The medical and healthcare industry is a unique sector that presents a range of financial challenges. From managing complex NHS contracts to navigating intricate tax rules, effective financial management is essential to ensure smooth operations and sustainable growth. For senior partners and financial directors in healthcare-related businesses, getting a firm grip on cashflow, payroll and long-term financial planning is vital.
In this blog, we’ll focus on the most important financial management practices tailored to this sector and how they can enhance your organisation’s efficiency and profitability.
1. Managing cashflow effectively
For any business, cashflow is the lifeblood of day-to-day operations, but this is especially true in the healthcare industry. Medical practices, clinics and hospitals often experience delays in payments, particularly from NHS contracts or insurance reimbursements. These delays can create cashflow issues that, if not properly managed, may disrupt operations or lead to financial strain.
How to avoid cashflow issues: To prevent cashflow problems, healthcare organisations should implement robust financial controls, regularly monitor incoming and outgoing payments, and maintain a cash reserve to buffer any shortfalls. Additionally, having a system in place for prompt invoicing and following up on late payments is crucial. Working with an accountant who specialises in the healthcare sector can help identify areas where improvements can be made and ensure the business remains financially resilient.
2. Navigating complex tax rules
Healthcare businesses in the UK must contend with a variety of tax rules, many of which are unique to the industry. For example, medical practices that are VAT-exempt can often overlook opportunities for reclaiming VAT on certain services and goods. Furthermore, many healthcare professionals are eligible for specific tax reliefs, such as research and development (R&D) tax credits, which could be highly beneficial for innovation in treatments or technologies.
Maximising tax reliefs and compliance: A good understanding of available tax reliefs is essential for any healthcare organisation. It’s also important to remain compliant with changing tax laws, especially for larger healthcare businesses or those with substantial R&D investment. For the 2024/25 tax year, the R&D tax relief scheme allows small or medium-sized enterprises (SMEs) to claim up to 186% of qualifying R&D expenditure as a deduction from taxable profits, which could represent a significant saving. Seeking professional advice to ensure that all reliefs are being utilised is critical to reducing tax liabilities while maintaining compliance with HMRC requirements.
3. Handling payroll for large teams
The healthcare industry often employs large teams and managing payroll can be particularly complex. This can include processing payments for full-time staff, part-time employees, locum workers and temporary staff. In addition, healthcare employers need to ensure compliance with workplace pension contributions, national insurance obligations and payroll tax deductions.
Ensuring payroll efficiency and compliance: To streamline payroll processes, many healthcare organisations use automated payroll software that ensures accurate calculations, tax compliance and prompt payments. Additionally, it’s important to have a system in place to manage adjustments for things like overtime, holiday pay and sick leave, particularly in the healthcare industry, where shift work is common. Regular audits of payroll can help ensure everything is in order, and working with a qualified accountant ensures any errors or discrepancies are identified early and rectified promptly.
4. Managing NHS contracts and private income
For many healthcare providers, managing a combination of NHS contracts and private income streams can create additional financial complexity. NHS contracts often have specific payment schedules and performance-related conditions, while private healthcare income may vary depending on demand and pricing structures.
Balancing NHS and private income streams: It’s essential to have a clear understanding of the terms of your NHS contracts, including payment schedules and compliance requirements. Cashflow forecasting can help manage periods of lower private income and ensure that the business has enough funds to cover operational expenses. An accountant experienced in the healthcare sector can provide advice on balancing these income streams, as well as ensuring that contracts are financially sustainable.
5. Budgeting for equipment and facility upgrades
Medical equipment is expensive, and the need to continually upgrade or replace it can strain a healthcare organisation’s budget. Whether it’s diagnostic machines, surgical tools or IT systems, keeping facilities up to date requires significant financial planning. Without proper budgeting, these necessary expenses can lead to financial strain.
Planning for future investments: It’s essential to have a long-term budget that accounts for future equipment needs, ensuring funds are allocated appropriately. Many healthcare organisations benefit from financing options such as leasing or loans for large equipment purchases. By spreading the cost of these purchases over time, cashflow can be better managed without putting undue strain on the business. In addition, budgeting for preventative maintenance and repairs can help avoid costly breakdowns and ensure that equipment is always functioning optimally.
6. Long-term financial planning
Long-term financial planning is crucial for healthcare organisations that want to remain competitive and sustainable. This includes planning for growth, managing potential changes in healthcare regulations and accounting for shifts in patient demand. In an industry where both public and private income streams can fluctuate, having a strong financial strategy is key to maintaining stability.
Creating a sustainable financial strategy: Long-term financial planning should involve regular financial reviews, cashflow forecasting and scenario planning to prepare for different possibilities. Whether you’re planning to expand your services or upgrade facilities, having a clear financial strategy ensures you can meet your goals while keeping costs under control. In particular, it’s important to build flexibility into the budget to allow for unexpected expenses, such as regulatory changes or new medical innovations. Consulting with financial professionals who understand the healthcare industry can help ensure that your long-term financial planning is both realistic and achievable.
7. Insurance reimbursements and risk management
In the private healthcare sector, insurance reimbursements can be a significant source of income. However, dealing with insurance companies can be time-consuming and may require specific financial management practices to ensure reimbursements are processed efficiently. Additionally, the healthcare industry faces a range of risks, from medical malpractice claims to data breaches, which require effective risk management strategies.
Managing insurance payments and mitigating risk: Having a dedicated team or outsourced partner to handle insurance reimbursements can speed up the process and ensure that payments are received in a timely manner. Risk management is also essential and this should include adequate insurance coverage, including professional indemnity and cyber insurance. An accountant can help you assess your insurance needs and work with you to put the right policies in place to mitigate risk.
Conclusion
Financial management in the medical and healthcare industry presents its own set of challenges, from managing cashflow and payroll to navigating complex tax rules and NHS contracts. However, by implementing the right financial strategies, you can ensure your healthcare organisation runs smoothly, remains compliant with regulatory requirements, and is well-prepared for future growth. At Venthams, we provide expert accounting and financial services tailored to the healthcare sector, helping you manage the complexities of your business with confidence.
Contact us today to see how we can help your healthcare organisation.