How to Read a Profit and Loss Statement as a Dental Practice Owner

May 2026  •  10 min read

Your profit and loss statement is the single most important financial report your dental practice produces. It tells you where your money came from, where it went, and what was left. But most dental practice P&Ls are structured for tax compliance, not for running a practice. The categories are too broad, the benchmarks are missing, and the story the numbers tell gets lost in generic labels like "revenue" and "expenses."

This post walks through each section of a dental-specific P&L, explains what the numbers mean in the context of your practice, and gives you the commonly published dental practice benchmarks to compare against.

Revenue Section: Production, Adjustments, Collections

Most general bookkeepers put one number at the top of your P&L: "Revenue" or "Income." That single number hides three distinct concepts that matter in dental.

Gross Production

This is the total value of dentistry performed at your full (UCR) fee schedule. It represents the work your team did, valued at the rates you set. Gross production comes from your practice management software, not your bank account.

Contractual Adjustments

If you participate in PPO networks, you have agreed to accept fees lower than your UCR rates. The difference between what you charged and what the carrier's fee schedule allows is a contractual adjustment. This is not lost revenue. It is revenue you agreed not to collect when you signed the contract. On your P&L, contractual adjustments should appear as a contra-revenue line that reduces gross production. For most PPO-heavy practices, adjustments run 15 to 25% of gross production.

Net Production and Net Collections

Net production (gross production minus contractual adjustments) is the amount you were entitled to collect. Net collections is what actually landed in your bank account. On a well-structured P&L, both numbers are visible, and the gap between them tells you whether you have a collection problem or a timing issue.

If your P&L only shows one revenue line, you cannot tell whether a change in revenue came from doing less dentistry, taking deeper PPO discounts, or simply waiting on insurance payments. All three look the same on a single-line P&L.

Cost of Services: Supplies, Lab, and Clinical

Below revenue, your P&L should show the direct costs of delivering dental care. These are costs that go up when you do more dentistry and go down when you do less.

Dental Supplies

Composites, cements, impression materials, disposables, PPE. Commonly published benchmark: 5 to 7% of net production. If your supply cost is consistently above 7%, you may be overstocking, using premium materials where standard would suffice, or not tracking usage at the provider level.

Lab Fees

Crowns, bridges, dentures, implant components sent to outside labs. Benchmark: 5 to 7% of net production. Practices with heavy crown-and-bridge volume will trend toward the higher end. Practices investing in in-house milling (CEREC, Primemill) may see lab fees drop but equipment costs rise.

Total Clinical Cost

Combined supplies and lab fees should be under 11% of net production (the combined benchmark is tighter than adding the two individual ranges, because well-run practices keep both lean). This is your cost of goods sold (COGS) equivalent. If clinical costs are above 11%, look at lab pricing first. Lab fees have more variance and more room for negotiation than supplies.

Operating Expenses: Staff, Rent, Marketing

Operating expenses are the costs of running your practice regardless of how much dentistry you perform. These are your fixed and semi-fixed costs.

Team Staffing

All W-2 wages, payroll taxes, and benefits for non-owner employees: hygienists, assistants, front desk, office managers. Benchmark: 25 to 30% of net production. This is typically the largest single expense category in a dental practice. Within this, hygiene labor specifically should run 8 to 10% of net production.

If staffing is above 30%, check whether you are overstaffed relative to production, whether your fee schedule is too low (inflating the percentage), or whether overtime is driving costs up.

Rent and Occupancy

Base rent, CAM charges, property taxes, building insurance. Benchmark: 3.5 to 6% of net production. Dental leases are long-term commitments, so this percentage is hard to change quickly. But it matters for practice valuation and for new associates evaluating whether to buy in.

Marketing and Growth

Digital marketing, SEO, mailers, patient referral programs, community sponsorships. Benchmark: 3 to 7% of net production. Newer practices or practices in competitive markets typically spend at the higher end. Established practices with strong referral bases can spend less.

Net Income: What Is Left and What It Means

After subtracting clinical costs and operating expenses from net production, you arrive at net income. But in a dental practice, net income on the P&L is not the same as what the owner takes home.

Owner compensation (salary, distributions, retirement contributions, health insurance, personal vehicle expenses, CE travel) needs to be separated from practice profitability. When owner compensation is mixed into operating expenses, the P&L makes the practice look less profitable than it actually is, or hides an owner who is overpaying themselves relative to production.

The benchmark that matters here is adjusted EBITDA: earnings before interest, taxes, depreciation, amortization, and owner discretionary expenses. For a healthy single-location dental practice, adjusted EBITDA should be 30 to 40% of net production. That includes owner compensation. If your adjusted EBITDA is below 30%, your overhead is too high, your production is too low, or both.

Dental-Specific Benchmarks for Each Line

Here is a reference table for the key P&L benchmarks. All percentages use net production as the denominator and reflect commonly published dental practice benchmarks. These ranges are guidance, not audited figures, and they vary by region and practice mix.

If your P&L does not break expenses into categories this specific, your bookkeeper is probably using a general chart of accounts rather than one designed for dental. That makes benchmarking impossible.

FAQ: Reading Your Dental P&L

What if my P&L only shows one revenue line?

Then your books are recording deposits, not revenue in any meaningful sense. You need at minimum three revenue-related lines: gross production, contractual adjustments, and net collections. Without that breakdown, you cannot calculate net production, and without net production, none of your benchmarks work. A standardized chart of accounts fixes this.

How often should I review my P&L?

Monthly, within 10 days of month-end close. If your books are not closed until the 20th or later, you are making decisions on stale data. The review does not need to be long. Fifteen minutes comparing this month to last month and to the same month last year will surface anything that needs attention.

Should my P&L be on cash basis or accrual basis?

For tax filing, your CPA may use cash basis. For management reporting (the P&L you actually use to run your practice), accrual or production-based reporting gives you a much cleaner picture. Cash basis P&Ls distort dental practice financials because of insurance timing lag.

What is total overhead and how do I calculate it?

Total overhead includes all practice expenses (COGS plus operating expenses) minus owner compensation and owner discretionary expenses. Divide by net production. The benchmark is 55 to 65%. If yours is above 65%, the answer is usually in staffing or rent, since those are the two largest cost categories.

P.S. Reciprocity Accounting delivers a monthly P&L built for dentists, so the numbers actually make sense at a glance. See how we can help your practice.