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Preparing for rainy days

Posted on September 13, 2022 in Articles & Frank Taylor & Associates

Whilst many of us in the UK have been desperate for rain clouds to provide some relief from the scorching summer temperatures, many commentators will have you believe storm clouds seem to be gathering on the economic front. Recent interest rate rises have caused some reluctance from borrowers to either enter into, or complete, mortgage or loan applications, and we await to see the impact on the property market.

However, whilst there may not be a silver lining, there are definitely signs of blue sky through the clouds, the forecast is certainly not as bad as the scaremongers would have you believe. Some simple calculations reveal there is isn’t as much devil in in the detail after all.

Let’s assume you borrowed £680,000 over 15 years to fund the purchase of a practice valued at £800,000 at an interest rate of 4.75% (a bank margin of 3% over and above the Bank of England base rate of 1.75%). This would mean payments of £5,289 per month. Had interest rates remained at 1.25%, then the bank would likely have lent to you at a rate of 4.25% (with the same 3% bank margin on top of the base rate) costing you £5,115 per month. Whilst we’re not pretending an increase of £174 per month is trivial, and absolutely it needs to be accommodated in your budget, an increase of 3.4% is unlikely to be sufficiently material to be a ‘deal-breaker’ given the sums involved.

Good financial management elsewhere in the practice can mean the increase in costs could be absorbed. Of course we must also recognise that costs elsewhere in the business will likely be increasing too, the prime example being energy and utility bills. It’s important to have a budget or plan of what you anticipate your business’ revenue and costs to be, and to be able to flex this for changes in circumstances. A good understanding of the finances of your business and which activities add to the bottom line is crucial

To put it in context, a hygienist appointment would likely generate £90 in extra revenue and whitening treatments can bring in between £500 and £1,000. Whilst there will be costs associated with these activities, even small increases in activity can bring in enough revenue to offset the increase in costs.

When it comes to managing costs, take the opportunity to shop around, on insurance, maintenance or internet provider to name a few. Even apparently small changes can have an impact, for example how much stationery is needed in a modern paperless practice? Look at the usage patterns and ask if you are paying for materials or facilities, you don’t (often) use and also at which costs are fixed and which vary in line with activity. Whilst this may sound daunting, it will set a good foundation for ongoing management of your business and to resume our meteorological analogy, prepare you for any future ‘rainy days’.

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