Every dentist who owns their own practice must wear two hats: clinician and small business owner. Dentist are taught how to be clinicians, but schools (due to time and budget constraints) must give little attention to the business owner side of owning a practice. It is paramount to know what the financial status of your practice is at all times; a simple matter of money in vs. money out. One of the best ways to understand what is going on with your practice is to know how to read a Profit and Loss Statement (P&L).
The first thing to look at on you P&L is how much income you have received from your deposits. The number should match the EOM (end of month) Collections from your practice management software. If this is not the case it may indicate that something is out of balance. There are other indicators on a P&L that can tell you if your practice is healthy or having problems. The ratios of certain expense items (Payroll, Supplies, Rent) to income can be an indicator of a healthy or unhealthy practice. For instance if your staff payroll is running above 20 – 26% it could mean you are overstaffed or underproducing, but in the long run it will mean that you have a problem and if not addressed it could have a negative effect on your practice.
The bottom line is that knowing your practice financially as well as clinically will keep your practice healthy. Knowing how to read a P&L and what it indicates will help you identify trends before they become a major problem
