Reading Time | 4 mins 25th June 2024

GP practice profitability and cashflow

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GP practice

Effective financial management is key when running any business. For GP practices, the 2% rise in the contract value for 2024/2025 on top of recent inflationary pressures and the increase in the national minimum/living wage, is forcing them to monitor their income levels closely and manage costs in order to maintain profitability levels. This is at a time when demand for their services is ever increasing. So, what can be done to maximise profitability and manage cashflow?

Maximising profitability

It is important to monitor practice finances on an ongoing basis so that there are no surprises when the annual accounts are prepared. This can be achieved by using your accounting software to compare income and expenditure against budgets or prior year results.

At BHP, we prepare benchmarked financial data which we discuss with our clients to highlight key areas to investigate, while remembering that every practice is different and there may be good reason for any variances.

Income

Patient numbers drive income levels and therefore profitability, so it’s important that list sizes are up to date. Practices are paid an amount per patient and, depending on the patient, you may be able to receive additional income by offering additional services outside of the contract. But before you take on new patients, you should consider the impact that this could have on your finances, as well as your time and resources.

Any additional services that are offered should be recorded correctly on accounting systems so that the information is available to claim the income from the NHS.

It is important to keep track of monies owed to the practice to ensure that you are getting paid for all work undertaken. This should be followed up if the income is not received and any differences in the amounts received versus what was expected should be investigated.

The prices charged for sundry services should be reviewed to check they are up to date and that they are being charged consistently.

Drugs reimbursements are sometimes an area for investigation. We see practices that don’t appear to be making full and accurate claims when comparing the income received against drug costs incurred. There are organisations that can help you check that your claims are accurate and potentially lead to additional claims being made.

Notional rent should be reviewed every three years and, if this has not been done, arrears can be due. It is therefore worth considering when the next rent review is due and instructing a specialist surveyor to assist with this process.

Potential new sources of income should be considered and a few examples are set out below:

  • Involvement in research projects.
  • Training income and grants for medical students that should also help with capacity.
  • Grant funding – ensure you are aware of funding available but be aware of any conditions imposed that could lead to abatements or repayments.

It’s important to remember that profitability is not all about income. If a new service is going to be costly to operate, it may not be profitable and therefore the viability of each potential opportunity needs to be reviewed in advance.

Expenditure

Turning to expenditure, the biggest cost for GP practices is staff costs. Although it might seem obvious, reviewing the skillset of staff to check that you have the right balance and number of employees in the roles needed to deliver services is key. Organising rotas to minimise the use of locums and reviewing the need for overtime will help keep control of costs.

However, it is worth mentioning that reducing staff costs may not always be the correct answer. There is the work-life balance of the partner group to consider, and each practice will need to decide on its own approach.

For other costs, it is important to review contracts when they come up for renewal, for example light and heat, photocopying, equipment hire, insurance and subscriptions.

Consider the level of cover offered on sickness and locum insurance policies and whether this is at an appropriate level given the NHS reimbursements offered.

Cashflow management

Monitoring cashflow on an ongoing basis is a good way to keep an eye on the financial performance of the practice – cash is king after all!

Consider preparing cashflow forecasts for a period longer than 12 months if required due to changes in profit levels and timing of tax and superannuation payments. As part of these calculations, it is necessary to understand the level of working capital required to run the practice and ensure that sufficient cash is retained in the practice bank account.

Many, if not all, practices have significant outstanding superannuation balances due to certificates not being processed correctly by PCSE. These certificates can be actioned at any time and the practice needs to hold sufficient cash to cover these balances.

The QOF aspiration payments have been raised from 70% to 80% of expected payments for 2024/25 and therefore cashflow forecasts should be updated to reflect this. While this will bring income forwards, the achievement balance received in June 2025 will be lower and this needs to be factored into cashflow forecasts.

Ensure that any reimbursements due to the practice are up to date and chase any amounts outstanding.

Finally, as part of cashflow planning, it is important to review monthly drawings to consider what level is appropriate based on any changes to practice profitability. Most partners would prefer to take an additional draw further down the line when profits are known, rather than being asked to introduce funds into the practice if drawings have been too high.

If you wish to discuss your practice profitability, cashflow or drawings position, please contact a member of the BHP Healthcare team.