12 Dec 2022  •  Blog, Finance  •  6min read By  • Zoe Close

Safeguard your finances in a time of recession

There’s no doubt now that the country is in a recession which is predicted to last longer than any other for decades. Are there any steps people can take to help alleviate some of the financial pain we’re in for?  Practice Plan Head of Sales, Zoe Close, spoke to Alan Suggett to see what suggestions he had for dental professionals.

ZC:  Although everyone is going to be affected, from what I see, this recession is likely to hit NHS practices harder than private ones as they have so little room to manoeuvre on prices and costs. Do you have any crumbs of comfort for them?

AS: If you’re an NHS only practice, and don’t want to convert to private practice then you’ll probably have to do some lateral thinking. Is there a room in your practice that doesn’t get used and you could do without? Do you know of a complementary type of business that you can rent it out to? Try taking a look at your practice in a different way and you may well come up with something.

When we look at costs for NHS practices, it can get very difficult. As you said, Zoe, you’re limited on what you can do when it comes to cost savings. There are some obvious ones like your utilities bill. Make sure things are switched off when they’re not being used, try to be as efficient as you can with your heating, and so on. All these things help a little.

You could also look at salaries and recruitment. I appreciate there are practices out there struggling to recruit all types of staff. And I know things are bad. It’s not a time to start squeezing on pay rates. That will just make a bad situation worse.

However, you could look at the people who already work at the practice and see if there’s scope for things to be done differently. For example, there are principals who may have some spare time. They may have decided to cut back to a three-day week, but perhaps they could begin to work more days in the practice? If things are really bad, that can be a good way to generate some cash.

ZC: Good advice there, Alan. Thank you. Now let’s look at some things other than cost savings that practices could do, to help things. What are your thoughts on restructuring loans? Is that a good thing to be doing.

AS: It’s a good thing to talk about, Zoe.

We’ve all seen interest rates going up, so, if you have a fixed rate deal over a number of years, then that’s great. You’re in the best position at the moment.

However, if that’s not the case, you’ll be paying a rate over base rate. So, that’s the base rate, which could be 4%, plus the interest margin, possibly 3%. So, the rate of interest you’ll pay will be the base rate (4%) plus the bank’s margin (3%), so that’s a total of 7%. Be aware that could also apply to your private house mortgage, too, and the two can be linked.

If your rate is going to go up to a level that could cause cashflow problems, it might be possible for you to move from one bank to a different one, although that depends on your individual circumstances. Different lenders can have different margins. It could be that you’ve been paying a high rate because of circumstances in the past, which have now changed. That may mean that you could move to a lender with a lower margin. It’s worth considering.

Another thing to look at is the lending term for your loan. The maximum lending term for goodwill and freehold is usually 25 years. So, if you’re on a 25-year repayment arrangement for goodwill and freehold for example, the amount of loan capital that you’re repaying each year is as low as it can possibly be.

However, there are some people who chose to pay off their loans as soon as possible. In that case, they might only be on a 10-year deal. That’s fine if you’re still making plenty of profit so you can repay the whole thing without it causing pressures on your cashflow.

But if you’re finding your cashflow is being squeezed, then you may want to talk to your existing lender to see if anything can be done.

Don’t forget to consider personal mortgages. As I’ve said, everyone’s circumstances are different, but the deal on your personal mortgage may be about to run out, so you could be looking at paying a higher rate of interest. Something that people may not know is that it can be possible to arrange a refinance of your business loan. Let’s say that your business loan currently is £200,000. You want to reduce your mortgage by £500,000. You’ve got a lot of equity in your business. If you’re a sole trader with a very large capital account, then from a business and tax point of view, it is perfectly acceptable for you to withdraw a chunk of cash from your business.

Effectively, your capital account is what the business owes you. So, if your capital account’s £700,000, then the business can pay you £500,000. That will not affect your tax at all. If your lender is willing to increase your business loan from £200,000 to £700,000, then that £500,000 of extra funding can legitimately be paid to you and you’re able to repay your personal mortgage with it.

As well as being able to pay off your mortgage, you will get tax relief, as the money has come through the business, not something you can get for your personal mortgage, so you benefit in two ways. However, if this is something you’re considering, I would advise talking it through with your accountant first.

As I said earlier, everyone’s circumstances are different, so it won’t be an option open to everybody.

ZC: Thank you, Alan. I’m sure that will give people a lot to consider.      

About Alan

Alan is a Specialist Dental Accountant. After 13 successful years as a partner and Head of UNW Dental, Alan moved into a consultancy role for the firm in 2022.

Prior to Alan’s change of role he was a member of NASDAL (National Association of Specialist Dental Accountants and Lawyers), where he sat on the Technical Committee and was the Chair of the Superannuation Committee, and prepared the NASDAL quarterly survey of Goodwill values. He is also a member of ASPD (Association of Specialist Providers to Dentists).

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