Most dentists see their P&L once a year when their accountant hands them a tax summary. That’s one of the most expensive habits in practice ownership. A profit and loss statement isn’t a tax document, it’s the most accurate real time picture of whether your practice is actually building wealth or just staying busy. But the P&L alone doesn’t tell the whole story. Understanding how it connects to your Statement of Cash Flows is what separates dentists who feel in control of their finances from those who are perpetually surprised by them.

What a P&L actually is

A profit and loss statement, also called an income statement, is a financial report that summarizes your revenue, costs, and expenses over a specific period — typically a month, a quarter, or a year. It answers one question: after everything came in and everything went out, what was left? For a dental practice, that question has a more complicated answer than most owners realize, because revenue and collections are not the same number, and expenses have a habit of growing faster than production.

The P&L is one of three core financial statements. The other two are the balance sheet, which shows what you own and what you owe at a single point in time, and the Statement of Cash Flows, which shows how money actually moved in and out of the business. All three matter, but for day-to-day practice management, the P&L and cash flow statement are the two you should be reading every single month together.

The top line: production vs. collections

The first number on a dental P&L is gross production which is everything you and your hygienists billed during the period. This is not your revenue. It is a starting point. From gross production, you subtract adjustments: insurance write-offs, courtesy discounts, employee discounts, and any other reductions to what you actually expect to collect. What remains is adjusted production, sometimes called net production.

From net production, you subtract collection adjustments. This is the difference between what you billed and what was actually paid. Your collections rate is this relationship expressed as a percentage, and it should be at or above 98%. If your practice is producing $100,000 per month and collecting $91,000, the $9,000 gap is not a rounding error. It is a billing and follow-up problem that compounds monthly. What hits your P&L as revenue is your actual cash collected. Everything else is a number on paper.

Cost of goods sold: your clinical production costs

Directly below revenue on a well-structured dental P&L is cost of goods sold, or COGS, which are the direct costs of delivering clinical care. For a dental practice this primarily means lab fees and clinical supplies. Lab fees should run 8–10% of collections. Clinical supplies, gloves, materials, disposables, sterilization products, should run 5–7%. Together, COGS should account for roughly 13–17% of collections. If your lab line is running at 14%, someone needs to audit remake rates and case selection by lab vendor. Gross profit is revenue minus COGS. A healthy dental practice should show a gross profit margin of 83–87% before operating expenses. If yours is lower, the problem is almost always lab fees or supply costs that have never been renegotiated.

Operating expenses: where overhead lives

Operating expenses are everything it costs to run the practice that isn’t directly tied to producing a specific procedure. This is where most practices leak money silently and consistently. The major categories and their ADA benchmarks are as follows.

Staff and payroll is the largest single line item, and it should run 25–30% of collections. This includes base salaries, bonuses, payroll taxes, health insurance contributions, and any temp or staffing agency costs. When this number climbs above 30%, the cause is almost always one of three things: overstaffing relative to production, below-market production per provider, or hygiene schedules that are not full.

Rent and occupancy should run 4–7% of collections. If you are in a high-cost urban market, you may be closer to 8–9%, but anything above that requires either a lease renegotiation or a serious look at whether your location is generating enough new patient volume to justify it.

Administrative costs, software subscriptions, phone systems, office supplies, billing services, should run 2–4%. This category tends to accumulate quietly. Software subscriptions in particular have a way of multiplying without anyone noticing. A quarterly audit of every recurring charge in this category routinely turns up $500–$1,500 per month in services that are no longer being used.

Marketing should run 3–5% of collections for a healthy growing practice. Less than 2% and new patient growth will likely stall. More than 5% without a clear tracking system showing which channels are producing new patients is money going out without accountability.

Equipment and technology costs, depreciation, lease payments, maintenance contracts, should run 2–4%. This category matters most when planning major purchases. A CBCT unit or CAD/CAM system represents a large capital outlay, and the impact on this line needs to be modeled before the purchase, not discovered afterward.

Professional fees, your CPA, attorney, consultants, should run 1–2%. If you are paying less than this, you are likely underinvested in financial oversight. A dental-specific CPA who reviews your P&L monthly costs a fraction of what an undetected billing error or unchallenged overhead creep will cost you over a year.

Operating income: the number that actually matters

After subtracting all operating expenses from gross profit, you arrive at operating income. This is also referred to as EBITDA which is earnings before interest, taxes, depreciation, and amortization. This is the number that most closely reflects the true profitability of your practice as a business. Healthy practices achieve 25–35% EBITDA margins. Below 20% indicates operational inefficiency. Below operating income, you subtract interest on any practice loans, depreciation on equipment and leasehold improvements, and your owner’s compensation if it hasn’t already been included in payroll. What remains is net income, the actual profit of the business after every obligation is met.

The number most dentists confuse: owner’s compensation

One of the most common P&L misreadings in dentistry involves owner compensation. Many practice owners pay themselves informally, drawing from the business account as needed, and never reflect a market-rate salary on the P&L. The result is a P&L that looks highly profitable, masking the fact that the practice would show a loss if the owner had to pay an associate to do the same clinical work.

Before you read your net income as profit, ask this: does my P&L include a salary for my clinical production at the rate I would pay an associate? The average full-time income for a general dentist associate was $225,929 in 2024, up 9% over the previous year. If your P&L doesn’t account for that cost, your net income number is overstated, and your practice is less profitable than it appears.

To learn more on why profit doesn’t always equal cash and why your cash flow statement matters in addition with your P&L statement — Read Here.