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The crucial role of the cash-flow forecast

Financially these are uncertain times for general practice – and unless GPs know where their money is going, and at what rate, they will be sunk, says Dr John Couch

I cannot remember a year when practices have faced so many different threats to income and profits. In the majority of years where income rose gently, or in the precious few with more exciting rises, it was possible to have a light hand on the financial reins without fear of significant cash-flow issues. Unfortunately 2007/8 is likely to be the most challenging yet for all practices and we will need to keep a much firmer monetary grip.

The threats are clear: a zero per cent GP pay rise; phased staff salary increases of 3.1 per cent (including on costs); possible attacks on PMS income; uncertainty over some DES income (for access, practice-based commissioning and Choose and Book); extended opening – need I go on?The most important weapon we have to ensure financial stability is our cash-flow forecasts. If your practice has managed without one up to now you will certainly struggle this year.

Take control

A cash-flow spreadsheet will certainly not create extra income but it will allow you to perform three vital tasks. First it enables you to manage the reduced income flows as smoothly as possible. Second it allows you to check quickly the effects of 'what if' scenarios – for instance what if half of your growth money is withdrawn? Finally it allows actual income or expenditure changes to be applied to your finances immediately before your bank statement turns red!

If you do not have a working cash-flow spreadsheet, ask your accountant if they have a template you can download. Enter relevant headings into income and expenditure columns and leave plenty of spaces marked 'others'. Next enter actual data from your accounts as forecasts and then actual monthly data and each month end. If you do already have a spreadsheet, check it carefully for changes relevant to 2007/8. Always keep the figures up to date or the forecasts will be useless.Now factor in the known changes such as staff pay increases. At this stage you can check the month-by-month cash flow and predicted bank balances. Look for large in-year dips leading to negative current account balances. Also check the forecast year end balance. If it too is in the red then some action will be required.Your first decision this year is how to deal with the QOF balancing payment, which is due over the next few weeks. Many practices distribute the whole amount since it relates to 2006/7 profits and will be taxed as such. Have you allowed for this on your forecast? If not you must make an adjustment. Note the effect this has on the rest of year forecast.It is likely that you will need to decide between two unsavoury options. One is to reduce drawings now, by an amount that allows sufficient 2007/8 cash flow and distribution of the QOF balance. The other is to leave some or even all of the QOF balance on account, using it to reduce the fall in drawings each month. It's a bit like turkeys voting for Christmas.Apply in-year changes as soon as they are known. Damage limitation is much more effective if it is done promptly. Finally consider buying a few lottery tickets. We will need all the help we can get.

Dr John Couch is a GP in Ashford, Middlesex

Threats to practice income and profits in 2007

• Zero per cent GP pay rise• Phased staff salary increases of 3.1 per cent (including on costs)• Possible attacks on PMS income• Uncertainty over some DES income (for access, practice-based commissioning and Choose and Book)• Extended opening hours

The value of the cash-flow forecast

• Enables you to manage reduced practice income flows as smoothly as possible• Allows you to check quickly the effects of 'what if' scenarios – for instance what if half of your growth money is withdrawn• Allows actual income or expenditure changes to be applied to your finances immediately before your bank statement turns redIf you do not have a working cash-flow forecast spreadsheet, ask your accountant if they have a template that you can download

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