Neil Richardson, senior Wesleyan financial services consultant, shares his commonly overlooked areas that may leave you and your dental practice financially vulnerable.
When you’re a practising principal dentist who is busy with patients, you may not think about the potential risks to your business.
There are a number of common areas that I see when supporting principals with their business planning that I wanted to raise awareness on to help mitigate any future risks to you and your business’ finances.
Not understanding the absence clause
This is my number one concern when sitting down with practice owners. It applies to both partnerships and limited companies.
Within a standard partnership agreement or a shareholder’s agreement that you would be provided with by a solicitor, there is always a clause in there that talks about the event of absence of one of the partners or directors.
That clause will effectively say what happens in the event that somebody is off long term. It will create a situation whereby after as little as 26 weeks of absence of a partner but commonly after 52 weeks, there is a compulsion that the other partners have the option to buy that person out.
That’s potentially an unsettling thought for a business. And also concerning for the individual involved.
My advice here is to look at what point that kicks in. And whether you feel that your clauses are feasible and relevant for your business.
Partnership buy-outs
On the other side of that coin, if you’ve spent your career creating a thriving practice and increasing its value and profit levels, you need to think about your business continuity if your partner was unable to continue heading up the practice alongside you. This could be due to illness or injury or, unfortunately, in some instances your practice partner was to pass away.
How do you then fairly compensate that person’s family? Or them as an individual for the fact that they are moving out of the business?
You need to think about how you will provision for that scenario from a financial sense. Is your practice able to get extra borrowing at that point to actually buy them out?
Following on from that, if it isn’t possible, then what problems does it create for the business to potentially have a non-dental experienced or non-qualified partner from the deceased’s family sat within the business as a sleeping partner, expecting a profit draw?
Define these scenarios with your practice partner. The peace of mind that you know where you stand is worth it.
Associate self-employed status
This one has been in the dental press a lot recently. Particularly in light of the HMRC announcement in September. It comes in two parts. It’s the importance of the designation of associates as self-employed members of the practice.
Something that’s commonly overlooked and given lip service to in a lot of practices is the fact that the BDA model contract and the code model contracts always feature a clause on the associate’s responsibility to provide a locum to do their work if they’re unable to practise.
This clause is in the contract for a pivotal reason. It’s there to protect the associate’s self-employed status. It’s actually one of the four key tests that the revenue has set for whether a person of self-employed status is genuinely self-employed or not.
The implications for your practice if your associates are deemed as employed are huge, including potential cuts to your profitability.
What commonly happens is that if the associate is unable to practise, the extra work is absorbed by the rest of the practice, rather than enforcing this clause.
The implication for a practice is that you could potentially be pushed to employ the associate along with the enhanced income tax and employer’s national insurance contributions. As well as a standard basket of benefits.
The associate has a vested interest in protecting the self-employed status too. It creates a favourable tax position for them.
It’s crucial to make sure both sides understand the clause within the business. And ensure they adhere to the terms, to support your associate’s position.
Another element of self-employed status of associates that can impact your practice is when looking at your indemnity cover. This is more than just your own policy. You also need to think of the wider team. They could bring clinical malpractice against the practice rather than the individual. This has recently been in the dental press as a very real threat.
To help with vicarious liability, you need to look at an overarching indemnity cover. A defence organisation or insurance company usually offers this. It covers your team’s clinical work.
Make sure you understand your policies and run through hypotheticals with your provider. Make sure you are watertight for as many eventualities as you can.
Speak to a specialist
In my experience as a dental financial consultant, sometimes it helps clients to know that they can speak to someone who can spot these potential vulnerabilities. Particularly if they aren’t familiar with the legal jargon that sits within their contracts.
If you’d like further advice in this area, you can speak to a specialist dental Wesleyan financial services consultant as part of a no obligation financial review by visiting wesleyan.co.uk/dental or call 0800 316 3784.
