The Benefits of Financial Forecasting

Contract negotiations for general practice in England have not led to inflationary linked increases that many practices were hoping for to help towards the increasing costs they are experiencing. After the initial details emerged, Dr Kieran Sharrock, acting chair of the GPC commented that the contract offer was “insulting” and a “slap in the face”. With remaining uncertainty over several aspects of practice finance coupled with increasing costs and limited income uplifts, the importance of financial forecasting has never been greater.

How can a practice forecast?

Whilst it is difficult to forecast under such circumstances, it is even more important that practices do this. Preparing a forecast on a prudent basis enables practices to react quickly to changes as they are announced.

Preparing a line by line forecast of anticipated income, together with details of the assumptions applied; means that practices can quickly revisit these and update them as new details emerge. A starting point would be the figures from the last NHS year. Income streams that you know are not continuing at the same level and any services that you know have stopped should be stripped out. Locally commissioned service income is also an area that significant changes have been seen with the movement of funding to ICBs. Practices should forecast as best they can from the information available, making prudent assumptions regarding achievement levels. Detailing these assumptions enables you to make regular updates.

For expenditure, these are the critical areas to have more detailed plans which can be updated as more information becomes available:

• Staffing – Put a staff budget into place. A good starting point is your current monthly payroll. From this you should adjust for any known leavers or joiners as well as planned replacement roles. You should also assess the cost impact of the government increases to national living wage and national minimum wage from April 2023 and include these. This goes beyond the members of staff where you must make changes, to consideration across your whole workforce of other increases you may need to make to ensure you retain key members of the team. Whilst preparing this budget, think about whether any of the roles could be reimbursed from the PCN Additional Roles Reimbursement funding.
• Locum spend – To what extent can you minimise locum spend in the next year for routine cover? What level of ad hoc spend should you include as a contingency for any cover that is unplanned and not reimbursable?
• Energy bills – with significant hikes in energy prices, have you got an estimate of the likely impact on the practice?
• Interest rate changes – Review the impact of interest rate changes, building in an assumption of these costs at current interest levels which can easily be updated as the base rate moves.
• Planned capital or improvement budgets – If you plan to carry out redecoration work or purchase new equipment include estimated budgets for these costs.

Forecasting on this basis will give you a baseline profit estimate which you can use for your financial decisions both in terms of investments (staffing, improvements etc) and partner drawings, revisiting and updating this as more information becomes available.

If you would like assistance in preparing forecasts please get in touch with our team.