How you can hit top profits
Many independent practitioners have soldiered on with their business even when it is not really paying them very well to do so.
So how do you ensure your practice is profitable? Specialist medical accountant Alec James gives his top ten tips – in no particular order of importance – for maximising your rewards.
1Trading structure
A key decision that needs to be made in relation to your private practice is the trading structure your business adopts. The most popular choices adopted are:
- Sole trader – or self-employed;
- Limited company;
- Partnership;
- Limited liability partnership or LLP.
The business structure adopted can offer tax efficiencies and levels of liability protection. The trading structure adopted is not set in stone and you may move from one structure to another; for example from sole trader to a limited company.
This could be for several reasons such as growth in your private practice, change in legislation or a change in personal circumstances.
Long-term financial goals should be considered when choosing the business structure. Discussing this with a specialist accountant who is au fait with nuances of private practices is essential.
2Review your fees
One of the biggest factors that affects the profitability of your practice is the fee income generated.
It goes without saying that the insurance market makes up a large proportion of the private medical sector and registration with the insurers is an integral part of starting in private practice.
The insurers have tariff rates for procedures. Negotiating fees higher than the tariff rates can be very difficult. However, the rates are reviewed and ensuring that you are invoicing for the correct procedure and associated rate helps maximise your profits.
The self-pay market is a little different, as the fees you charge do not need to be approved by an insurer. Reviewing these fees regularly is essential.
You should factor in inflation as well as personal aspects such as your expertise and knowledge. It can be tempting to ‘sense check’ your fees with colleagues; but you must be very careful not to infringe any Compet-ition and Markets Auth-ority rules. Penalties can be issued on businesses where uncompetitive practices have been taking place.
3Monitor your finances
Monitoring the finances of your business is very important. There is a popular business saying: ‘Revenue is vanity, profit is sanity, cash is king’.
A key strength of a successful business is ensuring that you are paid for the work you do. Working with insurers means you will always be paid in arrears, but for self-pay it is usual to take payment prior to any appointments. This helps to minimise the risk of not being paid.
As a business, you must keep accurate business records for the event of a HM Revenue and Customs (HMRC) inquiry. But these records can also help ensure you regularly chase outstanding invoices to ensure payment.
There are various software solutions for both the clinical aspect of your business and book-keeping software which allows you to monitor the practice profits.
4First impressions count
Once you are established, the first – and generally one of the most important – appointments you generally make would be for a secretary. As the first person a potential patient will speak to, your business requires the services of a high-quality secretary.
Secretaries for the private medical sector work differently to NHS secretaries. In addition to managing clinics, they will often be responsible for the billing and chasing of payments for your business.
Ensuring you allow for plenty of time for your secretary to perform these duties helps maximise the recovery of fees.
You will need to ascertain whether the secretary is an employee of your business or provides services to your business and is self-employed.
It is common for the secretary to be self-employed, but some prefer the security and lower hassle of being employed. This is not a choice, instead it is a status based on the agreement of terms between you and the secretary. It is always a good idea to discuss this with your accountant.
5Marketing
If you are aiming to grow your private practice, you may wish to look at your marketing requirements. Depending on your specialty, the costs can be significant.
These days, as a minimum, consultants working privately would be expected to have a high-quality website and social media platforms. You may also consider using a marketing agency, advertising in the media or using Google Adwords.
Using these services can help grow your business significantly, but they can be very expensive. You should ensure that you monitor your campaigns. A simple question of how a patient found you helps you monitor your campaigns, allowing you to spend more wisely.
6 Time management
As your practice grows, you will become time poor. At this time, you may wish to consider outsourcing some of the administrative duties of your business to other professionals such as billing companies or accountants.
While this comes at a cost to your business, it allows you to focus your attention on seeing patients, generating additional income.
7Consider your costs
In an article about business profitability, it would be difficult not to talk about reviewing your business costs and while you should review them, don’t dismiss the long-term impact for short- term gains.
A good example is defence cover, which is generally one of the largest costs of a private practice. Yes, you may be able to obtain a cheaper deal, but compare the terms of the policy – for example, run-off cover or excess payments payable in the event of a claim.
A successful private practice will generally be working with high-quality advisers who attract a higher cost but provide pro-active services to the business.
8Make use of technology
Since Covid, electronic communications such a Microsoft Teams and Zoom have become more prominent in our professional lives.
Making use of these systems can allow you to be more available and potentially allowing your business to grow with minimal costs and time requirements.
9Diversify your income streams
Another way to help improve the practice profitability is by diversifying the income sources. Depending on your specialty, this could include medico-legal fees or reporting fees – for example, with radiology.
These sources of income generally have low overheads associated and can be done outside of normal operating times, making them more flexible.
Private medical treatments generally fall outside the scope of VAT with the key exception of purely cosmetic procedures. However, some types of income, such as medico-legal fees, are potentially subject to VAT.
The threshold for registering for VAT is £90,000 a year. This only applies to the ‘VAT-able’ income rather than the total income of the business, which gives a scope to generate a good additional source of income without the administrative burden of registering for VAT.
10Tax efficiencies
While technically not a cost to your business, one of the largest outlays you or your company will make each year is your tax payments to HMRC.
With the tax payments calculations based on the profits of your business, it is therefore important to ensure you obtain the tax relief you are entitled and pay the right amount of tax.
If you have a limited company, there can be tax-efficient benefits that the company can provide for you and your family such as the use of an electric car, staff entertaining or trivial benefits.
Making use of these schemes can help maximise your ‘take home’ pay from your business.
You may also be able to involve your family within the business, particularly spouses in a different tax bracket to yourself. Discussing these options with an accountant who specialises in the medical sector would be wise.
Alec James (right) is a partner at Sandison Easson & Co, specialist medical accountants
