How to Read your Profit and Loss
By Nancy Caudill
55% has long been the industry ideal overhead for a general dental practice - the operative word being “ideal.” The key is knowing that you are doing your best to keep your costs under control. First - where do you get a P&L? It depends on whether you are using the services of an accountant, using QuickBooks or some other software program for your check-writing, or a combination of both.
These entries are at the very top of the P&L. It should list the income that was generated from the practice, based on the deposits that were made to the bank for the practice. This amount should be very close to the amount that you see when you generate a collections report from your practice software, if not exactly. If you find that it's close, I would suggest you do a more thorough investigation as to why.
You may also be making other deposits on behalf of the practice that was money not actually produced by the practice - such as personal monies that you “loaned” to the office. Interest income is often included as a separate line item under “Income.”
Refunds and NSF Checks
It is not unusual to see this listed somewhere in the P&L other than under “Income” but it should be listed as a deduction from the income in order to calculate a “Net Income” before the expenses are deducted. This is important because we will be comparing the various categories to the “Net Income” and if these items are not entered under “Income” the percentage will not be correct.
Now let's starting looking at the other categories of expense: Dental Supplies, Office Supplies, Lab Expenses, Facility Costs, Gross Wages for the Staff, Payroll Taxes and Benefits for the Staff, and Miscellaneous.
Dental Supplies, 5-6%
This is a category that can easily be misrepresented if you don’t have a good understanding of what a dental supply is. These items would be “disposable” items for the most part, or supplies that are used up quickly such as composites, burs, 2x2s, hygiene products, napkins, impression material, etc. What is NOT a dental supply item would be a hand scaler, an elevator, a handpiece, rubber dam clamps, etc. These items may not be depreciable but they are not disposable. Therefore, they should be listed under “Miscellaneous” as “Small Equipment.”
To get this right, it requires some time for the assistant who orders your supplies to review the invoices and indicate how many dollars were for the following: repairs (parts and labor), small equipment, dental supplies, office supplies, and lab. It is not unusual for dental supply companies to list all of these expenses on one invoice, but they must be broken down into the 5 sub-categories mentioned earlier. It is important to break this down correctly in order to set a budget for yourself and your assistant. It's also not fair to be fussing with your dental supply rep about your dental supply costs when you aren't allocating the supplies correctly.
Office Supplies, 1-2%
Stamps, paper products, pens, copier and printer cartridges, etc. all fall in this category.
This would also include ortho, implants and abutments, nightguards, removable and fixed prosthetics, etc. If we see an office with a very high lab overhead, it could be that the fees/collections are not in line with what the lab is charging (this is not uncommon with offices participating in PPO plans), the lab is charging too much in comparison to the fees, or the doctor is doing too many “redos” where there is a lab expense but no income to offset the expenses. It is also possible to have a practice that simply does relatively few fixed and removable procedures because the patient base is comprised of younger families without these dental needs.
Facility Costs, 5%
This can be confusing for offices that own their own building. Therefore, they don’t include any expense for this. It would be advisable to “rent” from yourself for an amount that would be determined by your accountant. This also includes utilities (not telephone, as this goes under Miscellaneous), janitorial, security, etc.
Staff Wages, 19-22%
Gross wages before taxes are taken out. State and Federal withholdings are only a pass-through. You do not actually pay for these out of your pocket. You deduct it from their wages and pay it to the state and federal government on their behalf.
Benefits for the Staff, 3-5%
This would be the matching Social Security that you are mandated to pay, unemployment and other mandatory payments, as well as paid holidays, vacations, bonuses, health insurance, etc.
This category includes most everything else that is considered direct expenses to the opening and closing of your practice. Computer support, interest on a loan for the practice, marketing, telephones, CE, travel for CE, etc. This is an area where many dentists find themselves in trouble. If you are spending a lot of money on CE and it is not increasing your production and collections, there is no return on your investment.
Do your math homework and review your P&L. Know your numbers!
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