Could failing to plan lead to failure in the long-run?

At difficult times like these, it is inconceivable that so many GP surgeries do not prepare detailed budgets to be agreed with their partners and teams. Mike Ogilvie from AISMA outlines how practices can plan their way through the hard times ahead.

Planning a budget is quite simple – it’s the implementation that is harder. You might be surprised, but I advocate the following method of budgeting for the year ahead - you must adopt the same methods as for strategic planning for a commercial business, i.e. using What, Why, How, Who, Where, and When: 

First - What ? - Decide what profit you want to achieve for the year ahead. That figure should be the first figure that goes onto any budget – NOT the income generated by the surgery.

Second - Why? – Be very clear why you have chosen that figure for profit – is it realistic, and will all the partners be committed enough to make it happen?

Third - How? -  Only once you are clear about your “what” and “why”, can you decide “how” you are going to make that desired profit.

This is fundamentally different to what most surgeries (in my experience) do. Generally they list their anticipated income and expenditure and then see what profit is left.  Psychologically, there is a big difference in the two methods – my way has been proven to work. It helps partners focus on what they have to do to achieve their desired profit – which is why they should be doing the exercise each year.

 

HOW? - Having listed your desired profit, break it down first into quarterly and then monthly figures, if your practice manager is able to monitor and provide monthly results (which I believe they should). 

Now summarise the quarterly/monthly totals under each “expense category” (e.g. wages, repairs, light and heat etc) that you anticpate.

Working backwards, by adding the figure for profit you hope to earn to the total of the expenses you think you are likely to incur, you now have a figure for the income you need to generate to make that profit happen.

This income should be split into appropriate categories of income that you would normally expect to receive (e.g. global sum, Rent, QOF, DES and LES) and this will then leave any unallocated balance to be generated from new income sources, or increased income from existing sources. Failing that, you will have to reduce costs to achieve that all important profit figure.

Now decide “who” will help and be responsible “where” and “when” for implementing the strategies to achieve the budget objectives.

There’s your planned budget – now the harder bit – to implement that plan and put in the necessary systems to monitor “actual” monthly / quarterly results in each category, so that timely management decisions can be made to address any slippage.

 

Finally, at this time of year, all GPs should now be paying attention to their own personal financial planning, including tax planning. In order to help you do this, AISMA have produced a detailed 50-point planning checklist and a Personal Balance Sheet planning tool for doctors which can be obtained by emailing me at the address below.

Mike Ogilvie is a director of OBC The Accountants and a member of the Association of Independent Specialist Medical Accountants. For more information email mo@obcaccountants.com or to find your nearest AISMA member firm visit: www.aisma.org.uk