Look out for these pitfalls
Whether you are starting out or a more established private doctor, there are a number of pitfalls in your way that should be avoided. While not exhaustive and in no particular order, these mistakes highlighted here represent some of the more common problem areas seen by accountant Ian Tongue
1. Not taking advice
One of the best sources of advice are your fellow colleagues. If you are starting out, remember that they were all in your shoes at some point and the vast majority will be helpful, provided you don’t step on their toes too much.
Many of the private hospitals put on new consultant seminars where a collection of speakers guide you through their experiences. I often speak at such events and find that the different subject matters discussed are invaluable to those starting out.
2. Not understanding your tax position
Despite what HM Revenue and Customs’ (HMRC) slogans say, many consultants do find tax matters taxing.
Most consultants will not have had any financial training and, with your salary taxed at source, things should generally have worked themselves out over the years. However, engaging in private work requires a thorough understanding of the tax system to avoid getting caught out later on.
With the 31 January deadline recently passed, the most frustrating conversations are with those who submitted their records at the eleventh hour and have not made adequate provision for the tax.
In almost all cases, this can be avoided by taking the time to understand what you need to be doing and apply it from the start. Tax returns can usually be completed within a month or two of the 5 April tax year ending, so don’t put it off; send the information to your accountant at the earliest opportunity. This will give you the maximum time to ensure that you have enough put aside for tax and are exploiting any tax planning opportunities available.
Meet with your accountant regularly, as it can often take a few meetings for certain concepts to be reinforced.
3. The three ‘A’s
Availability, affability and ability are the keys to success in your private practice. Ability should be a given, but ignoring the other two will ensure that your private work is not as successful as it could be.
Be realistic on your available time to ensure that you do not spread yourself too thinly. It can be difficult to find that work-life balance and most doctors find a more gradual increase in workload helps to discover that point.
4. Trying to do everything yourself
Trying to save money by doing everything yourself may seem like a good idea, but it is a false economy if it prevents you from performing your work. The opportunity cost of tying up your time on matters that can be dealt with by others can be significant.
Often spouses can get involved in certain aspects of the private practice and this can also be tax-efficient depending on their financial circumstances.
5. Failing to monitor the quality of your secretary
Having an efficient secretary is another key factor to a successful private practice. Most doctors with larger practices put a great deal of faith in their secretaries and many would put this near the top of the list of key factors for ensuring a successful private practice.
Many secretaries provide more than secretarial work and manage the debts and, crucially, ensure you get paid for the work you perform.
Monitor their work to ensure that you are getting the best from them and if you find yourself in a position where things are not working as planned, you should seek alternative services.
6. Not investing in IT
Investing in your business is a key rule for any business owner. Failure to do so can lead to inefficiencies holding back your business. One of the key tools that has a significant benefit is your IT infrastructure and in particular the use of bespoke practice management software.
Most providers offer a trial and your secretary may be familiar with a certain product. The market leaders offer web-based access to your records, and consultants I speak with say that the investment pays off in no time at all and makes your life easier.
7. Not keeping your business under continuous review
The NHS is a dynamic environment and the amount of private work available is clearly linked. For those not keeping their ear to the ground, they could find their work drying up or taken away with external providers tendering for NHS work.
This is where being part of a group can help, as you can pool ideas and have more strength in numbers.
8. Not getting the timing right
Looking back and thinking ‘I should have done XYZ before now’ is usually a key sign that you have not undertaken a financial plan of action. Many clients come to see me to discuss the milestone events that require changes to business structure and it is best to know these from the outset so you can take advantage of circumstances at the earliest opportunity.
The business itself should have a plan from the start and be reviewed periodically. You should always remember the saying that ‘failing to plan is planning to fail’.
9. Following the herd
When first entering into private practice, looking at what your colleagues are doing that works is a great starting point. But some markets are saturated, thus making it harder to grow your practice and penetrate the market.
With the onset of digital media, those that do not keep ahead of the game may find themselves losing out. Make sure that you are using digital media and understand where to advertise your practice particularly in the highly competitive markets. Nowadays, a good website by itself is not usually enough.
10. The ‘too good to be true’ tax scheme
I think it is fair to say that everyone wants to pay less tax. Sadly, there are many consultants out there who are lured into investing into tax schemes and planning that simply don’t work.
They expect the professionals selling such products to be just that and honest about the risks, but in many cases people are caught out.
Usually, there are substantial fees payable up front and they almost inevitably result in a tax inquiry which can take years to resolve, during which time interest is accruing if the scheme is unsuccessful.
HMRC certainly has the bit between its teeth regarding tax avoidance and has new sweeping measures to target what it sees as artificial arrangements. This new ‘General Anti-Abuse Rule’ (GAAR) will, no doubt, catch out a number of planning arrangements and, with the powers to name and shame taxpayers, there could be unwelcome publicity.
If a tax avoidance scheme seems too good to true, then it probably is.
Doing your best to avoid pitfalls will inevitably ensure that you are best placed to run a successful and profitable private practice. Don’t just sit back and let your business meander; take control, nurture it and it will pay off with success.
Ian Tongue (right) is a partner with accountants Sandison Easson and Co