Merging with other GP practices is becoming an increasingly common route being taken in order to maintain profits at a time of inflating costs. Practices should consider the following financial issues of any prospective merger:
Profit shares – This is usually done based on the number of partner sessions worked, but if there were different methods used by each practice, such as a points system based on workload, the most appropriate method will need to be adopted for the merged practice.
Property shares – A decision will need to be made regarding how the property equity in the merged practice should be split between each partner. A simple solution is to hold equity based on each partner’s profit share ratio, however, this could mean significant investments for some partners, while for others, they could have large tax implications.
Partner drawings – If different methods of drawings are paid by each practice, such as a fixed regular monthly payment made by one practice, and a variable amount paid by a second practice based on cash flow each month, an agreement should be made regarding the preferred method.
Partner’s working capital requirement – Varying levels of working capital would be held by partners in their individual practices prior to merging. A decision should be made regarding the amount of capital to be introduced in the merged practice, taking account of its size and cash-flow requirement.
Taxation – A method regarding payment of partner’s personal tax bills will need to be agreed by all parties, for example either through reduced drawings and the practice making the payments, or alternatively, drawings are paid before tax with the individual partners being responsible for their tax payment.
Staff costs – Financial terms and conditions for each employee will need to be reviewed prior to a merger. Rates of pay, and current benefits, such as annual leave, sick pay entitlement and the control of overtime will all need careful consideration and alignment.
Medical Indemnity – An agreement should be made on whether the merged practice will pay for the partner’s premiums, and be deducted from drawings, or whether the individual partners will have responsibility to make the payments.
IT – Consideration should be given on the cost implications of how current computer systems will be aligned. The merged practice will also need to decide on their preferred software, and will also need to update the practice websites.
Once the main financial issues have been decided, a business plan including a timeframe of events will need to be established. A new or updated partnership agreement will need to be agreed upon and then signed by all partners, to aid the smooth transition for the merged practice.
Ed Paull, Director Lentells Accountants, Medical Division. Ed deals with all areas of the GP contract, including related taxation and NHS pension issues.