Many practices are dependent on their year end accounts to determine how well the year has been and as a platform to project forward for planning purposes. The accounts are no doubt essential as they provide the basis for tax compliance, banking facilities and determination of partners drawings amongst others.
However, they are historical in nature, detailing past financial events.
Some practices look towards management accounts to assist and like the annual accounts they too are historical but to a lesser extent.
What many practices fail to identify is the power of the cashflow.
Cashflows can take on different levels of complexity and as such different levels of sophistication and experience of the end user is needed. A large company would have different cashflows for each division or subsidiary and maybe each activity which is then consolidated into one unifying cashflow statement.
Depending upon the ultimate end user of the cashflow, the statement could be prepared as an easy to understand straight forward summary or something incredibly detailed or something in between.
A cashflow can easily be adopted by GP Practices.
Below we will look at the different levels of cashflows that can be adopted to help with GP practice finances.
Graphically – Month End Bank Balances
Often missed is the fact that GP practices can be viewed as seasonal businesses. This lends itself to the most user-friendly cashflow there is and that is simply plotting the month end bank balances each year and identifying the trend. One can go further and enter the daily bank balance for even more detail.
This then allows you to know in advance what your expected bank balance should be at any given month end and be alerted to any wide variations.
Microsoft Excel literally excels in this type of analysis.
Graphically – Monthly Income and Expenses
The above can be further refined by including graphically monthly income and expenses that adds an additional layer of complexity but providing meaningful information.
This allows any distortion to be identified as being attributable to changes in income or expenditure or a combination of both.
Having undertaken the above you are well on your way to the next level and that is breaking down the income and expenditure to group headings such as salaries or QOF income and predicting future streams based on past knowledge and experience.
In some case’s a separate worksheet has the detailed income and expenditure streams that feed into the main worksheets consolidating the main headings just like the large company with its consolidated cash flow statement.
So literally in three easy steps you have a complex financial statement that is live, robust and allows for what if scenarios.
An alternative to the excel spreadsheet is using an App such as Float that integrates with accounting software such as Xero. Float syncs the data on a daily basis enabling you to make decisions based on your most up to date financial information. Whilst it is still numbers based it also has the added element of portraying your data visually. An added benefit is that we can add ‘scenarios’ to your cashflow such as the cost of employing another nurse or a new salaried GP. Float gives you a visual picture showing the impact on your cashflow of different courses of action.
Our short training video of Float can be seen here
Interpretation of The Cash Flow
The big question now is what does it all mean? This is where you will need the assistance of an accountant to interpret the cashflow and will take it to a further level by feeding in say tax payments they know are forthcoming and any superannuation payments or refunds. Their knowledge of your accounts and finances will enable them to advise you on future possible action. This may be to advise that additional drawings can be taken before the annual accounts are prepared or additional banking facilities are needed.
The bank will require a cashflow in many circumstances and will want one that is accurate and robust before any facilities are provided.
The pandemic has impacted all our lives and whilst thankfully from a financial point of view practices have been shielded you never know what is around the corner and having a cashflow allows the practice to adapt to changes in its financial circumstances near enough immediately as opposed to waiting for the year end accounts.
Software providers such as Xero and Float excel in the complexity of information that can be fed into them and they also help consolidate the figures into a user-friendly output that meets the level of its end user.
Sandison Easson & Co as specialist medical accountants can help you with cash flows and all aspect of practice finances.