Reducing profits in general practices to help minimise impact

2022/23 and 2023/24 have been difficult years for General Practice as income rises have not kept pace with cost increases.

Our accounts produced for English practices are showing sizable profit reductions in some cases. Accounts in Scotland are also seeing reduced profits in some cases. Whilst some of this is down to the general inflationary increase in costs there are two overriding reasons.

  1. A reduction in COVID vaccination income and also COVID support payments. This was anticipated to reduce as the general practice support payments were reduced and vaccination cohorts also were narrowed reducing the impact of COVID vaccination income in accounts.
  2. The impact of staff cost increases partly as a result of the increase in the national living wage but also general pay increases which to date have not as yet been fully funded through NHS funding uplifts for all practices.

Additionally, property-owning practices are also being impacted by the rise in interest rates impacting borrowing costs.

Practices therefore need to prepare for a reduction in profits and there are strategies that can be put in place which may not mitigate the problem in full but will help you plan as a practice.

Practice strategies to consider:

  1. Understanding your accounts - to keep control of profitability you need to understand both your income streams and the impacts of changes ahead as well as your cost base. A good set of accounts will include sufficient detail to do this but equally, your accounting records need to mirror this so that you have up-to-date information available. A full benchmarking report is very useful in seeing how your practice compares with similar practices of size and geography and working with your accountant will help you understand why variances exist.
  2. Keeping good records - the downside with accounts is that they are an historic snapshot of your practice performance. It is therefore essential that practices have up-to-date information available to them. Software tools such as Xero help in reducing time needed to keep records up to date but equally allow full visibility of your income and costs in real time. Utilising management reports will help you understand your business.
  3. Being able to forecast is also important - working with XERO we have developed a new bespoke forecasting report to help practices build budgets.
  4. Ensure premises income and space is maximised - practices should ensure that rents are updated either in line with NHS review periods or leases where you have third party tenants. With increasing numbers of staff working in general practice space is now at a premium.  Practices may need to look at more flexible ways of working to be able to get the most out of their premises.
  5. Work closely with your PCN - any funding increases in England have been transacted through PCN’s in the past few years including additional staff funding. It is essential that the PCN support their practices both in terms of ensuring money flows to practice level to meet costs but also optimising the use of staff available to deal with patient demand. Whether you like them or not engaging with your PCN is essential.
  6. Make staff aware of other benefits they receive from working in the NHS - it is easy to simply compare wage levels with external organisations and think that you are under paying your staff.  The ancillary benefits though of working within the NHS need to be clearly explained to staff members particularly the NHS pension which is one of the best pensions available based on the investment return any employee makes. In addition, staff are NHS employees there are lots of third party discounts available to NHS staff which may help with those cost of living pressures.
  7. Review your drawings structure - falling profits ultimately lead to less funds being available for partners. Practices need to watch cashflow and take steps working with their advisor which may mean reducing drawings. Consider all other aspects as well though such as reducing year-end bonuses to ensure regular drawings can be sustained as well as reviewing what pension contributions the partners are paying. If profits drop then tax liabilities and also pension liabilities will so that needs factoring into what you pay yourselves as partners.

In summary

It is difficult at the moment to improve profitability and keep stability within general practice however with good internal management working alongside trusted advisers’ practices can do the best to keep things under control. Should you wish to discuss any of these strategies please contact the Mazars Healthcare Team.

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If you would like more information on how our team can assist, please contact us via the link below.

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