If you’re experiencing financial difficulty, BOQ Specialist is here to help. Call 1800 950 399 (option 2) Learn more

Planning and managing cash-flow

To ensure strong cash reserves for the year ahead, medical professionals need to be on top of their planning now.

The lack of attention many business owners pay to cash-flow planning is surprising given that it can make or break a practice.

Indeed, Heath Stewart, Director of Business Services and Taxation at ECOVIS Clark Jacobs, has a warning for medical professionals contemplating sitting down in June to do their end-of-year tax analysis and cash-flow forecasting. “It’s too late, the horse has bolted,” he says.

Stewart says doctors, dentists and veterinarians have many factors to weigh up for the 2022-23 financial year that could affect cash-flow. This includes the superannuation bring-forward rule, now allowing eligible people to make up to three years’ worth of after-tax contributions to their super in a single income year; potential use of the Federal Government’s temporary full expensing scheme; and tighter lending criteria from some banks.

The new lending standards demonstrate the importance of preparing in advance to secure cash reserves. “If anyone has tried to borrow money in the past 12 months, they know that it’s not usually a flick of the pen anymore,” Stewart says. “So you have to plan ahead and be on top of it.”

7 steps to success

A big advantage for medical professionals is that they typically have better access to finance than other business owners because of relatively stable and high remuneration levels and profitability in the healthcare sector. Sensible working capital strategies are still required, however, the following tried-and-true tips are likely to help.

  1. Measure cash-flow regularly and identify likely periods of high cash usage during the year.
  2. Prepare a comprehensive cash-flow forecasting plan that factors in operating expenses such as salaries, taxes, rent, equipment purchases and any loan payments.
  3. Have a clear system for when and how customers pay you to improve your receivables.
  4. Deal decisively with late payers.
  5. Address bloated inventories or sell any unneeded stock to raise short-term capital.
  6. Review all outgoings and consider minimising costs such as rent at a time when working from home has reduced the footprint of many practices.
  7. Keep cash reserves as a buffer in the event of unforeseen business crises.

Such strategies can help practices make planned purchases during the year.

Stewart says COVID-19 has resulted in supply chain disruptions that require longer-term cash-flow planning. For instance, medical professionals wanting to buy a new car through their business should be aware of significant delays in the delivery of vehicles from overseas. “If you want to claim a tax deduction before June 30, just remember that the new car needs to be in the garage ready to use.”

Likewise, a typical four-week delivery window for an important piece of medical equipment may now blow out to months as medical equipment suppliers battle the effects of the pandemic. Practices can only claim the tax deduction after equipment has been installed.

Taxing times

Despite justifiable fears of business hardship in the wake of COVID-19, many medical practitioners may end up making a larger profit than they had been expecting this financial year, courtesy of Government stimulus packages and excellent trading in the healthcare and allied health sectors.

Stewart says some medical and dental practices, especially those outside Melbourne which have not experienced prolonged lockdowns, are more likely to have a tax issue than a cash-flow problem. “Every practice initially accessed the Government’s stimulus package, but since then patient books have been full and people who can’t go overseas have been spending money on things such as cosmetic procedures, so profits have been strong.”

A higher than expected tax bill can have a significant impact on cash-flow and business planning for the next 12 months, including determining if a practice has the capacity to invest in new equipment, according to Stewart. Similarly, a large tax impost could stop a practitioner from taking advantage of the aforementioned superannuation bring-forward rule.

“So you need to work out if you’re going to have a tax problem or not,” Stewart says. “And if you need to find $50,000 or $100,000 to put into super, you can’t do it on a whim because in most businesses any extra cash usually gets spent.”

Maximising assets

Some practitioners have been eager to use the temporary full expensing tax incentive to buy new medical equipment. Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use.

While he thinks such a move is worth considering, Stewart says it pays to use it wisely. He cites the example of a person in practice earning $200,000 a year in taxable profit. On $20,000 of their income they will pay the highest marginal tax rate, and on $18,200 of that income they will pay zero tax. “So why would I generate a tax deduction of $200,000 if I’m only getting a deduction of less than 30c in the dollar? What would be better is to structure your acquisitions to be able to take a tax deduction this year of, say, $50,000, and put another $50,000 in next year.”
A medical practice, for instance, could stagger the installation of pieces of equipment, and buy across two financial years, to create better tax efficiency. “It’s pointless spending a dollar if you’re not getting a tax deduction for the asset at a very high marginal rate of tax,” Stewart says.

Go for growth

With international travel still restricted and demand for medical services on the rise, Stewart expects doctors, dentists and veterinarians to have another strong year in 2022-23.

For those who manage their cash-flow well and have a good understanding of forward projections and any tax implications, the opportunities for growth and expansion appear to be strong. Nevertheless, he cautions that cash-flow decisions cannot be made in a vacuum that excludes considerations such as recruitment and retention of the right staff within a practice.

“The key mistake that most businesses make is keeping the wrong human capital employed for too long. To provide the best healthcare for your patients, you need to be running a profitable practice with the right human capital.”

Get that right and there is every chance that your practice will be cashed up for years to come.


To make the most of the temporary tax incentives take a look at our equipment finance options, or contact one of our financial specialists today on 1300 160 160.

Want to know more?

  1300 160 160

Enquire now

  • Important Information

      The issuer and credit provider of these products and services is BOQ Specialist – a division of Bank of Queensland Limited ABN 32 009 656 740 AFSL and Australian credit licence no. 244616 (“BOQ Specialist”). Terms, conditions, fees, charges, eligibility and lending criteria apply. Any information is of a general nature only. We have not taken into account your objectives, financial situation, or needs when preparing it. Before acting on this information, you should consider if it is appropriate for your situation. BOQ Specialist is not offering financial, tax or legal advice. You should obtain independent financial, tax and legal advice as appropriate.