As a dentist, you went to school to care for patients, not to become an accountant. But like it or not, your dental practice is also a business, and staying financially healthy is just as important as providing excellent clinical care. That’s where your Profit & Loss (P&L) statement comes in.
Many dentists rely on their office managers, bookkeepers, or accountants to handle the numbers. While delegation is essential, completely handing off your financial oversight is risky. Even if you’re not a “numbers person”, learning how to read your P&L and reviewing it regularly is one of the smartest things you can do as a practice owner.
Let’s walk through the basics of reading your P&L and why it’s essential to your success.
What Is a Profit & Loss (P&L) Statement?
A P&L statement (also known as an income statement) is a financial report that shows your revenue (income), your expenses (costs of running the practice), and your net profit or loss (what’s left after expenses). It covers a specific period, typically monthly, quarterly, or annually, and gives you a snapshot of how your practice is performing financially.
Think of it like an X-ray for your business. It reveals what’s working, what’s bleeding money, and where there are opportunities to improve.
How to Read a Dental Practice P&L Statement
Let’s break it down into sections. Every P&L will look a little different, but here’s the basic structure:
Revenue
This is all the money your practice brings in from services like hygiene appointments, restorative procedures, cosmetic dentistry, insurance reimbursements, and patient co-pays or out-of-pocket payments.
This top-line number is important, but it’s not the whole story. Just because revenue is high doesn’t mean your practice is profitable.
Cost of Goods Sold (COGS)
COGS includes the direct costs of delivering dental services, such as dental supplies and materials, lab fees, implant parts and restorative components, etc…
This section shows how much it costs to produce your revenue. Ideally, you want your COGS to be well-managed and not eating too much into your income.
Operating Expenses
These are the ongoing costs of running your practice and can include staff wages and benefits, rent or mortgage, utilities, marketing, insurance, continuing education, office supplies, software subscriptions and professional fees (e.g., legal, accounting).
Your operating expenses should be monitored closely, this is often where money leaks can occur!
Net Profit (or Loss)
At the bottom of the P&L, you’ll see your net profit, the amount left after subtracting all expenses from your revenue. If this number is negative, you’re running at a loss. If it’s positive, you’re generating profit.
Why It’s Critical for Dentists to Review the P&L (Even With an Office Manager!)
You might be thinking, “My office manager handles the finances and I trust them.” And that’s great! But delegation isn’t the same as abdication. Here’s why your direct involvement matters!
You’re the Owner…You’re Ultimately Responsible!
Whether or not you’re involved in the finances, you’re legally and financially responsible for your practice. If expenses are out of control, revenue is declining, or fraud is occurring, you’re the one on the hook. Reviewing your P&L regularly helps you catch issues early.
Numbers Tell a Story You Need to Hear
Your P&L shows trends, both good and bad. For example are hygiene numbers slipping, are lab costs climbing without explanation, is payroll creeping above recommended percentages?
Understanding these patterns helps you make informed decisions, like when to hire, invest, or cut costs.
It Builds a Culture of Accountability
When your team knows you’re reviewing financials regularly, they’re more likely to stay disciplined and budget-conscious. It encourages transparency and opens the door for important conversations about goals, growth, and responsibility.
It Helps You Plan for the Future
You can’t plan for expansion, bonuses, or new equipment if you don’t know where your finances stand. A P&L gives you the financial clarity to set realistic production goals, plan for retirement or sale of the practice, or decide when to invest or when to pull back.
Tips for Reviewing Your P&L Effectively
Review monthly, at minimum. Waiting until year-end is too late! Compare to previous months/years to spot trends. Watch your percentages, not just dollar amounts. For example, staff wages should typically stay around 25-30% of revenue.
Meet with your accountant or financial advisor quarterly to discuss insights and strategies.
Ask questions! If something doesn’t make sense, dig deeper!
You don’t need to become a CPA to understand your P&L, but you do need to pay attention to it. Knowing your numbers gives you the power to run your practice proactively, not reactively!
A healthy dental practice isn’t just about what happens in the operatory, it’s about how well the business behind it runs. And that starts with understanding your finances.
Your P&L isn’t just a report, it’s a roadmap to profitability, security, and long-term success.
Sherri Merritt
Dental Consultant & Trainer
