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Five tips for managing cashflow

Specialist medical accountant Deborah Wood outlines her advice for how to keep a practice in business in a challenging climate

There is no single answer to the question of how to improve profits or cashflow, but sticking with the same financial tactics as last year is not the solution.

The following tips will help practices manage cashflow and get a tighter hold on their finances in today’s challenging environment.

1 Link up with other practices where appropriate

It is an increasingly common view that in the current climate it will be difficult for all but the largest practices to survive in isolation. To choose not to work in collaboration with others may result in a steady decline in income and an increase in workload.

Joining a federation of some kind or setting up a joint venture could offer certain benefits such as the ability to bid for services, the creation of a buying consortium and the sharing of back office support functions.

However, there are pitfalls for the unwary and specialist professional assistance will be needed for the new organisation in order to address the following issues: 

- Under what business structure should the organisation operate?

- What are the rules and protocols?

- How much is the initial subscription?

- Will the organisation need or want to be an employing authority for NHS pension purposes. Can it be?

- Does the structure effectively deal with any potential VAT issues?

- What are the risks?

-How will you manage conflicts of interest?

-What governance structures will you need?

- How will you ensure CQC compliance?

- Do you need new insurance?

- Will the venture be for-profit or not-for-profit?

Check that federating can’t hurt your practice. While the issues listed may be collective, there are also personal benefits and pitfalls that GP partners need to consider:

- Is your practice sustainable if you do not join up?

- Does federating fit in with the plans for your own practice?

- Will federating secure the long-term future of your own team?

- Will it allow your practice to maintain and protect existing income streams?

- Will it put the practice in a position to capitalise on new sources of profit not otherwise available?

- Can you encourage the membership to engage and work with you?

- Can you introduce new services as a result of federating?

- Will you be part of the provision of integrated services in the community?

- Will federating enable you to improve outcomes?

- If you join up but decline to get involved, could you incur the costs and miss out on the benefits?

At the end of the day the decision is yours, but remember that doing nothing is a risky option. If you do decide to take the idea of federation further, consider how to mitigate the risks. Involve a specialist lawyer and a specialist accountant to review any joint venture agreements, shareholder agreements, articles of association and business plans to ensure your position is protected.

2 Prepare for increasing premises costs

NHS Property Co Ltd (PropCo) does not yet have its feet fully under the table. With the demise of the PCTs many property issues were left in abeyance and Prop Co has not had the time to pick up the pieces.

Expect issues to arise concerning actual and notional rent and other premises reimbursements. In particular, health centre service charges could at last be sorted out, with practices receiving large bills for previously under-billed or unbilled services.  Do not be afraid to seek specialist advice from either specialist surveyors or specialist property lawyers. It is time to be more vigilant than ever: review some of the amended provisions in the NHS (GMS-Premises) Directions 2013 compared to the previous 2004 version to assess what impact they might have on future premises costs and reimbursements. Have a particular look at the changes to the basis for notional rent reviews, the requirements around improvement grants and the emphasis on notification and agreement with the LAT/CCG before entering into arrangements such as sale and leaseback.

3 Make the most of your annual investment allowance

Developing and renovating premises, for partners who own their surgery, is a rare expense. However, there are opportunities to grasp during these projects which could result in significant taxation and pension contribution savings.

In particular, the practice may incur significant building costs that qualify for a capital allowances claim for tax purposes.

Annual investment allowance for capital allowance purposes
April 2011 to April 2012£100,000
April 2012 to 31 December 2012£25,000
1 January 2013 to April 2014£250,000
April 2014 to 31 December 2015£500,000

Given the rather generous allowance from April 2014 of £500,000, this seems like an opportunity not to be missed.

Involve specialist accountants at a very early stage of the project to ensure that the information will be available to undertake the claim and that a proper structure is established and VAT status identified.  Once involved, the accountant will liaise with the architect, quantity surveyor, and/or the project manager to ensure that on completion a fully priced bill of quantities is presented.

Once the development is completed the accountant will go through the fully-priced bill of quantities and extract all the items that will qualify for a capital allowances claim. It is not uncommon to find that 20% of the cost may qualify for a capital allowances claim.

In a recent case a client had spent £300,000 on a property renovation in 2011/12 of which £80,000 of costs were identified as eligible for a capital allowances claim, leading to a tax refund for the partners amounting to £32,000 and a superannuation contribution refund of £18,000. 

Any claim for substantial capital allowances will have a significant effect on pensionable earnings, hence the refund noted. However, this can mean loss of seniority and reduced final pension benefits so those involved will need specialist tax and pensions advice.

Even if the building work was carried out some time ago there could still be the opportunity to make tax relief claims.

For any practice likely to buy or sell premises after 1 April 2014 there are new requirements under tax legislation to ensure the benefits for capital allowances claims are not lost. Seek specialist advice if this is applicable.

4 Prepare for changes to the partnership

Practices must plan for the financial consequences of changes within the partnership. They can do that by making sure that the Partnership Agreement is up to date and wholly appropriate to cater for things like maternity/paternity leave, 24 hour retirement, sabbaticals and reducing commitments.

Save for the pay-out to the retiring partner and have a clear policy of how an incoming partner is to buy-in whether it is by cash injection or restricted drawings. Be aware of the increases in the rates of superannuation contributions and restrict drawings accordingly.

5 Create an emergency reserve fund

Even with the best planning in the world something unexpected often occurs. Unfortunately change happens quickly in general practice and the usual method of planning over longer time periods is not always possible.

Make sure, therefore, that you build up a reserve fund to meet the unexpected, whether it is a one-off cost or a significant delay in the receipt of income already earned.

This is particularly relevant in the current environment of changes within the payment agencies and delays in getting paid for services provided or errors being made. We are finding that our clients’ practice payment schedules not only contain basic errors but many items appear with no description or back-up support at all.

Take extra care to check every single item on your payment schedule and be vigilant in negotiations with your LAT to ensure that all valid claims are properly settled.  In difficult times practices must be absolutely certain that they receive everything they are entitled to.

Lastly, accountants are experienced at reviewing clients’ systems and procedures and identifying whether appropriate controls are in place to help avoid risk. A specialist medical accountant can help carry out a review for your practice.

Deborah Wood is healthcare services partner, Moore and Smalley, and vice-chairman of the Association of Independent Specialist Medical Accountants (AISMA).

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