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Managing practice finances in tough times

Medical accountant Rosemary Smith gives advice on steering a practice through choppy financial waters without seeing profits plummet

Medical accountant Rosemary Smith gives advice on steering a practice through choppy financial waters without seeing profits plummet

How can I get the most from savings with the interest rate so low?

GPs and their practices will currently be receiving very little for their savings. One way to increase the financial gain is to look at an offset mortgage. This works by lining up all your accounts – current, savings, tax savings and mortgage – under one banner. Every day totals are offset against each other to give a single balance, on which interest is charged. You may not get interest on savings, but you will cut interest on your mortgage, and this has the same effect as having savings in a high-interest account.

It is also a good time for practices to consider investing in Premium Bonds. You will not be losing out on much interest and any wins are not taxed.

How can I take advantage of the low base rate with practice loans?

Take care when looking at loans as some banks are actually charging practices higher rates than they used to. Shop around and get quotes on both trackers and fixed-rate loans. It's difficult to advise which to target or avoid, as there are still some trackers that offer very good rates, although fewer than there used to be.

What are more important than the type of loan are the administration and loan charges banks levy. Many GPs are signing up for loans with very low rates, only to find the one-off charges are extortionate.

How can we manage recruitment and staff hours in the current climate?

You may want to consider putting a freeze on recruitment and overtime, or even think about redundancies. If you do so, take care to weigh up the costs – both financially and on morale. Freezing recruitment often increases holiday and sickness cover and you may also miss out on future income.

Many practices are increasing the number of sessions worked by partners to cut down on locum payments. If you do this, ensure partners have support in other areas of work – such as administration, from practice managers, or by employing a financial manager to oversee finances – so workload does not become unmanageable. You could consider limiting partners' annual leave to six weeks.

An alternative route to reducing use of locums – or even stopping their use entirely – is to employ new nursing staff, who will be cheaper than locums and can relieve pressure on doctor time.

I still want to find some way of rewarding my staff. What are my options?

Giving your staff a pay rise means you will have to pay that year on year, with increases for inflation, while your profits are likely to be standing still or reducing. You may therefore want to consider other options.

You could opt to pay a one-off bonus, but this will still have to go through payroll, so remember to factor in employer's national insurance and decide whether you want the bonus to be pensioned, which will also increase its cost. Do not give bonuses at the same time every year as this becomes a contractual part of the pay structure. If a bonus does not go via payroll, you will be reliant on the employee paying tax and national insurance, or HM Revenue and Customs will hold the practice responsible. You can pay a bonus and agree a rate of tax and national insurance with HMRC, but this needs to be organised in advance.

Alternatively practices could offer perks to their staff. Examples of tax-free or tax-friendly perks include:

• Childcare vouchers, which can be used for children up to 15 years of age.

• Providing a mobile phone.

• Money-off deals through a purchasing club membership.

• Lending cycling safety gear to employees. You could also have cycle-to-work days and give staff free meals on those days – meals would normally be a taxable benefit, but not on a cycle-to-work day.

As income streams slow, how can I ensure I'm paid money owed to me by my PCO?

It is more crucial than ever to make sure you get all the income you are entitled to. Never take it for granted that you will be sent the correct fees.

Keep spreadsheets showing not only your GMS/PMS pay but also achievement monies and enhanced services. This can be tracked using NHS payment analysis on systems such as IRIS or on a simple Excel worksheet.

Monitor income streams and deductions, not the amount received from the PCO. You might receive about the same amount each month, but with analysis you could find no aspiration monies had been paid one month, causing an undetected error in superannuation deductions. It is much easier to chase errors when they occur than waiting for your accountant to find them.

Ensure there is a staff member at the practice in charge of credit control and a regular report is given to the practice manager or partner to monitor.

If you do not receive information from your PCO, demand it. Getting the right data is the only way you can ensure you have been paid correctly each month.

How should I assess whether taking on new work will help plug the financial gap?

Practices are being expected to take on new enhanced services to support their income, but you need to assess the expenses associated with new work very carefully.

• Be sure you know how much your surgery costs to run per square metre and the full cost of your staff, including hidden costs such as employer's national insurance and pension contributions. Ask your accountant for help if you do not know how to work these figures out.

• Don't just apply the cost-effectiveness test to prospective work – apply it to work you are already doing.

• When factoring income into your calculations, make sure it is certain, rather than potential, income.

• Some activities, though not strongly profitable in themselves, can safeguard profit in the long run. Extended hours is a good example. It may cost your practice money, but if you were the only practice in the area not to offer it, you might lose patients, which could cost you even more.

How will non-NHS work affect my NHS pension?

If practice finances are tight, you need to decide whether it is more important to you to earn well now or save money towards your pension. This will affect your balance of NHS and non-NHS work and how your accountant chooses to record it.

The higher the proportion of your income coming from outside the NHS, the lower the proportion that will be pensionable. Ensure your accountant knows your circumstances – are you near retirement and looking to contribute as much pension as possible? There are also different superannuation calculation criteria, so ask your accountant if one of the others might be better for you. Adjust what you do with that in mind.

Should I consider reducing my drawings?

It would be wise to look at expected profit for the next year and estimate a monthly drawing that is acceptable to partners, with an additional lump sum to be paid at the end of the year depending on profit. This means partners will have a settled income, but will gain further should the year go well. This is much better than having to pay money back to the practice if you have drawn too much.

Rosemary Smith is senior manager at medical accountant Whittingham Riddell

Money

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