I often work with doctors who, when we start walking through numbers in a planning session, will ask me to give them some quick education in some of the many financial tools available to help get a view of the financial health of their practice. After all, the vast majority of dentists did not study finance in dental school. So it is unrealistic to expect to know about it unless you have asked someone or researched it.
It can be overwhelming with profit and loss, income statements, bank statements, balance sheets, cash flow documents, key performance indicators, and practice management software to know what to look for and how to digest that information. You just want to know what number you need to look at to give you some indication of where you are and some direction on what you need to do to improve. In the end, as a business owner, there are numbers in each of these tools that are important for you and the health and wellbeing of your business. Let’s define a few of these by use:
PROFIT AND LOSS
Profit and Loss is also known as an Income statement and a P&L. The terms are used interchangeably. It is a measure of your financial performance over a specific period. It is typically generated by the accountant and typically shows revenue (collections or sometimes net production), expenses and profit. It will break down the expenses so you can see what your expenses were for a certain month. This is a snapshot into your practice and a great tool for monthly management. I would encourage you to find a CPA who is familiar with dentistry. The Academy of Dental CPAs is a tremendous group that has a list of CPAs around the country who are knowledgeable in dental business: www.adcpa.org.
Bank statements and credit card statements are typically used to create your P&L. These transactions are categorized by you in Quick Books and you generate a P&L, or you send to your accountant for them to generate the P&L.
This is a snap shot of the financial position of the practice. This will show you your debt/liabilities (what you owe), assets (what you own) and how much equity (assets less liabilities) you have in the practice. It allows you to see what you owe and what you own. It is important when you are looking at getting extra financing for the practice. You can also get a close estimate on how much you owe on any loan from this sheet.
You might think this is the same as the P&L, however, the P&L is a snapshot of your practice, it gives you a very specific date range which may not account for certain expenses that have not cleared, or revenues that have not cleared. The Cash Flow is, well, more fluid. It is a more real time tool used to see how expenses and revenue (collections) are stacking up and if there is cash in the bank. I encourage the use of this tool to help forecast, budget and manage the day-to-day operations. It can be simple to do and anyone can do it. Write down whom you pay and how much on one side, and what you actually collected on the other. The difference is cash in the bank. Do it over a few months and you will get the hang of it.
KEY PERFORMANCE INDICATORS or KPIs.
These are the specific numbers or ratios in your practice that tell the story about your practice, its performance, and areas of opportunity. These give you direct insight on your practice. Usually generated by your practice management software or from a dashboard that you are running on your software, these include but are not limited to production, collections, write offs, production by provider, days worked, hours worked, case acceptance rates, new patients, patient visits by provider/day, week, month, etc., production per day, per hour, per operatory, etc. It can be as many as you want or as few as you need to see that the practice is heading in the right direction. Advisors can help you identify the right KPIs for your practice based on the position of the practice, and the vision you have for developing it. Consistently monitoring these KPIs is imperative to have any working knowledge on where your practice stands and what you need to work on to improve it.
If you need help on where to start, contact us and our team at Jameson would be happy to look over your numbers with you. Contact your FSC today to learn more.
JESS WEBBER, MHA, CEO & Owner
For over 15 years, Jess has overseen all advising, management and technology aspects of Jameson, as well as human resources and corporate relations. As a trusted professional, Webber works fervently on developing future opportunities and services for Jameson clients while setting current course operations for continued growth. Under his leadership, Jameson has developed international markets, created an online platform of support, acquired a marketing company that has now grown into full-service creative services agency for dental and non-dental organizations and much more. He is now leading new efforts to provide the services needed for today’s dental practice in today’s dental industry, including work with practices looking to grow through Jameson’s Operational Development Program.