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How to keep your bank happy

Accountant Paul Samrah has some tips on how practices can stay on top of their cash flow to ensure they have a good relationship with their bank.

Stay on top of cash flow to avoid problems with the bank (Image: iStock)
Stay on top of cash flow to avoid problems with the bank (Image: iStock)

As GPs’ profits decrease, many practices are starting to suffer from deteriorating cash flow.

If you have not done so already, you should make plans for the downturn in ‘business’. The tips below illustrate good business practice – helping you go back to basics and instil the right discipline in your ‘business’.

Act quickly and decisively to avoid (or at least minimise) running into problems with your bank.

Responsibility for attending to the onerous task of cash flow management should be clearly defined. It should also be given significant priority within the practice.

Bank managers do not like surprises and they are more likely to assist you with a temporary problem when you have warned them well in advance.

If you do need to ask for help from your bank manager in order to resolve a crisis, make sure you know what has caused the current problem to ensure any future problems can be addressed and resolved.

Here are some tips to assist in that task:

1. Prepare monthly cash flow forecasts

The cash flow forecast is a statement that budgets for the ins and outs of cash in the practice, usually in the form of a spreadsheet. From this, you can assess the amount of money your practice may require to steer you through periods of low income, or where outgoings are high due to one-off costs or expansion.

The cash flow forecast should always represent realistic targets of the movement in cash for some time ahead; in this way you will know what to expect. You will foresee problems and opportunities in time to take action. Accordingly, the figures should be continuously updated to help you see a minimum of 12 months ahead.

2. Maximise income

In these difficult financial times maximising income is key; as a first step you should ensure that your payment checking facilities are up to scratch.

Ensuring the practice obtains income from non-NHS work, not just NHS work, could also help protect profitability.

Look at all income streams and assess whether you are maximising your earnings in each area. For example, are there processes in place to help the practice maximise the income from the QOF? Could the practice increase outside appointments to boost private fees income?

Enhanced services represent an important income stream, so practices also need to be aware of changes to these. Expanding the range of services that the practice provides may also be an option, so it is important to understand local priorities.

3. Cash is king

An old adage, but so true in these troubled times. Establish what your short-term cash requirements are and then forecast longer-term cash flows based on realistic and credible financial information.

Negotiate credit terms with suppliers that are as long as possible. Insist that any private fees are paid by patients before they leave the surgery.

4. Review your costs

Look at your costs on a value for money basis. Leave no stone unturned and review every commitment.

Don’t jettison staff unnecessarily; it may prove a false economy to make staff redundant when you consider the costs of recruitment (both direct and indirect) and the loss of productivity and expertise.

Be objective and carefully consider the skills, commitment and capability you need, both now and in the future.

5. Take account of superannuation shortfalls

The global sum payments during each year only take account of estimated deductions for superannuation. Brief your accountant to prepare your practice accounts as early as possible after the year-end.

Ensure that the General Medical Practitioner’s Annual Certificate of Pensionable Profits is prepared for each GP as soon as the accounts have been signed and the necessary tax return information has been provided. This will indicate the level of shortfall, which will have to be paid over.

6. Plan ahead for tax liabilities

Early preparation of the accounts is essential to help you plan your tax payments.  Remember, tax is payable on profits, not what is taken out of the practice.

Ask your accountant to calculate your tax bills as soon as the accounts are finalised. If the partners choose to pay their tax bills through the practice, then you will be able to properly budget for the liabilities within the cash flow forecast well in advance of the tax due dates.

Look at your tax liabilities – can any be reduced by efficient tax planning? Re-visit your payments on account and consider reducing your 31 July payment.

7. Build in a contingency

Unexpected costs are an unpleasant fact of life for any business. It is usual to build a monthly contingency into your cash flow forecast to mitigate the effects of unexpected costs. If these costs never materialise, you will be pleased at how well you are doing against budget.

8. Manage your bank manager

Accurate cash flow forecasts are an excellent way of managing your bank manager. You will be able to warn them of an approaching problem, or even negotiate an overdraft facility well in advance.

A bank manager who gains the impression that you are well on top of your finances is more likely to be co-operative when you most need them to.

If the cash flow forecast shows that trouble is looming, it is advisable to arrange suitable finance at an early stage. The financing of a temporary problem may take some time to be organised and agreed.

If cash is needed from your bank for only a temporary period, the cheapest and most convenient form of finance will be an overdraft. Refinancing by way of extending or taking loan finance is an option, not forgetting the possibility of partners themselves loaning the practice funds.

9. Agree a base level of monthly drawings

It is not good practice for GPs to take out all the surplus cash on a monthly basis as drawings. Agree a base level of monthly drawings that all the partners feel comfortable with.

The annual total of base level drawings should be well below the anticipated profit for the year. Then, on a quarterly basis, it would be appropriate to pay a judicious level of surplus cash to maintain the bank balance in the black, or to keep within an overdraft limit.

10. Keep all the partners in the loop

There is nothing worse for partners than to come to the end of a month to find that their monthly take is a lot less than previous months, due to cash flow problems.  

Again, this is where a properly constructed cash flow forecast is essential. By keeping it as an item on the agenda of meetings, GPs are kept aware of the cash position. They can make appropriate decisions concerning a reduction in drawings or the arranging of an overdraft.

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