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Take steps to offset the credit crunch

In today's volatile financial climate it is vital that GPs are prepared for testing times, warns accountant Ian Tongue

In today's volatile financial climate it is vital that GPs are prepared for testing times, warns accountant Ian Tongue

There are a number of important factors to consider that may affect GP's in the overall financing and day to day running of the surgery as a result of the so called ‘Credit Crunch'.

Debt management

Many surgeries make use of overdraft facilities at times during the year.

Despite a relatively low base rate of interest, overdraft rates have generally risen significantly as the banks have lost confidence to lend to each other.

So it's more important than ever to managing the cash flow of the practice rigorously to minimise reliance on overdraft facilities and to reduce interest costs.

Raising finance

Many surgeries have sold premises and moved into leased buildings and many are planning to.

For the latter, the credit crunch and related fall in both commercial and residential property may prove a barrier to such plans, certainly in the short term, as funding for such ventures becomes more difficult.

Protecting surgery cash reserves

Many practices have large cash reserves at certain points of the year, especially if the surgery saves for the individual GP's Income Tax liabilities.

Frequently money is held in a single high interest account. This is effectively putting all your eggs in one basket.

Much has been said over the level of protection offered to individual savers with the guarantee increasing from £35,000 to £50,000 and pressure on the treasury to extend this to all deposits.

At the time of writing, the level of guaranteed savings is £50,000 per UK institution.

Few individuals are aware that if there are also loans from an institution, these may be offset with only the ‘net' savings being covered.

This may affect GP's who have loan arrangements with their business/personal bankers.

Further details of the compensation scheme can be found at the Financial Services Compensation Scheme website <> .

Click on the link for deposits which is comprehensive and user friendly.

In the context of a partnership , the £50,000 guarantee applies to the partners collectively for the surgery funds, and not to each. Therefore putting all your eggs in one basket may be risky.

A short time ago it would have seemed unthinkable that a major UK bank might be in trouble.

But with the continuing turmoil in the banking sector and financial markets generally it may be worth considering where the surgery funds are held.

Effect on staff

With inflation running at significantly above the government's target of 2%, GP's will inevitably face increased pressure for wage increases from their members of staff.

This exposes practices to both increased cost and risk of staff turnover.

It is important that wage increases are managed, and the long term cost of any wage increases is considered.

It may be worth considering the use of bonuses rather than pay rises, as they are controllable and are cheaper than wage increases which are paid year after year.

It is also important to assess staffing levels. But be mindful of retaining essential members of staff.

Non-NHS activities

As pressure on GP practice income has increased in recent times, many surgeries have diversified into performing more non-NHS activities.

Certain non-NHS activities are likely to be affected by the credit crunch; cosmetic work such as Botox, Dermal fillers etc may be particularly affected .

It is important that any income sources that are likely to be under threat are identified, along with potential new sources of income.

Where income cannot be replaced, it is important that the reduction in income is factored into cash flow forecasts and drawings projections.

The credit crunch and turmoil in the financial markets is likely to continue for some time.

Therefore it is vital that GP's understand their exposure from both a business and personal level and take all available measures to reduce their risk.

Ian Tongue is a partner at Sandison Easson and Co, a specialist medical chartered accountant

It's crucial GPs are prepared for testing times

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