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Cash-flow and the contract: it pays to be on your guard

Richard Vickery is a senior manager with specialist medical accountants and business advisers PKF

The views here are the writer's and not necessarily those of PKF

Many GPs are concerned that, far from getting a substantial pay rise this year, money will be slow coming in, practice costs will rocket, and a real cash-flow problem threatens ­ accountant Richard Vickery offers his advice

GPs are unlikely to be out of business by the end of this year but there could indeed be short-term cash-flow problems for some practices if sensible measures and planning are ignored.

MPIGs and global sum figures are scheduled to arrive from PCTs this month and will be based on cash (not earnings) received from PCTs for the four quarters to June 2003. These MPIG/global sum figures will be estimates and GPs may need to negotiate on these to reflect exceptional circumstances in the period such as partner shortages, lower than usual list sizes, higher than usual debtors and so on.

All these factors will negatively effect the cash received and consequently the MPIG or global sum. To avoid the risk of a cash-flow problem it is crucial that you maximise your base income. Your accountant can help you with negotiations with your PCT to get the figure set fairly.

Given that the majority of practices will be living with MPIGs, the extra money on offer for enhanced services and quality payments, as well as the opportunity for increased outside earnings, could be the way to bring in extra profits. So how can you move into 2005/6 and beyond ­ when the income streams are meant to come fully online ­ in a sensible way?

Bear in mind that to reach 500-plus quality points and to be able to offer a worthwhile range of enhanced services practices may have to spend money to make money. Practices that sit tight for year one and do not take on any extra expenditure or work will probably lose any opportunity to provide enhanced services in the future.

They may also end up with much lower quality points achievement money. There will be no bonanza in April 2005 with achievement pay for 2004/5. Better to make a plan to maintain and increase income and tighten your belt in the short-term to gain in the long-term.

On the other hand, be sensible. Don't for example hire expensive staff willy nilly unless the income stream from enhanced services is secure and you know you will ultimately earn well from the services ­ and are likely to be asked to provide them.

Remember that for GMS practices there will be a one-off bounty in the first few months of the new contract when the final items of service from the current contract are paid. PMS practices will remember this from their first few months of PMS.

My list of dos and don'ts

MPIG/global sum Negotiate with your PCT to increase your MPIG/global sum. Ask accountant for help.

Aspiration payments Aspire high but not absurdly so.

Out-of-hours If you are going to opt out and work for an out-of-hours provider, consider reducing your drawings from the practice if the out-of-hours income is kept personally.

Quality preparation money Don't draw this as you are likely to spend it all on systems and procedures.

2003/4 income increase of 9.225 per cent Don't draw all this. It will be prudent to restrict any drawings increase to about 3 per cent as the remainder is likely to be spent on preparation work.

Drawings Organise your drawings. In the past, sharing the practice pot has been exciting if unpredictable ­ it is not recommended for the future.

Tax and national insurance Put by a reserve for these, either inside the practice or personally. Otherwise there may not be enough in the practice bank account to pay. Be sure to reserve fully for any anticipated profit increase.

Overdrafts It is not likely you will need one, but if

you do, be sure to discuss it with your bank because organised rates can be surprisingly low for GPs. Most banks will be aware of what is going on with the new contract and will be keen to help. Banks like GPs.

Overheads Keep a careful eye on these.

Finance partner If you have not got one, appoint one. Give the finance partner free time to devote to the

new contract.

Practice managers They are going to have a tough time and will need support.

PCTs Keep talking to your contact and build on that relationship.

Other professionals Make sure your partnership agreement is up to date. This is very important as

the new contract is between the practice and the

PCT and not the individual GP as it is now. Ask

your accountants for help with negotiations and drawings.

Seniority Make sure your PCT knows how many years NHS service you have.

But be of good heart The expenditure on primary care is increasing from £6.1 billion to £8 billion a year and a good bit of the increase will (eventually) feed down to your bottom line, so I think the longer-term future looks bright, if a little overcast this year.

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