Congratulations to Dhru Shah and the Dentinal Tubules “team” (I rather suspect that’s Dhru and er…Dhru) on publishing their 500th article. I bask in the reflected glory that the article that marks No. 500 is one of mine.
It’s the start of a new series on Dentinal Tubules that reflects the work I do, called “Tales from the Troubleshooter” the first few will tell the story of describe Jimmy’s practice. You can read it here but do check out Dentinal Tubules too.
Tales from The Troubleshooter – Case 1. Jimmy’s story
Part 1. Where’s the money going / gone? (Financial Controls is the second of the Seven Pillars of Dental Practice Management ©)
“Help me Alun, I’m working my guts out, there’s plenty of patients but I’m losing money hand over fist. The bank are threatening to remove my credit and I don’t know what I’m doing wrong.”
Jimmy McGovern owns a specialist orthodontic practice in a Cathedral city. He had a larger than average contract with his PCT and had worked with one associate since starting the practice 8 years earlier, recently the first associate had moved on and been succeeded by another.
There was a history of threatened clawback since year one due, initially to a misunderstanding of the regulations subsequent to poor communication from the Primary Care Trust. However the PCT had shown tolerance and allowed the practice to roll on the clawback year on year.
Jimmy had tried to sell the practice but the corporate he had spoken to had told him they would only buy if he was incorporated the practice. He consulted with the PCT who told him that they would not condone his incorporation and would probably put the contract out to tender if he tried to sell to the body in question. The legality of their position can be argued, I am aware, but when you feel you are looking down the barrel you just hear the “no” and your world gets smaller and your choices reduce.
Like most dentists, Jimmy enjoyed the clinical elements of the business above all others. He trusted his first associate and his practice manager to take care of the management of the business. For these duties he rewarded them well; his practice manager earning a salary equating to the full time equivalent of £31,000 per year and the associate drawing in excess of £100 K for a three day week. The payroll was done by an outside company and an individual suggested by his accountants came in several times a year to “assist” the practice manager loading information onto the Sage accounting software that had been installed by his accountants.
He paid the accountants a retainer of just under £300 per month and this was topped up when accounts were prepared.
First up I wanted to see where they were now and where they were coming from. The day to day financial management was done by reconciling paper bank statements against the cheque book. There was no on-line banking available for immediate checking of cash-flows. Although they were right up at the top of their overdraft (£190,000!) nobody was able to tell me what the situation was that day.
I asked to see the previous accounts and was pointed at two large boxes in the cellar, when I explained I meant the finalised accounts produced by the accountants I was met with shrugs.
At this time they were 3 months into their new financial year and I would have expected the preparation of accounts for the previous year to have at least been started. In reality not only had these not been commenced it turned out that accounts for the previous two years were, “still awaiting completion”.
As a related finding it turned out that the practice manager who had apparently been counting UOAs and rather heavy handedly managing the appointment books had completely miscalculated her numbers. She had ensured that in March just a handful of new patients were seen and no “bond ups” at all were done. As a contrast in April the practice achieved 12.5% of its target for the year. Three months later the PCT informed the practice that they had under-performed by more than 10% and this time round, due to the squeeze from central government, there would be no roll over. How did we want to repay them?
This (in my opinion) is unacceptable in a professional firm. With Jimmy’s hesitant approval as he had known them for a long time and, in spite of the evidence, felt some loyalty, I moved the business to a different firm of high street accountants with whom I had done business in the past and who had saved me from bankruptcy more than 20 years ago. Incidentally it took three letters and several telephone calls for the old accountants to release what information they had to the new firm.
It turned out that Jimmy had been paying estimated tax bills for the past couple of years with the knowledge of his accountants so the next step was for the new firm to tell HMRC that mistakes had been made and they were dealing with things. This took the heat from one source away from the client but didn’t get the bank off his back.
So next up came a frank and honest meeting with his bankers who seemed glad to see a face (even mine) rather than have to keep dealing with telephone calls that weren’t returned and letters that went unanswered. I was able to persuade them to put everything on hold for a month and promised to return with some outline accounts for the previous years and cash-flow forecasts for the next few months.
It became increasingly apparent that the practice manager wasn’t capable of managing a stall at a car boot sale let alone a business with a turnover of more than half a million pounds. Unfortunately my hands were tied when dealing with her (see next month’s instalment) so we had to bypass the blockage. This was done by running the accounts off-site using a simpler software package and introducing spreadsheets for cash flow forecasts, budgets and analysis.
The next stage.
The size of the overdraft was unacceptable all round. Normally it would have been reduced to the level a month’s turnover with the remainder converted to a loan. Fortunately Jimmy had a good IFA and we were able to cash some of his investments which were doing very little for him and bring down his indebtedness to the bank.
It turned out that he had overpaid HMRC in the previous 18 months by approximately £60,000 so the immediate pressures were reduced and we were able to get a handle on what was due and when, so that planing could take place.
The repayment of the 10% underpayment is to take place over the next 12 months so something will have to be done to find a replacement income, fortunately the demand for private orthodontics is high in the locality.
There will be more about the marketing of the business in the future but I think that’s a good pace to leave Jimmy’s business for this month. He has survived the immediate dangers but is not out of the woods by any means.