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How to prevent a drop in drawings

In these difficult times, is there any way for a practice to prevent drawings falling? Accountant Bob Senior suggests some strategies that are worth considering

In these difficult times, is there any way for a practice to prevent drawings falling? Accountant Bob Senior suggests some strategies that are worth considering

The one thing no practice wants to experience is a drop in drawings, and times at the moment are hard.

The country is in an economic slump and for many practices there is less business coming their way.

Funding changes

And the funding changes expected in the coming year will also affect drawings, to different degrees.

The differential funding for global sum and correction factor elements of practice budgets will see some practices getting real increases in income while others may only receive enough to allow them to stand still (at best) once the effect of inflation on staff costs and overheads is taken into account.

The removal of the square root adjustment in the QOF will also see winners and losers.

The likelihood is that slightly larger than average practices operating from single surgeries with elderly patient populations may be winners.

Smaller practices with very young populations operating from multiple surgeries are likely to be losers.

If it looks like you are one of the practices that is not going to gain from the funding changes, what can you do to avoid reducing drawings?

The first thing is to recognise the numerous factors that affect the level of drawings that can be taken by partners.

These include:

• the amount of profit actually earned

• superannuation contributions

• how much is tied up in working capital

• drugs stocks

• debtors

• new equipment

A point to bear in mind – it is all too easy to become obsessed with profits alone, rather than taking a balanced approach and achieving small improvements in all areas.

Superannuation

The amount of superannuation taken by the PCT each month is based on an estimate of the practice's profits for the year.

That estimate may be calculated by the PCT based on the amounts shown on the practice's previous superannuation certificates, or by the practice simply making an estimate themselves.

Since in many cases the PCT will be collecting 22.5% of the estimated profits in contributions – and more if added years are being purchased – practices should make sure that they are not having more deducted than necessary and that any likely reductions in profit are taken into account.

If it looks like the estimate of pensionable profits is too high, the PCT should be provided with a revised estimate.

However, practices need to be aware that reducing the estimated profits too much could result in part time partners not receiving their full seniority entitlement.

Since tax relief is allowed in the tax year when the superannuation is physically paid, reducing the profits estimate too much could also result in tax relief being received a year late.

Practice stocks

Although it can be very convenient for staff for practices to carry quite high stocks of drugs and dressings, this does tie up cash.

In fact such items can usually be obtained fairly quickly, so in these difficult times such stocks should be kept to a minimum.

The wider economy is suffering significantly at the moment so practices need to ensure that they keep on top of any amounts owed to them.

Ideally any private work done should be paid for by solicitors or insurance companies in advance.

Any work done for nursing homes, schools and so on where invoices are raised should have controls to ensure that the invoices are paid promptly.

The time within which the customer is required to pay the bill should not be allowed to increase – say from 30 days credit to 60 days credit.

Be assured that if customers are finding cash tight they will try to take longer to pay your bills if you allow them to get away with it.

It is common for some of the funds that are made available to practices to come with strings attached – for example the stipulation that they can only be used for the benefit of patients.

It therefore makes sense to ensure that as far as possible practices use such funds rather than their own working capital to invest in new equipment.

Bob Senior is vice-chair of the Association of Independent Specialist Medical Accountants and director of medical services at Tenon, the UK's third largest medical accountant. He is also a speaker at Pulse's Essential Financial Skills seminar in February.

Bob Senior of Tenon Group on how to prevent a drop in your drawings Bob Senior of Tenon Group on how to prevent a drop in your drawings

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