The fiscal year end is rapidly approaching, which is an ideal time to take stock of your financial position – in effect, you can make a ‘Financial New Year’s resolution’.
Here’s a quick guide for undertaking a simple and achievable review, irrespective of your income or outgoings, which could improve your overall financial health and help you make more prudent financial decisions in the longer term.
The ideal starting point to review your financial position is to complete a simple summary sheet detailing your assets and liabilities, income and expenditure. It is amazing how many people do not do this!
You should also regularly review your investments as different rates and ‘deals’ come on the market all the time. By not reviewing them, you very often stand to lose money. In fact, many banks and other providers often rely on you doing nothing. They will pay you a paltry figure once any initial introductory period expires, even though other ‘new’ accounts within their product range would pay higher, but they conveniently do not tell you about these ones. So keep on your toes and review regularly.
It’s also worth bearing in mind that fixed-term products (eg notice accounts and short-term bonds) will often pay higher rates compared with basic instant access accounts – just ensure you set a suitable diary note one month before expiry to check out what else is on offer.
Also, it is essential that you maximise your tax allowances – particularly as we approach the financial year end to ensure you have made full use of 2013/14 allowances. There is a whole host of tax-efficient savings and investment products, which include ISAs, your pension allowances, SIPPs, and VCTs.
Working with an independent financial planner who has access to the whole of market is a prudent move if only to give you peace of mind that your finances are in the right place or to highlight areas in which improvements could be made.
Whether it be your personal mortgage, credit cards or perhaps a loan taken out for a car, it is just as important that you take stock of your borrowing position.
Indeed, paying off borrowing or at least restructuring debt on a more tax-efficient basis is a good starting point. It may be possible to restructure personal mortgage borrowing to a more tax-efficient business/practice loan on which the interest could be offset against tax (you need to take specific advice as everyone’s circumstances are different).
With savings rates so low, there may be merits in concentrating on repaying credit card and higher-rate personal loan borrowing rather than building up savings. It may also be possible to consolidate the higher cost credit card borrowings onto a loan with repayments spread over a convenient three or five-year term.
Your house mortgage or ‘buy to let’ loan should also be reviewed on an annual basis, especially before the expiry of any fixed rate periods. Again, banks often rely on inertia, and you revert to their standard (expensive….) variable rates. Mortgage rates, products and lending criteria are changing all the time, and there would be tangible benefits in working with a whole of market independent mortgage adviser for the best advice and guidance.
This is an area which is most often missed when undertaking a financial review. It is quite likely, however, that your practice loan is your largest outgoing and increasing bank charges are a regular feature on your bank statements.
Firstly, speak with your bank manager about your bank charges. Ask if any free banking is available, or find out how you could benefit from lower charges if you simply make a few changes to how you operate your bank account. For example, making greater use of online banking and minimising the cash you pay in are two very simple steps that could reduce costs.
If you have owned your practice for more than two years, you should also now present a lower risk to the bank, as your loan will have been reduced and the value of your practice (hopefully) increased. If this is the case, you should push the bank for better terms and a lower interest margin, as in theory, the risk to the bank should reflect the margin they charge.
You should also check if you are with the right bank. 12 of the high street banks are now actively lending to the profession with increasingly competitive terms being offered, so if your bank will not budge, then there are potentially 11 others who could consider better terms. Certain banks are also ideal for your first practice purchase; their credit policy may be sadly lacking if you wish to expand and potentially acquire further practices. They could say ‘no’ to your expansion plans; however, what they actually mean is that you do not fit their credit criteria. Remember, if this is the case, there are other banks and options open to you.
Finally, funding for equipment and refurbishments should be reviewed on a periodic basis to ensure you are receiving the best terms and also to check they are structured in the most tax-efficient manner.
The vast majority of Dentists (be they practice owners or Associates) are self-employed and, as such, need to make their own provision for tax. Making regular monthly payments to a separate ‘ring-fenced’ savings account is a prudent starting point – your Accountant should provide you with guidance as to the level of funds which should be allocated each month.
If you do find yourself in the awkward position where you owe the tax man a certain sum but have not made suitable provision, do NOT bury your head in the sand. Your first port of call would be to speak with HMRC, who can be surprisingly accommodating and may agree a staged payment arrangement – alternatively, speak with your business adviser who may be able to recommend a short-term facility to cover the outstanding payment.
The vast choice of insurance (both personal and business-related) can sometimes be confusing. Your personal life and practice structure will be constantly changing, and you need to ensure you undertake an annual review to assess whether your existing policies remain competitive and ‘fit for purpose’.
Will planning is a vital part of your financial health check. If you do not have a Will (and I am still staggered at how many people do not), this should be your number one priority. You should also review your Will at least every two years in line with your ever-changing personal life and business/practice structure to ensure your wishes would be fulfilled in the event of your untimely demise, and also to ensure as little as possible ends up in the taxman’s hands.
These are just a few suggestions to ensure your finances are given a spring clean and ensure they are in the best possible shape.
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