#967: Understanding Your P&L Can Be Easy As Pie

Dental A Team Podcast

Kiera walks listeners through five steps to understanding a profit and loss statement:

1. Know the structure

2. Follow the revenue streams

3. Track your spending

4. Calculate the ratios

5. Set financial goals

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Transcript

Kiera Dent (00:03.726)

Hello, Dental A Team listeners. This is Kiera. And today I just wanted to empower you with, if you're in the boat of struggling to understand your P &L, struggling to understand how to truly master your dental finances, you're not alone. This is common. This is what I'm obsessed with helping dental practices truly understand. And today I want to break it down into five simple steps to give you clarity, control, to really be able to understand your dental practice finances. So today,

I just wanted to let you know that when you understand your PNL, which is a profit and loss statement, it helps you just be able to know which metrics to move to understand how can I actually create better decisions to feel more empowered with my numbers. And so I want you just to know that there's five simple steps that I've learned that I wanted to bring to you to really help you understand this and to this year maybe embody the identity of I am a.

money master or I am a finance master or whatever it is where you really take control because at Dental A Team when we consult our practices we have hundreds of offices and we work virtually we work in person we work one-on-one we work group style but I found that like one of the biggest stressors for dentists is not understanding like how does the money work we understand the dental we don't understand the team per se front office is like I don't know but it's really like where is my money and how do I actually make my money work for me

And so understanding that, what does it mean to be profitable? We have overhead calculators, we have profitability scorecards for you that I really love helping our clients with. But really it's like, let me just break it down into the nuts and bolts. I am not a CPA. I will have that disclaimer out there. I just am going to break it down of like, how do I become a financial master? So today let's break it down into step one is understand the structure of your PNL. So a PNL is broken down into basically like our, our revenue, so our collections, and then our expenses from there.

and then that breaks it down into profit. Now, something that always gets a little funny is debt services. And if we've got loans or student loans or practice loans, sometimes those are associated with our P &L, other times they're not. And what we really care about as owners is cash, right? We want the cashflow, we wanna understand where that's at. And so if you understand that it's broken down into this where we've got money coming in, so those are our collections, we need to make sure our collections sit at 98%. So we produce, we collect money.

Kiera Dent (02:21.654)

those collections and then we spend money of our expenses. So payroll, rent, utilities, supplies, all of that paying you as a doctor as well. And then from there we have what's called our profit. And then after that we have our debt services and then that's our cashflow, but also cashflow then there's taxes that come out of it. And I think when you understand that instead of it being like, I don't have any money. We just understand that this is where it goes. And so if we're not tracked, if we're not tracking it, what happens is we're spending money.

We're spending more than we need. Like I had an office and they weren't tracking their supply spend. And so what happened is they were spending about 30,000 a month in one location. They're spending about $5,000 a month in another location. There's a discrepancy, but they didn't even realize that they were having this discrepancy until we started looking at their PNL. So once you start to monitor it, then we can actually get our supplies into more of like a 4 % of total collection. So if we're collecting a hundred thousand, 4 % of that would be $4,000. That's what we're allowed to spend for that month on supplies.

Well, now we have the budget. Now we can get it in alignment. We can actually track it and lean it down. Another officer looking at their P &Ls are doing it. They were at an 85 % overhead at the beginning of the year. By the end of the year, they were coming in at a 53 % overhead. So to me, it's just a math equation. One plus one equals two. How do we, we have money coming in, subtract the things we spend. We have profit leftover from there. We have our debt services and our tax that gives us our true cash at the end of it. So then number two is we got to focus on

What are the ways that we actually bring production and collections to the practice case? We've got our PNL. We understand how that's broken down. I also want you to know there's a chart of accounts that you can change that up. But step number two is we've got to focus on the revenue streams or the production of how do we actually get money on the books to be able to collect that? Are we being profitable in that zone? So there's different ways that we do this. So like hygiene, restorative, ortho, cosmetic, like different ways that we do it. And some offices actually like to track this and break it down. And you can actually put this on your PNL.

You can literally put down how much production has come from restorative, how much production comes from hygiene, how much production comes from ortho, and then you can break down the collections that we have from that as well. So this is something really awesome to see how much of my practice is hygiene, how much of my practice is on implants or all on fours, how much of my practice is ortho. I have a pediatric practice and they really love to track their ortho amount of it because they want to see how much of their practice is truly ortho. Do we need to spend more marketing money there or do we not? This really helps you be able to see

Kiera Dent (04:45.64)

What services should we continue? Which ones are the highest revenue? Do we need to change our fees on it? Do we need to look at different ways to break this down? It's really, really, really fun. And so then I can look at what promos we put in the practice. Where do I put my blocks? What block scheduling do I need to have more of? What marketing do I need to spend to make sure we're getting the correct revenue or production streams of the correct patients? We're treatment planning it. We look at our treatment tracker to see, are we actually bringing this in? We can actually increase profitability without needing more patients if we follow this. So

A quick action item on that is maybe talking to your CPA about breaking down your revenue by services of what's coming into the practice to see where most of your income is actually coming from in the practice. Super enlightening when you start to look at this. Step three is now going to be looking at what we're spending. OK. And on the chart of accounts, if it's not broken down, you can ask your CPA to break it down. I've mentioned on prior podcasts that we were spending about fifteen thousand dollars on hiring once upon a time, but I didn't even know that's how much I was spending.

This last year, they had all of my marketing lumped into one. So I actually asked them to break it out. How much am I spending on the website? How much am I spending on events? How much am I spending on our ads that we're running? All these different little pieces, because I wanted to get more granular and understand where are the dollars going and what, if I spend a dollar, it coming back to me and what is it? So thanks for you on looking at your expenses. We usually have payroll, we have rent, we have supplies, we have labs, other things. We have our marketing, CE, consulting. We're going to want to look at

Maybe you have our associate doctors on there, but what are these different pieces and payroll? Oftentimes it's all the fringe benefits that go on to it as well. So making sure are the additional pieces of like our 401ks and our health benefits. What is all that going? Cause that does go into payroll. What's our payroll tax on that employee? Gosh, that was a fun day when I learned like what? So this also just helps you look at it. And then what we want to do is we want to look to see, there ways that we can cut costs? So going back to that example of cutting supplies,

Well, this office was just ordering through one supplier. There's companies like Ordo or Synergy or different group buying areas where you can still go through your same preferred vendor, but we can just get it on a discount rate. So for example, kind of like using Costco, like I can go and buy my, I thought Costco was ridiculous on their rotisserie chickens. Like they're $5 or I can go to Safeway and spend $9. I'm still getting a rotisserie chicken. It's just how much am I spending for it?

Kiera Dent (07:10.742)

Now I get that food's a little bit of a funny analogy because food is not equal across all stores. So let's do something a little bit easier. I could spend, you know, I can have my car insurance, like again, through Costco versus through someone else. We're just trying to get our reduced costs, still getting the same quality, but could we reduce those costs? Other times just giving a budget, me realizing that I'm spending 15 grand on hiring. Well, there's a great company called Viva HR. If you do Viva HR slash Dental A Team or just DM me or

email us [e-mail] literally spend $100 a month on unlimited ads. So took a $15,000 spend down to a $1,200 spend right there. I freed up over 10 grand. I mean, we're talking more like 13 grand that I was able to then save and allocate somewhere else just by switching that one thing. I'm still doing the same thing. I'm still posting the same ads. I just use Viva HR rather than spending it on indeed, but I never would have known that if I would have been tracking this.

So this is where can we look at it? So what I recommend, and we haven't broken down into percentages on our overhead calculator that we've created for our clients, but you wanna categorize your expenses and look for areas where we can cut unnecessary costs. And also what's the percentage of our total collections that we're collecting that we can actually minimize and make sure that we're with the alignment of what's recommended. So for example, like I said, supplies are usually at 4%. Payroll is between 25 to 30%. So making it get all the way down, but also,

Those percentages are just baselines. If you want more profitability, can we shave a half our percentage? Can we shave 1 % and still maintain the quality of our practice? That's a question for you to answer, but great ways to analyze this. So that would be action item on this is let's categorize your expenses, look to see where we can cut, look to see the percentages to make sure what is in there. Is it allocated correctly? Meaning did they put actual supplies in supplies or did I get labs in there as well so that when my numbers are wrong and what other ways can I change that?

Okay, step four is now we wanna calculate our ratios. So on that, we're going to wanna figure out like, what is our profit margin? What's our payroll ratios? Like I was saying of those percentages, this is now where we break it down. If I'm spending $10,000 on payroll out of 100,000, well, that's a great gig and I probably don't have enough people on there and I have space within, because I'm only at 10 % and I could go up to 30 % again, depending upon what I want my profit margin to be.

Kiera Dent (09:33.39)

I target with all expenses paid for offices to be a 20 or 30 % profit margin. So that means, cause overhead and profit get a little funny, overhead means all of our expenses, I like you to hit around a 50%. So if I've collected a hundred grand, I don't want you spending more than about 50,000. That leaves 50,000 here. We pay our doctors here. The goal is to leave about 20 to 30 grand if we're on this hundred thousand collection practice of true profit. Now of that profit, we, like I said, you can have debt services there and also taxes.

and depending upon the tax bracket you're in, that can actually make a pretty big difference. If I'm collecting 20 grand, I'm really not collecting 20 grand because I owe taxes on that. So that's a big asterisk around cashflow of how to master this and how to look at this, but making sure we're at the correct percentages for it to then gauge where are we at. So figure out what your, what our costs are, get them in in the pieces, and then figure out the percentages of each one of them, making sure that we're actually at the correct ratio.

of what it should be. In Dental A Team we're high on payroll because the bulk of our company is team. I don't have a physical location. I don't have a place that goes. Our product is our consulting. So my payroll is much higher than 30%. I pay a lot in payroll, but that's also, that's my product for you. have a lot of product in your practice of the supplies that go into it. We don't really have a lot of supplies that go into ours. I have a lot of software that I spend on. So everyone's going to be a little bit different, but we do have categories for dentists that we recommend.

Like I said, payroll 25 to 30 % supplies at 4%. Labs are 9 % combined together. Those are between 13 to 14%, especially if you're on an implant practice marketing. If you're growing, it can go all the way up to 5 to 7%. If you're lower, it should be a 2 to 3 % again, pending upon your goals and also pending upon where we want our profit margins to be. I really love my doctors to be paid at least a 30 % and they're also can get in to a little variable of do we pay our doctors as associates if you're an owner or not?

Kiera's opinion, and I know, like I said, I'm not a CPA. My opinion is I like to help practices exit out of the practice if they want to. Meaning, if you want to own your practice and not have it dependent upon you, that's what I like to grow for offices. So they have the option if they want to, or if any life circumstances happen, they're not handcuffed of, I don't have anything else I can do because I'm no longer practicing dentistry. To me, that's a very scary spot to be in. So what I do like to do is pay my dentist as an associate and as an owner.

Kiera Dent (11:56.386)

because that way if I ever want to replace my doctor, I already have on my P &L paying them as an associate, not just as an owner or actually taking $0, which often happens because of distribution. Now your CPA can help you advise on tax strategy because there are strategies of how much you quote unquote pay yourself. But the way we have it is we just break it down and you don't necessarily have to run it through payroll. We're just making sure that our P &L matches so we know how much profit we'd have if any life circumstances happen to you.

All right, and now step five for you. Step five is we wanna set financial goals and track our progress. So like I said, where are you wanting to be on your profit margin? Do you wanna be, where are we at baseline today and then where do you wanna get to? And then we look at the pieces for it. Just like on a family budget, if we say we wanna save for a car or we wanna save for Disneyland or we wanna go on a trip to the Bahamas, well, now we start to save and we start looking at our expenses of well, what could we eliminate? Maybe we don't need Netflix anymore. Maybe we don't need a DoorDash. Maybe we don't need internet. Maybe we need to...

add an extra job to it to be able to pay for this. But it's the same thing in a practice. If we want to have profitability or we want to have long-term financial success or we want to be set up for financial freedom, what do I need my business to profit to be able to go after it? And how do I look at this? So then we look for how can I increase my production of higher revenue generating pieces that we enjoy doing? Maybe All On X, maybe Ortho, maybe same day crowns, whatever it is for you, how can we add more of that to our schedule?

How can we decrease the expenses or be smarter instead of just paying straight through a supplier? Could we work with a bigger supply company, like I mentioned, kind of like Costco and get a discounted rate for that? Could I do that and save money on things I'm already buying? And then we're gonna wanna make sure we get those profit target margins, the percentages, based on the industry benchmarks, like I mentioned to you, to really be able to grow for this. And so it's really fun if we look at those little items,

It just becomes a shave of a half a percentage here, a 1 % there, a couple dollars here, increasing our production, using better block scheduling that really makes us where we then are tracking our progress. And it's really fun when you can get an office manager and a leadership team bought into this with you as well, which is why we share it on the podcast, because when they're all tracking and they're all aligned and we know what our profit margins need to be, it becomes much easier. And so if there was a practice,

Kiera Dent (14:17.262)

Like I said, we track with them quarterly, we're watching it they went from that 85 % overhead all the way down to 53%. Well, let me just do some simple math for you. Pretend that practice was only, let's say that they collected a million dollars that year, okay? So they did a million and that they were at an 85 % overhead. That would mean that on a million dollars, and let's say a million was true profit. So we've got a million, we've got 85 % overhead. That practice was collecting or like take home.

not including tax and all the other things, 150,000 out of a million. Now I understand. Now, if they're able to go, that was an 85 % overhead. If they go, so still a million dollar practice, down to 53 % overhead, what that does is that actually moves them into 530,000 is now their costs, right? Did you follow my math on that? 530,000. if they, and from there, so that means they're taking home 470,000.

That just simple shift, they didn't increase their production. They just reduced their expenses. Again, a million dollar practice, 150 to 470. That's a really big swing. You don't have to do anything more. We just had to be smarter with our dollars. So when you look at that and you think about that, that's where numbers get really fun for me. And that's where I love to empower doctors, leadership teams to how can we actually achieve this? So my goal for you would be let's set a financial goal for the next quarter.

Based on your P &L review, do we wanna cut down our supplies? Do we wanna increase our production? Do we wanna add our block schedules? What do we wanna do in there? Because this then will literally help you exponentially grow to your financial freedom. So as a quick recap of these five simple steps are one, understand the structure of your P &L. Two, focus on the revenue or production streams that we can add in. Three, analyze our expenses. Four, calculate the ratio. So again, the percentages of them and get those into industry standards.

And five, set financial goals to track the progress and actually see where we want to be. It's such fun for me because this is how you actually are able to exponentially have your business work for you. You not working for your business. You don't have to do more work. You don't have to more patient flow. None of those things. We just have to be smarter with how we're utilizing our money, how we're collecting collections, impact that how we're spending our money, making sure we've got budgets in place for our team. Teams will follow suit. We just need to get this set up for them. So this is where it's really fun. And honestly, you understanding your PNL.

Kiera Dent (16:43.158)

It allows you to just make informed decisions, increase your profitability, AKA take home pay and grow your dental practice. And then the next step of this will be how do we actually keep the money that we're making that becomes so fun. So I'm happy to go through this. If you guys want, I can go through a PNL piece with you. [e-mail] or go to our website and just book a call. We can do a practice assessment with you, totally free complimentary on my side because this is really where I love to just truly empower doctors and owners to take.

the like bull by the horns, you're already doing the dentistry. Let's have you now be compensated for that and do it in a fun way where you now feel like you were in financial control for yourself. So this is literally what the Dental A Team does in consulting. If this is helpful for you, you want one on one help, you want us to dive into your practice more in depth. Like I said, we have that complimentary assessment for you. Click the link or come work with us. I'd love to have you because this would really be a zone. You can DM us on social media, the Dental A team. So Dental A team is our hashtag.

or you can email us [e-mail] This is truly the zone though. Become a financial master this year. You will be so happy that you did this. This is a gift you can give yourself. And as always, thanks for listening and I'll catch you next time on the Dental A Team podcast.