Anthony Brand advises on how to develop the perfect business plan
Every practice should be thought of as a business and it is vital that these businesses set a budget, especially in the current uncertain NHS economy.
The first step is to understand that the business plan and the budget should be developed as separate processes. Here’s the difference. The business plan is a statement of strategic objectives and an outline for how these objectives will be met. The budget is an essential part of the business planning – it is an estimate of income, costs and cash flows over a specified period. It should reflect the objectives set by the business plan and other events that are forecast to occur.
The budget will be drafted ahead of the business plan so that the strategy can be formulated. Once the strategy and business plan are agreed the budget can be fine tuned.
Another misconception is that business plans are primarily for new practices or for raising money. They are, however, important for all practices. Given the changes in contracts, government policy, the NHS labour market and the economy in general,
a specific plan that confirms your key objectives is essential. It should outline how your practice will remain profitable, how many patients it will take to generate income at current contract rates, and how you are going to achieve your objectives.
It might help to look at what NHS England says about its own business plan for 2016/17.1 It sets out 10 priorities, organised under three headings:
1. Improving health – closing the health and wellbeing gap.
2. Transforming care – closing the care and quality gap.
3. Controlling costs and enabling change – closing the finance and efficiency gap.
NHS England chair Malcolm Grant says in the plan’s foreword: “Our responsibility is to allocate and invest these funds wisely to improve health and wellbeing, secure high-quality care, derive value for money for the public’s investment and create a sustainable future for the NHS.”
As a specialist medical accountant my responsibility is to help GP practices achieve the third point above.
Drafting the budget is the first step. Here are the main components.
1. Income and expenditure
Income and expenditure must be forecasted, broken down into the main elements, which should mirror the categories in your practice accounts.
2. Manpower costs
Manpower is the only cost where significant changes may be made by the partners. Getting the optimum level is crucial to efficiency and profitability.
The manpower budget should be broken down into:
Don’t forget to include the cost of employer’s national insurance and superannuation contributions, both of which are significant.
Compare your income and expenditure per patient and per partner with other practices. Looking at local norms will give you an indication of whether your budget is realistic.
An accredited specialist medical accountant should be able to provide you with benchmarking figures.
4. Profit allocation
Having struck a realistic profit forecast you should allocate this among the GP partners as agreed between them. This is also a good time to check that you have an up-to-date, signed partnership agreement.
5. Partners’ drawings
The profit allocation will represent the projected drawings and will take account of:
With partner drawings calculated, it is now possible to feed all the above components into a month-by-month cashflow forecast. This also should take account of other changes such as:
Summary of two to three-year forecast
For the purposes of a business plan, your budget should include a summary profit and loss forecast for years two and three. Admittedly this will be educated guesswork based on the 12-month budget – but it will help the parties reviewing the business plan to focus.
The business plan
The budgets will be a part of the business planning discussion and a revised budget may be created as a result. The following is how it might be created.
What is it?
A consensus or agreement by the partners of how the practice should perform over a specified period – which I suggest is the year ahead and then the next two years in outline.
How is consensus reached?
All partners must be allowed to air their views and state their personal objectives and vision for the practice.
I like the idea of a partners’ away day or time-out meeting. A Saturday morning works well for GP practices. Here are some key points to consider when planning an away day:
What should you talk about?
A SWOT analysis - strengths, weaknesses, opportunities and threats – should allow you to cover most issues.
In looking at SWOT consider questions such as:
Inevitably the practice’s budget will scrutinised as part of this review. Benchmarking of performance against similar practices is of great value in pinpointing strengths and weaknesses.
Strategic planning pitfalls
Common pitfalls practices encounter
in strategic planning are:
Creating the plan
Once the budget has been prepared and the strategy agreed, the next step is to create a written plan. How long should the plan be? Well, it’s a plan, not
a work of art – so be concise so that everyone is inspired, not bored into inaction. Points to include:
A business plan is only a plan, but it provides specific goals to work towards and can be a simple way for practice managers and their GP partners, even those with limited business knowledge, to take control of issues and reduce them to manageable tasks and ideas. But everyone must buy into it. As Stephen Hawking said: “Intelligence is the ability to adapt to change”.
1. NHS England Business Plan 2016/17. www.england.nhs.uk/publications/business-plan/
Anthony Brand is partner at Haines Watts Kent, a member of the Association of Independent Specialist Medical Accountants.