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5 Steps to Revitalise Your Practice After Pandemic

5 Steps to Revitalise Your Practice After Pandemic

Published By Prism Accounting

While the Covid-19 pandemic took the world by storm bringing rapid economic changes in 2020, the recovery process is likely to be slow. The good news is, medical business owners can take certain steps to improve their profitability, minimise risks and put themselves in a better position for growth and success during and post-economic recovery.

Step 1: Embrace Technological Change

The coronavirus pandemic became a catalyst for digital transformation. Many GP and specialist medical practices had to quickly adapt to the “new normal” by implementing digital solutions to facilitate Telehealth, videoconferencing, and electronic prescribing.

To maintain a competitive edge and improve productivity, health service providers must embrace innovations in health tech and invest in software solutions that help streamline processes and automate workflow. Moving accounting on the cloud is also no longer optional.

Cloud-based software like Xero has many advantages:

 - it is scalable, meaning you can upgrade your package as you grow.

- it can be easily integrated with third-party apps and solutions that automate reporting, streamline your processes and minimise manual input. For example, it can be integrated with your practice management software to receive and sort financial information in real-time.

 -  It allows you to invite your accountant, advisers, and other users to collaborate on your file from anywhere. You can set an appropriate level of permission for each user to ensure data protection.

 - You always have access to the most up-to-date version to meet your reporting and tax compliance requirements, so you do not have to worry about installing software updates.  

 - It does not require expensive computer equipment like servers to run the software.

 - You can access your file at any time using your preferred electronic device.

 - Use of multi-factor authentication helps prevent data breaches and keep your information secure.

Step 2: Rectify Tax Compliance Issues

The amount of audit activity by the ATO is expected to increase significantly post-pandemic.

Many doctors and practice owners are not even aware they have tax compliance issues that may result in heavy penalties in case they get audited by the ATO. It is important to get professional advice from a qualified accountant specialising in your industry to ensure you do not expose yourself to tax compliance risk.

A common area that needs checking include:

- Compliance with Super Guarantee and Payroll Tax law in respect of doctors working as contractors

- Loans provided to shareholders by private companies

- Allocation of profit from the provision of services provided by health professionals

- Markups charged by service entities in medical practice arrangements

- Assets owned by business entities that are used for private purposes by owners, employees, or their associates

- Private expenses claimed as business deductions

- Accounting records being inconsistent with legal documentation

- Business structure that does not provide any benefits other than tax benefits

To help your practice stay tax compliant and minimise risks, you need to:

 - Keep adequate and up-to-date records for all business transactions.

 - Ensure your business entity finances are kept separate from your personal.

 - Make sure all contracts, agreements, and resolutions are properly documented and kept on records.

 - Pay employees (including closely-held employees) through Single Touch Payroll and make sure you comply with PAYG withholding obligations.

 - Pay Super Guarantee obligations on time (must be received by 28th day following the end of each quarter).

 - Ask your Accountant to review your business information to identify any potential problems and discuss steps to resolve them.

Step 3: Review Your Practice Finances.

With interest rates hitting a historic low, there is no better time to review your financing arrangement. Are interest rates on your existing business and personal loans too high compared to current market offerings? If so, you should consider refinancing them.

Paying lower interest on big-ticket items can save you thousands of dollars a year, which could be better spent elsewhere.

It could also be a good opportunity to get finances to acquire new assets to expand or update your practice or invest in real estate assets.

Step 4: Upgrade Your Practice Equipment

If you need to upgrade or acquire new equipment for your practice, now could be a great time. With the expansion of Instant Asset Write Off and introduction of Temporary Full Expensing of Depreciating Assets you have an opportunity to claim an immediate tax deduction on the full cost of eligible depreciating assets, including medical equipment, IT systems and software, practice furniture, and vehicle used in business.

Temporary full expensing is available to businesses with an aggregated turnover of less than 5 billion. To be eligible for temporary full expensing, the asset must be:

– first held by you at or after 7.30 pm AEDT on 6 October 2020, and

– first used or installed ready for use by you for a taxable purpose between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.

You can still get the benefit of an instant tax deduction if you use chattel mortgage finance to acquire equipment or if you enter into a hire-purchase agreement. Hire-purchase is a form of finance that is similar to lease from a legal perspective but is treated as a sale and loan from a tax perspective. With hire-purchase, you are able to claim a tax deduction for interest component on the loan and depreciation expense on the cost of equipment.

If you cannot (or prefer not to) claim an immediate deduction for the cost of equipment, leasing equipment is another option you can consider.

Step 5: Plan for the Future

Cash flow is the lifeblood of every business, and your medical business is not an exception. Without healthy cash flow, businesses are unable to survive. According to ASIC, 40% of failed businesses cited inadequate cash flow as a reason for their failure.

Cash flow is essentially money going in and out of the business and it should not be confused with profitability. The difference between cash flow and profit can arise due to many factors, including the timing of income recognition on an accrual basis, depreciation expenses, interest expense as opposed to loan repayments, owner drawings, and payments of tax and GST liabilities. Even profitable businesses can experience issues with cash shortages from time to time.

To manage your practice effectively and ensure it can run smoothly, you need to know the amount and timing of cash inflows and outflows in future periods. Periodic cash flow projections can be done on a monthly or quarterly basis, depending on the cyclicity of your business, but an annual projection is a must. When projecting for cash flow, you need to take into account your seasonal fluctuation as well as GST and tax installments cycle, and the due date for the final tax bill.

Needless to say, tax projections and planning have to go hand-in-hand with cash flow forecasting. Reviewing your expected income and tax position a few months before the end of the financial year will give you enough time to adopt some tax strategies to optimise the timing of your cash flows.

Common cash flow management strategies include:

 - Adopting depreciation choices to manage the timing of tax deduction

 - Choosing to apply available small business concessions

 - Timing expense payments

 - Using equipment finance in conjunction with Immediate asset write off

 - Deferring tax liabilities where possible

 - Having access to a business line of credit or an overdraft

Need help?

Prism Accounting provides specialist accounting and taxation services for doctors, dentists, and allied health professionals. If you need assistance with any aspect of the above recommendations, please contact us to arrange a discussion with our specialist tax adviser Elena Bytch.

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