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Guide to practice mergers: The financial aspects of a merger

It is essential for practices to compare accounts and discuss financial issues early on in the merger process, explains Jenny Stone.

You should be open about your accounts early on in your merger discussions (Picture: iStock)
You should be open about your accounts early on in your merger discussions (Picture: iStock)

Practices may have decided that they want to merge and all the partners have the same vision for the new organisation, but many mergers fail due to the finances of the practices. Therefore it is vital that you discuss finances early on in your merger talks.

Comparison of accounts

Merging practices will need to exchange accounts so that each practice can review the other practices’ finances. Ideally you should be open about your accounts early on in your merger discussions, but you may want to consider a ‘non-disclosure’ agreement.

After you have merged you will be one practice and will be sharing the profits, so you need to review the level of profitability to see how each practice compares. Ideally, calculate and compare the profits per full-time partner or per partner session. Problems can arise where one practice has higher profits per full-time partner/session than the other.

It is advisable to ask your accountant to review the practice accounts as you need to ensure you are comparing like with like. For example, some accountants deal with the partners’ employer’s superannuation differently - one practice may pay the partners' professional subscriptions whereas the partners in the other practice may pay personally. At first glance of each other’s accounts the profits may look similar per partner/session, but when a detailed analysis is made, they could be very different.

Expenses should also be compared to review whether there are areas that may be particular high for one practice. This could indicate different working patterns that may need to be reviewed as part of the merger discussions.

If the profit per partner/session is very different, you will need to discuss how to deal with this when sharing profits in the new partnership. The high earning partners are unlikely to want to merge if they are going to take a drop in income.

Usually profits will be shared based on sessions worked, however you could allocate profits differently to begin with, but eventually the partners will need to share profits fairly otherwise this could cause tension.

You will also need to discuss and agree exactly how the profits of the merged practice will be shared, what income is prior allocated and what income is pooled. For example one practice may pool seniority whereas the other prior allocate to the relevant partner.

Profit forecast

The advantages of practices merging are maximising economics of scale and savings in staff and possibly premises costs.

Once you have exchanged accounts, you should prepare a profit projection for the merged practice, identifying potential savings and areas where income may increase. This can be used to calculate the individual partners' profits in the new partnership, which can be compared to current profits.

Type of contract

NHS England will need to be informed about the proposed merger. If you both have different contracts, ie a GMS and a PMS contract, you will need to discuss with NHS England if there will be any change to the contracts. A partnership can hold different types of contracts, however if one practice is a PMS practice this may give NHS England an opportunity to review their funding.

Our firm had two practices that were in talks about merging for over a year, and when NHS England was informed it decided to reduce the PMS practice's funding, which made the merger unviable.

Staff levels and terms and contracts

Review the terms of the staff contracts employed at each practice as these will need to be the same. For example does one practice pay overtime whereas the other offers time in lieu?  

There may be additional costs with making sure terms are the same. If you are expecting to make some staff redundant you will need to calculate the cost of this in the first year of the merger as this will impact on the partner’s profits.

  • Read more about the staff issues involved with merging

Accounting year-ends

Do both practices have the same year-end? If different, you will need to agree the year-end for the new partnership accounts. If one practice is changing their year-end, they may have a large catch up of tax and superannuation.

If this is the case, the partners should seek advice so that they can plan for this.


Are drawings taken net or gross of tax? Some practices still withhold the tax from the partners and pay drawings net of tax. Again this needs to be the same so you need to decide how your drawings will be taken in the new partnership.

Working capital

All practices have different working capital requirements and partners will view how much of their income they need to leave in the practice differently. One practice may take fewer drawings throughout the year and take a lump sum once the accounts are prepared, the partners in the other practice may take all their income out each month and leave the minimum amount of working capital. Again you need to agree the level of working capital for the new partnership.

VAT registration

Is one practice registered for VAT? If so, VAT will be applicable to the merged practice and VAT will need to be charged on the supply of services that are not exempt.

If both practices are not VAT-registered you will need to review the combined level of turnover that is not exempt. The new practice may need to register for VAT if it exceeds the turnover thresholds.


You will need to discuss what will happen to the practice premises and any branch surgeries. Are they owned or leased? If one practice owns the premises and the other is leased, will all partners have an opportunity to buy into the premises that are owned? If premises are leased, both practices need to be aware of the terms of the lease.

If you are considering closing a branch surgery, the terms of any lease will apply. You also need to consider whether there are dilapidations relating to leased premises and who will be responsible for these costs.

If premises are leased, establish whether there are any outstanding service charges relating to the period before the merger as you need to ensure provisions have been made.

If the merged practice will be moving into new premises, check whether there are any loan redemption charges. If so, a decision will need to be made as to who will pay for these charges.

Accounting systems and banking arrangements

Each practice will currently be running their individual accounting systems. You will need to discuss setting up one accounting system for the new partnership. You will also need to open one bank account or add all partners’ names to an existing account and decide who will be responsible for looking after the practice finances and signing cheques.

Finance checklist
  • Exchange practice accounts – you may want to have a 'non-disclosure' agreement.
  • Ask your accountant to review the other practice’s accounts and make a comparison to your's for profit per partner and session.
  • Prepare a profit forecast for the merged practice, taking into account savings or additional costs.
  • Inform NHS England about the proposed merger, so discussions can be made if the two practices have different contract types.
  • Review staff contracts and levels of staff, calculate any potential redundancy costs.
  • If year-ends are different, get advice about the potential increase in tax and superannuation of one practice changing their year-end.
  • Agree how drawings will be taken and working capital requirements.
  • Review whether the merged practice will exceed the turnover registration limit for taxable income that is not exempt from VAT.
  • Leased premises – Ensure provisions are made for outstanding service charges, consider who would be responsible for any dilapidations.
  • Owned premises – Consider whether all partners in new practice can buy into the premises. Beware of changes to finance arrangements and early redemption penalties.
Guide to Practice Mergers

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