How to tackle rising costs

Rising energy costs and unforeseen obstacles in supply chains have emerged pushing prices up. Practices particularly, also face wage pressures from a combination of issues – be it the rising minimum wage levels, household inflationary pressures hitting people hard on low pay and of course, the imminent rise in National Insurance by 1.25% which impacts everyone earning above £9100.

One way to remain agile in these tough conditions is to have a sound business expense and cost management system. Below are some insights on how practices can monitor business expenses.

Understand your costs

Business expenses can assume various forms and broadly can be categorised as:

• Fixed costs – these costs stay the same regardless of profit, time, or business activity. Common expenses that fall under this category are rent, Ioan repayments and insurance
• Variable costs – these costs do change according to the services you offer. Common expenses under this category include equipment and consumables but the biggest being labour costs
• Semi-variable costs – these are costs a business has to pay regardless but the amount may change slightly depending on business activity. Common expenses under this category include utilities, postage, telecommunications, and professional subscriptions
• Sunk costs – Money spent which cannot be recovered. Costs typically include fixed asset purchases
• Opportunity costs – the difference between a chosen action versus one that is foregone
• Avoidable costs – items that are not necessary

Performing cost analysis and gaining a good understanding of your business costs and which category they fall into will allow you to make informed decisions on where changes and savings can be made. It will also provide greater insight into the overall operation of your practice and assist in performing breakeven and profitability analysis of your income streams. 

Perform breakeven and profitability analysis on additional services you are providing

Practices should always re-examine whether it’s worth performing a service from a financial perspective. As the NHS seeks to reduce the backlog in the secondary health sector, there may be more chances for primary care or other providers to step in. But you need to understand your costs so that you know quickly what income you need to perform the service.

Monitoring your performance

Some GP practices will have some form of business plan and it is important to have a distinct section within your plan that includes a business operation budget. Your budget should be an extension of your business plan and will provide a guideline to follow and keep your expenses aligned to your business goals eliminating the risk of unnecessary expenditure along the way.

To be a successful worthwhile exercise, you must review your plan regularly to check how your actual expenses have deviated from your original estimates. This will help alert you to locate areas of overspending and allow sufficient time to respond and find solutions to control them before it’s too late. Management reports can be run from most software packages which can highlight variances quickly and easily.

Review your practice space

Very often surgery space makes up a large proportion of a business's fixed costs and most practices do not have enough. Re-evaluate the size of your space and whether it is required for your current practice needs. Ask yourself the following questions:

• Could you condense your practice space by digitising documents and files or putting them into storage?
• Can a proportion of your employees work from home some of the time?

Review your team

Surgery space is another large factor in most practice's overall operating costs.

Training your employees on efficient time management can help keep your team on track throughout daily operations. Without efficient time management, team members can easily become side-tracked, and you can end up paying for an overhead that is not achieving your desired results.

Also, consider outsourcing some of your tasks or working collaboratively with other practices to free up your employees for other work. That’s especially important if recruiting is hard. Review your business for tasks that could be outsourced to third parties to save you from the burden of salaries and other benefits that are common for salaried employees every month. You may also save on the cost of surgery space and other related expenses.

Managing your practice overheads may seem a daunting task but small changes and savings here and there can add up over the short to medium term. It does not need to be a drastic re-budgeting or downsizing exercise but gaining an understanding to your current financial position and where incremental changes can be made can put your business on a stronger footing in these challenging times and make a huge difference. 

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