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Navigating finances in 2021: What GPs need to know

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The COVID-19 pandemic has presented a number of financial challenges, plunging Australia into its first recession in 29 years – and many GPs and their practices have not been immune.
 
However, the latest GDP figures show optimism, with the economy growing 3.3% in the September quarter. But the impacts of slumped spending are expected to be felt for some time.
 
During a live GP20 presentation, Trevor Knowles, a BOQ Specialist financial consultant with 22 years’ experience in healthcare finance, gave his insights and highlighted the need for practices to implement effective strategies to manage cash flow heading into 2021.
 
Coronavirus Small and Medium Enterprises (SME) Guarantee Scheme
Mr Knowles said it is a good time for GPs to take advantage of Federal Government stimulus packages, namely the SME Guarantee Scheme.
 
Launched in October, it is available until 30 June 2021 and offers borrowers access up to $1 million with a maximum loan term of five years.
 
‘What the package looks like is a guarantee from the Government for every loan written under that scheme and what that does is, it reduces the lenders’ exposure by 50%,’ Mr Knowles said.
 
‘Importantly, what that means is that in the event of default, the lender relies on the security. So if there’s a property for security or something like that and there’s a default on the loan, the lender will still act on that and repossess, if you like, and sell the security to try and recover its debt.
 
‘If there is any ongoing debt, any shortfall, the Government guarantee comes into that space. So the Government’s not guaranteeing the whole loan or anything like that, it’s just the loss that may be incurred by the lender. So therefore, the normal lending criteria remains in place.’
 
The benefit of this, Mr Knowles said, is reduced interest cost.
 
‘So because of this scheme and the guarantees that the Government is providing to the lender, one of the things that the Government wants to do is to see some reduced interest cost to the end user, to the client,’ he said.
 
‘This is the opportunity for you as a potential customer to get some reduced interest cost.
 
‘We’re dealing in a low interest rate environment and this gives you some opportunity to actually tap into some cheaper finance than normal rates.’
 
For a practice to be eligible, the entity must have an ABN that has been registered since October and an annual turnover up to $50 million in the last financial year.
 
Eligible commercial loan products, include:

• commercial property, including self-managed super fund lending
• goodwill loans – ie for full or part purchase of a general practice
• chattel mortgage – ie for purchase of equipment and cars
• overdraft (secured and unsecured)

‘It’s not including things like bank guarantees, escrow facilities, leases and asset purchase,’ Mr Knowles said.
 
‘So it covers most things you’re going to need in the short-term.’
 
Instant asset write-off
Another Federal Government stimulus measure highlighted by Mr Knowles is opportunity for an instant asset write-off.
 
‘There are certainly assets like equipment, cars and those sorts of things that you can write off in the year of use,’ he said.
 
‘There’s certainly been the opportunity to buy multiple assets for your business, and they can be new and second-hand.’

 
The eligibility criteria has recently changed, increasing the threshold amount from $30,000 to $150,000 until 31 December, 2020. While eligibility has also been expanded to an aggregated turnover of less than $500 million, up from $50 million.
 
‘Now when you write off an asset, instantaneously you’re essentially accelerating your depreciation,’ Mr Knowles explained.
 
‘So what that does is, it’ll come as an expense in your profit and loss and it will reduce the tax on your profit. So your profit is written down because of the instant write off.
 
‘It’s a non-cash expense, so it doesn’t impact your cash flow. But the outcome of that will be that you’ve written off that asset and it will reduce the taxable income.’
 
Revisiting your business and marketing plans
Despite forecasts earlier in the year of large declines in the property market, Mr Knowles was reassuring, saying that while there is still some uncertainty, there are signs of optimism.
 
‘When it comes to medical practice and running your own practice, security of tenure is key and I think we can all agree that property will look after itself over the long-term,’ he said.
 
‘So despite the fact that there’s a bit of uncertainty out there, if you’ve got the opportunity to buy your property, then it’s certainly something that you should consider and take advice from those around you.’
 
As the year draws to an end, Mr Knowles recommends taking the opportunity to revisit any existing business and marketing plans to assess the needs of the practice, and which options may be suitable.
 
He suggests undertaking a PESTEL analysis to evaluate the political, economic, social, technological, environmental and legal impacts 2020 has had on the practice. The results can then be used to identify the threats and weaknesses, which are used in a SWOT [strengths, weaknesses, opportunities, and threats] analysis.
 
‘If you don’t have a business plan, or if you have a business plan and you want to revisit it, the first thing you should do is just at least look at your SWOT analysis,’ Mr Knowles said.
 
‘It will talk to the opportunities out there and where you can take advantage of opportunities as they come along, and also the threats to your practice.’
 
Facilitator, GP and co-founder of M3 Health Dr Todd Cameron also advises practice owners to be mindful of the role general practice will continue to play in combatting COVID-19, and plan ahead.
 
‘Particularly Victorians, we’ve spent a lot of time in our clinics lately and our patients may not have been in the practice as much as they ordinarily were,’ Dr Cameron said.
 
‘But next year, we’ve probably got a few big things on the agenda. Potentially general practice will have some involvement in large scale COVID vaccinations, etcetera.
 
‘So this is a time to review spaces and see if something needs a refresh and take advantage of finances available to update and improve that.’
 
Maintaining a network of trusted advisors
For GPs who do not feel quite ready to take advantage of the stimulus packages currently on offer, Mr Knowles said it is important to remember that there is flexibility to suit each practice’s needs.
 
‘One of the things you should be aware of is that you can structure your loan to suit your cash flow,’ he said.
 
‘It’s got to make sense from a lender’s perspective and it’s got to make sense from your perspective as the client. It might be that you structure it principle and interest, or interest only. [There’s also] stepped repayments, so they start low.
 
‘[But] the trick with starting low is that you end up high. So if you’ve got a five year term, and you’re starting low, then you just want to make sure that your cash flow is going to be okay so that you can increase your payments as you go.
 
‘You might consider part fixed and part variable rates as part of that. An important thing to do at the moment is to look at the capacity to have additional repayments and redraw options.’
 
What is key, Mr Knowles said, is to seek the advice of a lender to make an informed decision.  
 
‘Find out what’s available, discuss the options with them around the structure, repayments and interest-only options because it may make sense and it might be the key to getting into that asset that you’re looking to buy,’ he said.
 
Mr Knowles said it is important for GPs to have a network of trusted advisors, from legal and accounting to financial, insurance and suppliers.
 
‘The message here is when you’re looking for opportunities to do things and you need advice, to tap into your current network and ask them for referrals,’ he said.
 
‘As a GP you will refer to specialist doctors, and you will only refer to specialists that you trust are going to deliver the right outcome for your patients. The same could be said for your current advisors – they will refer you to people that they trust, and will hopefully deliver you the right outcome for you.
 
‘If you’re communicating with the right people, then opportunities may come from that … talk with your colleagues to get a feel for what other people are doing. If you’ve got a group practice, then talk to your fellow directors around what are the things they want to achieve.
 
‘And remember those dates. End of financial year, next year. Think about it now and away you go.’
 
Those who registered for GP20 can watch ‘Top tips for managing your finances in 2021’ and other presentations on the conference platform.
 
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