Managing the practice finances
If you have recently opened a new dental practice, taken over a practice, or have been running one for a while and would like to get a better handle on the finances, this month’s insights are for you
In today’s world, with everyday life becoming more digital and interactive, managing your accounts and tax is no different. The online cloud accounting environment is growing exponentially with a range of programs, add-ons and apps available to assist you in streamlining your dental practice and its operations. The flexibility of use, ease of information available and all-round slicker delivery puts cloud software miles ahead of the more traditional desktop versions and endless spreadsheets.
Cloud accounting systems can be accessed anywhere (the practice, at home, on a train or even on the beach if you can’t switch off…) and simple tasks like creating and sending invoices, matching payments and reconciling your bank can be done by a few clicks on your smartphone or tablet. You should speak to your accountant about the best package and apps for your practice. Ensuring that you have the bookkeeping in hand is often overlooked when setting up and growing the practice (especially if you have little financial knowledge) but this is one of the key controls that should be implemented from the outset – either completed internally or by engaging a bookkeeper.
Running a dental practice brings with it a certain amount of compliance in terms of the accounts and tax. Company accounts require to be submitted to Companies House within nine months of each financial year end. HMRC also requires payment of Corporation Tax in the same nine month period. Sole traders and partnerships are required to pay taxes twice a year in January and July. Your accountant will generally prepare the submissions on your behalf.
Your accountant should also meet with you to develop your tax-planning strategy taking into account your business, personal and family circumstances – it’s never too early to consider inheritance tax and creating a tax plan for your life (and beyond). The government’s directive that all businesses offer workplace pensions brings an additional compliance burden upon principals both from a financial and
Managing cash and controlling costs
Cash flow will be the biggest challenge when opening a new practice. Unless you are in the fortunate position of having a significant amount of capital to invest, managing the cash position of the practice could be the main task as the practice grows. Some suppliers may not offer you favourable credit terms in the early stages until you build up a payment history with them. So, it is important that cash movements are forecasted as much as possible to ensure that the practice is operating within
Review costs on a regular basis to ensure that you are not overspending and look for areas where you can actively reduce costs – all this will go towards effective cash management. Ideally, you should be thinking at least six months ahead in terms of operational activity and planning to ensure that all cash commitments can be met in line with expected income etc. It is also worth considering a “safe” balance in your practice i.e. what is the level of cash to be retained at any one time. This safe balance should be enough to cover short-term commitments like payroll should activity not go as planned.
It’s important for dentists to understand the numbers side of the business so that they can gauge whether or not they are making good returns. As with all businesses, principals of dental practices need to recognise and be alert to trends and learn when to make changes to their operations and strategies. NHS income should be monitored monthly and will highlight whether the practice’s volume is expanding or contracting. It is also useful to look at the income to payroll ratio and your gross profit percentage.
Return on assets/capital employed – are all of your assets supporting income? Your premises, surgery equipment and fixtures and fittings should all be supporting income. This measure calculates what return you are generating from the assets and capital you have invested in the business. You should set a target each year and measure progress against it.
Your accountant should be reviewing these and a few additional key measures with you on a regular basis. If you choose to go with one of the cloud accounting packages, a great deal of the above is automatically calculated and graphically presented thereby enabling you to keep an eye on the practice’s key numbers, trends and, ultimately, your business success.
About the author
Jayne Clifford is a director at Martin Aitken & Co. To contact Jayne,