The 60-70% problem (and why your accountant can't see it)

Every dentist who has ever asked an accountant to look at their practice has been shown the same thing: a profit and loss statement. The accountant nods at the numbers, possibly points out a line item or two, and the dentist walks away feeling either reassured or vaguely uneasy. Neither outcome is useful because the P&L is the wrong tool for the job.

The P&L tells you what happened. It does not tell you whether it should have happened or what could have happened instead. For a typical owner-operated dental practice doing between $500K and $1.5M in revenue, the gap between what is happening and what could be happening is somewhere between $150,000 and $300,000 of unrealised annual profit. That gap is real. It is also invisible if you only look at outcomes.

The reason the gap exists is not that anyone is doing anything wrong. The reason is that the practice operates on 12 interconnected operational drivers, new patient flow, recall, treatment plan acceptance, fee schedule, chair utilisation, cancellations, hygiene productivity, staff costs, consumables, lab costs, financial visibility, online reputation…and most practices have never been measured against any of them individually, let alone all 12 together. The P&L aggregates the output of all 12 into single line items. By the time the P&L tells you something is off, the cause is three or four levers deep.

The work of profit advisory is not to look harder at the P&L. It is to measure the 12 drivers, identify the three or four where the gap is largest, and work them in coordination until the P&L moves on its own. The principal who does this discovers two things: first, that the gap was always there. Second, that closing it does not require working harder. Often it requires working less, but on different things.

If you've ever felt that the practice should be more profitable than it is, you are almost certainly correct. The question is which three of the 12 levers are carrying the largest dollar opportunity in your specific practice. There is no answer to that question without measurement.