What a Dental P&L Tells You (and What It Doesn't)
A P&L is a story about what already happened: it shows how much cash came in and what the practice spent on operations.
As Caleb Gussner, CPA puts it, "The profit and loss is one of the most crucial financial statements you're going to look at."
You'll find operational details in production reports, per-operatory breakdowns, vendor logs, and your practice management software (PMS). Use the P&L as a starting point to see where you need to investigate further.
The Three Sections of a Dental P&L
P&Ls follow a standard top-down layout: start with top-line revenue, subtract expenses, and arrive at net profit.
Net Revenue
Total bank deposits (gross revenue), minus refund checks sent back to patients, equals net revenue.
Cost of Goods Sold (COGS)
These scale directly with production. If you take a week off, your supply and lab bills drop; if you run a heavy case month, they climb.
- Clinical team pay and benefits (associates, hygienists, assistants)
- Dental supplies
- Lab fees
Net revenue minus COGS is your gross profit.
Some P&Ls put staff pay on its own line instead of in COGS. If you're comparing dental office overhead percentages from other sources, check where staff pay sits first.
Fixed Overhead: Operating Expenses
These stay about the same month to month, no matter how much you produce. There are four categories: advertising and marketing, facility, equipment (repairs and subscriptions, not loan payments), and administrative and general (A&G).
Subtracting fixed costs from gross profit leaves your net operating income, which shows whether core operations are profitable. Depreciation, amortization, and interest sit below this line. Subtract those and you get net income.
The P&L structure makes more sense with an actual statement in front of you. In the free Foundations track, we go through a real practice P&L line by line, from deposits at the top down to net operating income. [Join Now]
Revenue: Production vs. Adjustments vs. Collections
The revenue on your P&L traces back to production, adjustments, and collections:
- Gross production: All billable dentistry done chairside, before write-offs.
- Adjustments: Insurance write-offs, in-house discounts, membership plan savings, and rework you didn't charge for.
- Adjusted (net) production: Gross production minus adjustments. This is what you can actually collect on.
- Collections: The cash your team collected and posted.
Dental Practice Profit Margin and Overhead Benchmarks
A dental practice profit margin is profit as a percentage of revenue. For a general practice, Gussner puts the target this way: "If you have a consistent 20 to 25% net operating income every month, month over month over a rolling 12 month period, that's going to give [you] a lot of flexibility as an owner."
For example, a month with $100,000 in net revenue should spend about $50,000 on COGS and $25,000 to $30,000 on fixed overhead. That leaves $20,000 to $25,000 in net operating income.
One target sits outside the P&L: collections should be about 98% of adjusted production, and those collections should match the deposits on your P&L.
What Are the Red Flags in a Dental P&L?
Most red flags show up as a number that's off from the targets above. When you see one, that's your cue to dig into the PMS and other reports to find out why.
- Collections under 98% of adjusted production. The practice is doing work it isn't getting paid for.
- PMS collections that don't match bank deposits. Find out why before you buy, or right away if it's your own practice.
- COGS well above 50% or fixed overhead above 30% in a general practice. Costs are high for the revenue coming in.
- Net operating income that jumps around month to month. You want it steady, not just a good average.
- Unstable fixed costs. Baseline overhead like rent and software subscriptions should remain steady month over month.
