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Guidance on drawing funds from your practice

Devising a strategy around drawing funds will help your business remain stable, writes Russell Finn

It is unrealistic to expect to draw exactly the same amount from your practice account every month (image: iStock)
It is unrealistic to expect to draw exactly the same amount from your practice account every month (image: iStock)

In tight financial times, GP partners must consider how much money they can afford to take out of the practice bank account without adversely affecting the business.

Building a cash flow forecast

Knowing how much to leave in your practice on a month-by-month basis is usually dependent on effective cash flow forecasting.

The basics are covered in this article; however, the cash flow model will be only as good as the data and assumptions that go into making it, so it is important to update it continuously, in light of changes of circumstance. The practice will then be able to act quickly to change drawings or arrange new finance to avoid running out of cash.

Drawings discipline

Over the course of the year, there will be good months and bad months, financially-speaking, so it is unrealistic to expect to be able to draw exactly the same amount out the account all year round.

The monthly amount should be set so that you do not draw out a high proportion of money that has not yet been received, with additional ad hoc payments made in order to distribute extra income.

If the level of available funds in the practice begins to fall, partners will have to be flexible about drawings. First, establish the root cause of the deficit: this could be a temporary issue, as a result of delayed NHS payments or it could represent falling profits.

If there is a clear loss of income or an increase in expenses, (such as increasing superannuation) drawings will need to be reduced permanently. If the problems are caused by NHS payment delays, the practice should be looking at short-term finance to cover any shortfall.

Should the practice need to arrange an overdraft, it is important to arrange this as far in advance as possible, because it can be significantly more costly to do this at short-notice or retrospectively.

Budgeting for a cash buffer

An average three-partner practice of around 6,000 patients will need to leave approximately £15,000 per full-time partner in the practice, as part of the year end current account balance.

This balance is spread across a range of elements such as the practice fixed assets, money in the bank and money owed to and from the practice. So if a practice has lot of money tied up in elements other than the bank account, the overall current account balance must account for this.

The balance is also dependent on the risk to the practice of major changes in income on a monthly basis. As such, a single-handed GP, who is at high risk of cash problems (as monthly adjustments will make up a higher percentage of the monthly income), will need to retain more than £15,000 in the practice, to provide a cash buffer.

By the same token, larger practices may be able to run with lower current account balances, as the risk of payment fluctuations can be spread over many more partners.

It will be down to the practice (based on previous experience) and its accountant to make a decision on where to aim the year end cash balances. All this information, together with the forecast, will feed back into the monthly drawings decision.

Partnership changes

One period that will always put pressure on the partnership cash balance is when a partner is retiring; typically, when a partner leaves a practice, they withdraw their entire current account in one lump sum. By contrast, an incoming partner will usually build up their current account balance over a period of a few years.

In order to manage this transition, the practice should ideally aim to run down the retiring partner’s current account before he or she leaves. Alternatively, short-term finance could be arranged in order to cover the deficit.

If this is not available, the practice could negotiate with the outgoing partner and incoming partner a period of hand-over to protect the business.

War chest

At times of change, practices should beef-up their cash reserves. In the lead up to the abolition of PCOs in England, earlier this year, we suggested to many practices that they build up a ‘war chest’: a cash reserve that could be used to cover unforeseen payment difficulties or available to invest provision of new services for CCGs.

We observed that, for those that took this advice, the extra money came in useful in addressing payment difficulties around the time of the change over.

The same principle can be employed steer practices through the fall-out of the next round of contract change negotiations or to plan for superannuation or tax underpayments.

The important thing is to identify these events as far in advance as possible in order to spread the contributions as thinly as possible, to stabilise drawings.


In some cases, NHS England will advance funding to practices that ask for it. For example, in most cases, a prediction of the QOF balance can be advanced to help a practice with superannuation underpayments.

Emergency cash flow management

No matter how carefully a forecast is made, there will always be something that arises that could not be planned for, such as payments not arriving or unexpected delays.

If the worst should happen, the management of cash flow can become a full-time job as receipts and payments are juggled in order to make maximum use of the available cash. In these circumstances, an overdraft arranged in advance is essential.

If the timing of income has been stretched, then the practice will have to make the most of all available credit. Credit will only be available in certain areas but it is important to know which areas can be stretched.

Rent and wages typically can not be stretched, staff tax payments are to be made by the 22nd of the month following to avoid penalties for late payment, but payments for other services usually have at least 30 days credit. These areas can be stretched to their full credit terms in order to make use of limited cash.

NHS expenses and personal tax payments can also normally be made over a period of time if the matter has been discussed in advance with the relevant body and financial hardship can be demonstrated.

In a time of cash shortage, a useful way deciding on monthly drawings is to look at the cash situation immediately after NHS payments have been received, make adjustments to the remaining balance to cover any predictable outgoings, such as rent, wages, tax and practice supplies, before making  then make a decision on the remaining balance to issue as drawings to the partners.

When problems occur, identify these early in order to deal with them quickly and effectively.

  • Russell Finn is a specialist medical accountant at Harold Sharp

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