Components of the Income statement
Think of the income statement as your dental practice report card.
The income statement is a useful tool for providing an overview of how your business is doing in a specific time period, for example, monthly income statements, quarterly or annually are the most common types of statements business owners look at.
A well- managed practice cannot wait until the end of the year to monitor financial health of the business; therefore, monthly tracking of financial data is not only critical for running a practice, but is essential.
A well-designed income statement should group direct costs together, and overhead costs together this allows the owner to understand their cost structure for each category. The reason this is important is it enables tracking of your Key Performance Indicators, and it highlight any issues with the business that might need tweaking in order to improve profitability and cash flow.
A common format the works well with dental office will have the following info:
Income section: will include Dental billings, Hygiene billing, and any adjustments to revenue. You need to split the sources of revenue by cetology Dental and Hygiene to benchmark performance. For example, Hygiene billing should be between 25%-35% of total revenue.
Under direct costs you have the following costs:
associate fees. The assumption here is all dentists are treated as associates and they receive a portion of their own production. There are different ways dentists can get paid, but for simplicity I’m using associate fees for this example. Dividends are not recorded in the income statement; they are recorded in the Balance Sheet.
Dental supplies, all expenses related to supplies. This will include all dental supplies including hygiene supplies. One of the common errors that I see sometime tools are added to supplies. The general rule for tools is: if a tool or hand piece cost over $500 and have a life span over one year then it should be recorded to Dental equipment in the balance sheet.
Lab fees: will include all lab fees, also supplies for cerac as this is considered lab fees if applicable
Wages and salaries: a common practice is record all wages, salaries and benefits under one account. Another alternative is to serrate wages by category, such as front desk, hygiene and assistances, this approach will provide more details on this cost structure.
This category will include all no direct costs, such as rent, repair and maintenance, office supplies are other expense which are not directly related to production.
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