How do I check on practice accounts?
I am considering joining a partnership. What are the pitfalls when examining a prospective practice's accounts?
This is not a task to undertake without professional help. You must get an experienced medical accountant to check the accounts on your behalf. You should expect the last three sets of annual accounts. Look for clarity, solvency, performance, equity and partners' investment.
A good set of accounts should be relatively easy to understand. They should include a helpful accountant's report highlighting performance, changes and offering relevant advice. The income and expenditure (profit and loss) account should be clearly set out with the previous years' figures for comparison.
The balance sheet should show a healthy surplus for both net assets and net current assets.
The notes to the accounts should be comprehensive with a good breakdown of income and expenditure items, useful statistics and comparisons with national figures as well as clear figures for partners' sharing ratios, drawings and investment in both buildings and business.
If any of the above are missing or disappointing, you must ask your prospective practice for further details.
Check that differences in drawings can be explained (usually due to seniority, loan costs and so on).
Check whether the practice has a tax account. If not, you must save your own tax from drawings.
Check the amount of investment you will need to make to the partners' capital and property accounts if relevant. Are the partners' current account balances excessive?
If so, this could affect your profit in the early years.
If the accounts are scanty or contain worrying figures that are not satisfactorily explained then consider your position carefully.
Questions from GPs in the early stages of their career
Excessive current account balances could hit your profits in the early years~