Are you too quick on the draw?
The good times may not last and your drawings may have to anticipate a cut in practice income, says Dr John Couch
New GP partners soon get used to calling their monthly pay 'drawings' rather than salary. This almost Victorian word lends a certain gravitas to working in a partnership.
Unfortunately, unlike salaries, but more like an investment, drawings can go down as well as up. Sadly the time for heading into negative territory is rapidly approaching for many practices.
After the last three years of very overdue rising GP income, most of us have become used to being paid on a par with mid-range solicitors or accountants. We should have known this was too good to last and the NHS, directed by the Treasury, is out to rein in what they see as profligate largesse.
With private APMS companies, threats to growth money and MPIG, the impossible access enhanced service, costs of extended opening, no pay rise this year and a low one next year, the gloom list grows ever longer.
For a few innovative practices these threats will not deflect rising income. But for most practices profits will start to fall, and by definition drawings also. The important question is how to recognise the warning signs in your practice and when to act.
How do you check your in-year financial health? Ideally you will have a cash-flow forecast to predict income and expenditure, not just for this year but the next as well. If so a steady decline in predicted bank balance that can be extrapolated to zero over the next few months should certainly raise the alarm.
Many practices rely on their accountant to suggest a drawings level, but the danger of this is becoming blinkered to unplanned falling profits. Check your current monthly income versus expenses regularly. If it is repeatedly negative then you should start to question drawings levels.
Don't be over-optimistic
Be careful not to be over-optimistic about the QOF balancing payment and year end enhanced service monies. QOF Points are reduced to 1,000 this year and some of the new domains are tough. Few practices will achieve maximum access payments and the other new DES are equally difficult. This means that you should not rely on these payments to come to your rescue.
Timing a pay cut is never easy but it is important to involve all partners in the decision making. You could ask your accountants for their opinion or look at the figures yourself. Your cash flow forecast is perfect for dropping in 'what if' drawings figures to study the effect on future cash flow.
There will be two approaches. The 'prudent' ethos states it is better to make a smaller reduction now rather than a much larger correction at a later date. The 'spend, spend, spend' approach is really self-explanatory – exciting but reckless.
If the forecast fall in profits is less than predicted, the prudent approach does not preclude the prospect of an extra distribution later. Also it is easier to adapt personal cash-flow to a smaller reduction early rather than a large one late.
John Couch is a GP in Ashford, Middlesex