Financial Crisis Tips for Dentists

Why is managing cash flow so important?

Companies require cash to maintain competitiveness and fuel future growth strategies. If a company runs out of cash it will experience financial distress or even failure. This is not something you want to occur.

Some key indicators that managing cash flow needs to be reviewed include:

• Underperformance against a business plan;
• Increased creditor days and creditor pressure;
• HMRC penalties and arrears;
• Increased scrutiny from key stakeholders such as lenders or funders;
• Limited cash reserves or working capital headroom;
• Limited visibility on current working capital performance and forecast cash flows.

How can you overcome a cash flow problem?

Samera can help clients to improve their working capital, optimise their cash flow and minimise the amount tied up in operations. Our team can:

• identify cash flow requirements to increase business resilience;
• manage how quickly cash is paid to suppliers and collected from customers;
• source debt solutions to stabilise a company’s position;
• release working capital to maximise liquidity;
• place greater focus on managing cash; 
• manage future risk by providing an early warning for supply chain payment problems;
• implement cash flow forecasting models, processes and tools for ongoing monitoring; and
• identify opportunities to “unlock” cash from a company’s balance sheet, often a hidden source of capital.

How do you find urgent or additional funding for my company?

We understand that organisations often require extra funding which is often driven by growth or acquisitions. Samera can help structure funding or source short term or long-term debt solutions.

The Samera Finance team are well versed in helping urgent funding if required.

What are the benefits of improved cash flow management?

• Improved operational performance;
• improved strategic decision making and business management;
• improved relationship with creditors; and
• a strong cash culture.
• A healthier business environment

In this webinar, Arun, Nigel and Dan take you through what you need to know about refinancing and restructuring your debts and finance.

If you want to find out more about how we can help with refinancing or restructuring your loan terms, book a free consultation with our team today.

You can also sign up to our Financial Crisis Solutions for Dentists course. Spaces are limited, so if you are interested you can book your space on the link below.

When the proverbial s*** hits the fan, it will be Cash flow that saves your business

It’s at times like these that having a cash flow forecast for your business is key. Being able to predict your cash position after all your planned cash inflows and outflows is essential if you are going to be able to ride out this financial rollercoaster.

Rising interest rates, of course mean higher cash payments, whilst rising costs across the board, with unpredictable income can be a recipe for a bit of a train crash. So, with my financial hat on, the first thing to do when managing your cash flow is the following:

1. Understand and add up all the costs that are likely to hit your practice on a month-on-month basis. This means forecasting what will be going out, from energy, to materials, to staff costs (and rises), to tax payments. Getting a grip on this is the first essential step.
2. Predicting your income is next, again on a month-on-month basis. Now this may prove to be more difficult as no-one knows what the future will hold. But in my view, it would be prudent to use historic figures as a starting point but then perhaps be a little negative and state the income will be say 10% lower month on month.
3. Once we have the predicted outflows and inflows, the next step is to then work out what your monthly cash position will be using a cash flow forecast template. Starting with your opening cash balance, the forecast then uses the inflows and outflows you have determined in the steps above. If you identify a cash shortfall, in a certain period, this will be the trigger for you to either seek to raise additional finance, or either change the income or the costs in your business, so you don’t need to raise the funds in the first place.  In this tricky financial environment, it will be your ability to keep the cash flow positive that will ensure you get through this challenging period.
   
   You can see an example of a cash flow forecast here.

Useful?

If you feel this is, then our upcoming Financial Crisis Solutions for Dentists event series of webinars in November is for you.

Spaces are limited, so if you are interested you can book your space on the link below.

In this webinar with the BDA, Arun talks about the different ways you can organise your finances to save time, money and tax for your dental business.

This tip is pretty simple, don’t have all your eggs in one basket.

So many businesses failed during COVID 19 as many owners whole lives were invested in their one and only business. When COVID 19 hit, and stay at home orders were implemented, many businesses closed forever.

Whether it is business, or investments, it is essential NOT to have all your eggs in one basket. Diversify your business interests, diversify your savings, diversify the shares you own, diversify the assets you hold.

If you don’t diversify, you run the risk of losing everything. In this current cost of living crisis you may feel keeping everything in cash is the best strategy, however, this is not a good idea as inflations runs at around 9-10%, so in a year’s time, the buying power of your cash would have dropped by this same amount, so the key has to be able to find asset classes that can return inflation beating returns. Not necessarily easy, but, keeping all your portfolio in cash is a sure way to lose money.

You may also argue that you only know one thing, say dentistry, and have no time or interest to know about the other important asset classes, but if you are serious about taking charge of your financial independence, make the time, it could be the best investment you make.

When one asset class rises in value, another may fall, but over time, through the power of compounding and patience, your asset values will hopefully rise.

Of course, some investments may go sour, but hopefully there will be those that will skyrocket too.

Remember, once you make an investment, you don’t have to hold it forever, you may make a gain, and then decide to sell, so it’s also important on a very regular basis to rebalance your portfolio, whether your asset base is £1000 or £1m – but always ensure you have a diversified portfolio.

Choose asset classes that don’t move in tandem. For instance, you may own a dental practice, but then decide to invest in energy stocks too. These two asset classes don’t generally move in tandem, the more you can ensure that asset classes don’t move in the tandem the better job you are doing spreading your risk and diversifying your portfolio.

My personal financial goal has always been to become financially independent. Being able to do what I want, when I want.

Financial independence is not about how much money you actually earn, in fact it is how much you save. My dad came from India with £3 to the UK in the 1960’s. He wasn’t a big earner throughout his whole life working in the civil service, but he was a great saver for his working life.

He retired in his 60’s and is now well into this 90’s with a very modest pension, but the hard work had been carried out already as he was a prolific saver. He drove an old car, and only indulged in his hobby of travel as he grew older. By being religious about saving, he achieved his goal of financial independence very early on by not moving the goalposts of his lifestyle desires. His desires were and continue to be pretty simple. He cracked the secret of how to become financially independent.

In my view, it’s imperative to raise one’s humility and build a culture of saving in your household. Building wealth has little to do with your income or investments returns, and lots to do with your savings rate. Past a certain level of income, what you actually need is just what sits below your ego.

By saving and being flexible, you can wait for good opportunities to arise in your career and your investments.  The ability to do those things when most others can’t is one of the few things that will set you apart in a world where intelligence is no longer a sustainable advantage.

Learn to become a successful saver, don’t follow the crowd, and bet on yourself.

I sit in a privileged position, as our firm advises clients who earn anything between £50,000 per annum to over £2m per year in income.

Whilst some clients maybe very high earners, making over £2m per year, their expenditure and lifestyle quite often bleeds them dry. Not smart in my opinion!

The key to being financially smart is getting wealthy but then actually staying wealthy. Why do so many lottery winners end up penniless after a few years? What about Premiership footballers earning £100,000 per week? Again, we can count many who earnt well but blew it all with poor financial advice and decision making.

In my view, staying wealthy is not about making good decisions all the time, it’s about consistently not screwing up. The key to staying wealthy is a combination of frugality and paranoia.

We can cite many success stories, but if we look closely, those who do best become financially unbreakable. By coming financially unbreakable, they will be in the game for the long term and benefit for the power of compounding to work wonders. Everyone cites Warren Buffet as a marvellous investor, and no doubt he is, but you miss a key point if you attach all of his success to investing acumen.

The real key to his success is that he’s been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him. Through the power of compound interest and smart decision making over a very long investment period has made him the multi billionaire he is today.

Rather than be a rich dentist who blows it all, or a footballer that loses it all, the key has to be able to stay in the game long enough to get the returns you desire. This means having a plan, but also have a plan for the plan not going to plan – which it will invariably do!

Be optimistic about the future (even in these changing times), but paranoid about what will prevent you from getting to the future is vital.

Want to know more?

At present, it is extremely tax efficient to get your company to purchase a new electric car for your personal use, instead of buying it yourself out of your after-tax income.

Not only is the cost of the car a fully tax-deductible expense for the company, the director and the company only have to pay a tiny amount of Income Tax and National Insurance on the benefit in kind.

This makes electric cars one of the most tax efficient ways to take money out of your company for your personal benefit.

Electric vehicles also come with lots of other financial benefits and incentives.

For example, certain low-emission vehicles with an RRP of less than £32,000 qualify for a Government grant of up to £1,500.

You do not have to claim the grant, the dealer deducts it from the price.

The grants are available until 31st March 2023. For more information: https://www.gov.uk/plug-in-car-van-grants

Other benefits and incentives include:

• No road tax
• In Scotland, interest-free loans to help buyers
• Exemption from London’s congestion charge (until 25th December 2025)

Although buying electric cars is extremely tax efficient, this does not necessarily mean buying one makes overall financial sense. For example, the correct question could be: Is it more cost effective overall for a company owner to buy a second-hand petrol or diesel car personally if the price tag is much lower than for a brand new electric car?

We don’t know the answer to that question. However, what we can say is that, if you are planning on buying an electric car anyway, putting it through the company makes a lot of sense from a tax saving perspective.

Let’s take a closer look at some of the tax benefits.

100% Enhanced Capital Allowances

When your company buys a new electric car it can claim ‘enhanced capital allowances’ – a type of first-year allowance that allows tax relief to be claimed on the whole cost of the car in the year of purchase.

So if your company pays £30,000 for an electric car it can claim Corporation Tax relief of £5,700 (£30,000 x 19%).

Note the car has to be new: enhanced capital allowances cannot be claimed on second-hand cars.

This 100% first year allowance is available until 31st March 2025. Cars bought after this date will only qualify for the more stingy writing down allowances, typically 18% per year.

First year allowances on zero emission goods vehicles have also been extended until 31st March 2025 (although these will also qualify for the super-deduction or the annual investment allowance anyway).

Benefit in Kind Charges

As with other company cars, the director has to pay Income Tax on the benefit in kind and the company has to pay National Insurance.

However, the taxable percentage is extremely low at present, just 2%, and this rate will remain in place until at least 2024/25.

Let’s say our brand new electric car that cost £30,000 has a list price of £35,000. The list price is usually higher for various reasons, including the fact that the P11D value is based on the original list price before deducting the plug-in grant.

The benefit in kind charge will be £700 this year (£35,000 x 2%) and for the next two years.

This means the company will pay National Insurance of just £105 (£700 x 15.05%), £85 net of Corporation Tax relief at the current rate of 19%.

Leasing Electric Cars

Many individuals and businesses prefer to lease their cars.

Many electric cars can be leased for between £100 and £300 per month.

The monthly payments you see advertised may be somewhat misleading because there may also be a significant initial rental payment at the start of the lease. This could be up to nine times the ongoing monthly payment.

If your company leases an electric car the monthly payments are a fully tax-deductible expense. There is no restriction, as there is for cars with CO2 emissions above 50 g/km.

Note, with leasing, the company does not claim the 100% first- year allowance, just the lease payments.

Thinking about trading as a company or getting an electric car?

Then get in touch with us today or book yourself in on the Samera Money Boot Camp this Saturday to get more money and tax saving ideas.

If you are running any kind of business through a company, it generally makes sense to put as many expenses through the company as you can. There are several potential benefits, including:

• Corporation Tax relief
• VAT recovery if you can be VAT registered
• The expense does not need to be paid out of your own after-tax income

Where all three of these benefits apply, it truly is a ‘win win win’, and the potential savings are phenomenal.

Whilst almost all dentists cannot be VAT registered, the simple example below details the tax savings to be had trading as a company.

Example

Ravi is the owner and director of Dental Practice Ltd, he is a higher rate taxpayer, having already taken a salary of £11,908 plus dividends of £50,000 out of the company this tax year.

Ravi now wants to buy a new computer. He will use it at home, but he will use it exclusively for business purposes. He’s giving his old computer to the kids on condition they don’t touch the new one.

The new computer will cost £2,500 plus VAT at 20%, a total of £3,000. If Ravi wants to make this purchase personally, he will need to take a further dividend of £4,528 out of the company so that, after paying Income Tax at 33.75%, or £1,528, he will be left with the net £3,000 he needs. So, in effect, the total cost is £4,528.

On the other hand, if the company buys the computer, if it was a VAT registered company the first thing it would do is recover £500 in VAT (but he is a dentist so this cannot be done), therefore the net cost is  £3000, on which it can claim the 130% super-deduction. The company will thus obtain Corporation Tax relief of £741 (£3000 x 130% x 19%) meaning the net, after tax, cost of the computer is now just £2,259.

A cost of £2259, instead of a cost of £4528, that’s a huge saving of £2269.  

As we can see, by far the largest part of this saving is the Income Tax Ravi has avoided by getting the company to buy the computer. This means that, while the other savings are important, it is the simple fact that the company has borne the cost that produces the greatest benefit.

Ravi’s position is fairly typical for a small company owner, but the amount of Income Tax avoided by getting the company to pay will vary from one person to another,

At this stage you may be tempted to think it might be a good idea to put absolutely everything through the company, but that’s not always the best thing to do.

In Ravi’s case, there was no benefit in kind charge because he fell within the exemption for home office equipment. The Corporation Tax relief available was also enhanced by the super-deduction. This is only available on qualifying purchases of new plant and machinery made by 31st March 2023:

Thinking about trading as a company?

In this webinar, filmed during the first lockdown, Arun discusses tough decisions every business needs to make in a crisis to manage their cash flow.

In this webinar, filmed during the first lockdown, Arun discusses vital financial tactics that you need to be taking to manage your cash flow in a crisis.

In this webinar we will discuss tax saving strategies for your practice, simple and complex tax planning opportunities.

In this webinar, we discuss ways in which to save money in your dental practice, from utility bills to dental equipment and consumables.

If you are spending too much on your bills and want to master how to not run out of cash whilst growing your business, listen in for our money saving tips.

In this episode of the Dental Business Guide podcast, Arun and George discuss several ways dentists can legitimately reduce their tax bills.

Listen to the podcast here.

In times of financial instability, small businesses are usually one of the earliest and hardest hit. There are many issues that can arise from global uncertainty, but amongst the most problematic are disruptions to your cash flow.

A cash flow crisis can be caused by any number of factors. Disruptions to supply lines, a reluctant customer base or increased expenses.

With a cash flow crisis looming for many small businesses, these top tips should help mitigate some of the risks and help manage the cash flow in your business.

Read the article in full here.

To help keep your profits up, you need to be able control your expenditures effectively and cut a few corners to help you save that extra pound here and there to decrease your overall expenditure. Here are ten ways to cut small business expenses.

Read the article in full here.

In this article and episode of the Dental Business Podcast, Arun takes a look at 11 ways dental associates can save and grow their money.

Read the article and listen to the episode here.