Calculation errors trigger black hole in practice reserves

When AISMA accountants Coveney Nicholls took over the taxation and financial
affairs of a large London practice, they inherited a group of worried and financially
stretched doctors who had lost all faith in their previous accountants.
The practice had a non 31st March year-end and, although their accounts reflected
reserves for tax and superannuation, calculation errors by the previous accountants
meant these had been substantially underestimated.
The practice had been advised that the partners could draw large sums out of the
current accounts, only to find that their tax liabilities had not been adequately
reserved for. Effectively, a whole year’s tax liabilities had been missed.
After 31st January, the date by which they had to pay their tax liabilities, the practice
had disastrous cashflow problems, made worse by the overpayment made to a
partner, based on the previous accountants’ figures, who was no longer at the
practice.
Furthermore, no account had been taken of the requirement under the partnership
agreement to retain a working capital sum per partner based on weekly sessions
worked. All partners faced a reduction in drawings.
Sue Beaton, director, Coveney Nicholls says: “Our priority was to put a rescue plan
in place as soon as possible so that the practice could regain a firm financial
footing.” She describes how the Coveney Nicholls team set to work. “First we
reviewed practice performance to assess what recommendations could be made to
improve profitability and cash flow. Forthcoming tax liabilities were assessed and
consideration given to changing the year-end in a year or so to bring the practice
affairs up to date.”
All partners’ requirements were looked at individually and a recovery plan set up for
each. Half-yearly management accounts will be prepared by Coveny Nicholls so that
the practice can keep a close eye on progress. Sue Beaton concludes: “So far the
practice is making good progress and is well on the way to achieving better financial
control. We are in regular contact and are always on the end of the phone if
needed.”

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