How is your medical business positioned for the rest of 2020 and the remainder of the financial year? Are you prepared for what’s on the horizon?
When the Coronavirus pandemic hit, many medical businesses experienced disruption and had to abruptly change direction by reducing operating capacity, changing patient consultation models or even temporarily closing. With government concessions winding down, medical businesses will likely have to change again.
So how can medical businesses prepare for the unknown and position themselves better to be more resilient and take advantage of new prospects now and in the future?
1. Review your cash flow forecasts and take advantage of COVID-19 concessions
In business, a common saying is “cash is king”, because a business will fail if there is insufficient cash flow. Regular cash flow forecasting needs to be a fundamental component in the management and planning of your business to help build your financial resilience.
Inadequate cash flow forecasting can leave businesses dangerously exposed in hard times or unprepared when they need to demonstrate sustainability to external parties.
We recommend a three-month cash flow forecast, as this timeline is short enough to reduce uncertainty, but long enough to allow time to react.
To build a cash flow forecast, a medical business could, for example, start by looking at their surgical lists to estimate income from patient fees. Next look at pending payments such as wages, insurances, memberships, office expenses and loan repayments. The business should also look at the COVID-19 concessions available to them.
The ATO has encouraged businesses impacted by COVID-19 to engage with them to discuss relief options and tailored support plans to fit their circumstances. Such support may include the deferral of tax payments, the remission of penalties and interest, and the provision of low interest payment plans, all of which could positively impact cash flow and be built into the cash flow forecast.
Medical businesses are also starting to embrace online payment systems to improve cash flow by receiving patient payments faster. These online payment systems are integrated into practice management software and provide on-the-spot claims for health funds through one online portal, which also saves businesses administration time.
2. Communicate openly with everyone including medical suppliers, patients, staff, your accountant and the ATO
Whether it is staff conversations, supplier negotiations or finance discussions, medical businesses need to communicate openly with all stakeholders and plan and prepare for potentially difficult conversations. By preparing for possible scenarios now, you can be ready to act if, for example, you need to scale back operations or move to mostly telehealth consultations.
With COVID-19 concessions changing, you also need to communicate with staff regarding the business’ eligibility for JobKeeper and whether they will be receiving top up payments.
The ATO is another important stakeholder to engage with, either directly or through your accountant. Whilst the ATO has implemented a number of administrative measures to assist taxpayers as outlined above, it has also announced it will not impose penalties to excessive pay as you go (PAYG) income tax instalment variations for the 2021 financial year. However, businesses must still make their best attempt to estimate the tax on their earnings, which can be done with the assistance of their accountant.
Medicos operating under a sole trader structure typically pay large quarterly PAYG instalments on their quarterly Business Activity Statements (BAS). If patient income for the September 2020 quarter is lower compared to a quarter of the income on the last lodged tax return, the PAYG instalment could be varied to a lower amount to assist with cash flow. Pre-COVID-19 we would typically recommend varying PAYG instalments later in the year when the tax liability can be forecast with a higher degree of accuracy in order to avoid penalties and interest. The ATO has removed this risk for the 2021 financial year.
In terms of communicating with your patients, be sure to keep your website current with the latest updates and services information for your patients and potential patients also.
3. Remain agile and open to new opportunities
During the pandemic, we’ve seen many businesses pivot to survive. For example, companies adapted to produce ventilators and medical professionals embraced telehealth. While many businesses radically changed their operations, many struggled to stay afloat.
By planning now for external factors that may affect your future medical business operations, you will have greater flexibility to take advantage of commercial prospects as they arise. You can then be responsive to opportunities that are aligned with your brand and your medical business’ capabilities. For example, the opportunity might arise to add new medical services where growth in demand has occurred during COVID-19.
4. Plan, review and plan again to protect your business
Medical businesses will be in a stronger position to respond to any changes in the business landscape if they plan effectively. As well as cash flow planning and forecasting, our recommendation to all business owners is to plan for different scenarios.
Scenario planning helps businesses develop plans that can be enacted based on potential triggers or events. Not only plans that might be directly related to the likes of COVID-19 implications, but longer lasting ways your business will operate into the future. For example, what impact would there be on your profit if a second lockdown lasted for three months and you could only do telehealth consults? Would you be able to make loan repayments?
By running a realistic and a worst-case scenario plan for the business, you can review how the business would respond and have measures in place should these scenarios arise. By regularly reviewing these plans, businesses can minimise any financial surprises and ensure future plans are as robust and realistic as possible.
If you need help making your business more agile and resilient, or to evaluate new opportunities, contact Angela Stavropoulos or Kristy Baxter on email@example.com or 07 3023 1300.
Angela Stavropoulos, Director – Pilot Partners
Kristy Baxter, Director – Pilot Partners