity to make smart decisions about hiring, expansion, and investment. Get it wrong, and you'll be constantly firefighting cash flow problems.

Start with solid historical data, be conservative with revenue projections, build in buffers for the unexpected, and review your numbers monthly. Your future self (and your accountant) will thank you.