Safeguard your finances in a time of recession

Safeguard your finances in a time of recession

The current volatility and uncertainty in the economy is giving rise to a great deal of concern amongst the dental profession.

To help alleviate some of those concerns, Practice Plan head of sales, Zoe Close, spoke to Alan Suggett to see what advice he had for dental professionals.

When I speak to practice owners, a lot of them are concerned about the looming recession. So, what precautions should they be taking or what things should they be doing as a practice? Whether it’s personal finances, business finances, looking at pricing strategies or costs generally, what should practice owners be starting to think about?

It depends on the type of practice you have. If you’re an NHS only practice, is there something else that you can do without having a significant private conversion? The answer to that is possibly not but you can make things a bit better with some lateral thinking. Start with a clean sheet of paper and just think about it.

Have you got a room in your practice that’s doing nothing? Is there something or somebody else, some complementary type of business that you can rent it out to? Look at things in a different way or in a different world.

Moving on to cost, this is where it can get very difficult. There’s a limited amount that you can do in trying to save costs.

‘Busy fools’

There are some obvious ones like your utilities bill. Turn down the heating, switch off lights and appliances that don’t need to be on. So, some basic things like that might save you a little.

There are some areas that I think can be significant opportunities here. One, is wages and recruitment. I have huge sympathy for those practices that are struggling to recruit all types of staff.

I know how bad that can be. The last thing that you can do is to start squeezing on pay rates. That’s going to make things worse.

But if you are a principal who has spare time, maybe you’ve decided to cut back to a three-day week, then could you start to work in your practice a bit more?

That can be quite a good way to generate some cash if you are approaching desperation. However, there’s a business expression that consultants use: ‘Busy fools.’ Do not be a busy fool. Do not work yourself to death.

Good tips there, Alan. Thank you. What about the financial side of the business? I have had conversations with practices where they feel they need to do more than just turn down the heating and switch off the lights. What are your thoughts on restructuring loans?

That’s a good point, Zoe.

With interest rates going up, if you’re lucky enough to have a fixed rate deal over a number of years, then good for you. That is wonderful because you’re bombproof.

However, if you’re not on a fixed rate, you’ll be on a rate over base rate. So, whatever the base rate is, if it rises to 4%, and you then have an interest margin that might be, say, 3%, then the rate of interest that you’re paying will be the 4% of the base rate plus the 3% of the bank’s margin, so 7%.

If that’s happening on your business, then it might also be happening on your private house mortgage as well, and there can be a linkage between the two.

So, let’s say that your rate is going to go up to 7% and that’s going to create significant cashflow problems on a month-to-month basis. It really depends on individual circumstances, but it might be possible for you to move from XYZ Bank to PQR Bank. Because different lenders have different margins.

It could be that you’re on a very high margin because perhaps in the past, for some reason you had no option. So, now it might be possible for you to move to a lender with a lower margin.

Pay off borrowings

So, if you’re moving from a situation where you’ve got a 4% margin to somewhere where there’s a 2.5% margin, then you’re saving 1.5%, which mitigates the interest rise.

Next is the lending term that you are on with your lender. 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, some people have decided that they want to pay off their borrowings as quickly as possible. So, they might only be on a 10-year deal. In that scenario, it’s fine if you have an abundance of profit to be able to repay the whole thing without it causing pressures on your general cashflow, then fair enough.

But if cashflow is squeezed because of this recession, then it might be an idea to go to your existing lender and have a discussion with them to see what can be done. If your cashflow is really being squeezed, then that might be a good way to improve things.

I mentioned about linking it in with personal mortgages. Again, each case is different, but you might have a situation where your personal mortgage is going to be at a higher rate of interest because of rising interest rates, possibly because your deal’s up for renewal.

Now, this isn’t well-known, but 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.

Very powerful

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.

No tax issues with that whatsoever. If you’ve got a lender that is happy to increase your business loan from £200,000 to £700,000, that half a million pounds extra funding can come out to you legitimately and you can use it to repay your personal mortgage.

That brings with it another great advantage in that you’re now paying interest in the business on which you get tax relief, whereas your private house mortgage you don’t. If you’re thinking of doing this sort of thing, it would be best to speak to your accountant, though.

This won’t be appropriate for everybody, but it can be very powerful. You might be getting a 45% deduction on your interest charge, effectively on your private house mortgage. So that’s something that can be very useful.

Thank you, Alan. That was really helpful, and I learned quite a few things.

If you are interested in finding out more about how we help practices to become more profitable call 01691 684165 or visit

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