How to Know If Your Dental Practice Is Profitable

Running a dental practice means more than filling cavities and polishing smiles. Behind the scenes, it’s still a business—and like any business, it needs to make money to survive and grow. But how can you really know if your practice is profitable?

Many dentists look at their bank account and assume they’re doing fine if there’s money left over. But that’s not always the full picture. A healthy bank balance today doesn’t mean the practice is profitable long term. To truly understand your financial health, you need to look at your numbers—and know what they mean.

In this post, we’ll walk through how to use your bookkeeping reports—like your profit and loss statement and cash flow statement—to measure the success of your dental practice.

Step 1: Understand What Profit Really Means

First, let’s clear something up: profit isn’t just money in the bank. Profit is what’s left over after all your expenses are paid. That includes rent, supplies, payroll, lab fees, insurance, and everything else it takes to run your office.

Your practice might be bringing in a lot of money, but if your expenses are just as high—or higher—you may not be making a profit at all.

That’s why looking at your financial reports is so important. They tell the full story.

Step 2: Read Your Profit and Loss Statement (P&L)

The Profit and Loss Statement, also called an income statement, is one of the most important tools you have. It shows all the money your practice earned and all the expenses it paid during a certain time period—usually monthly, quarterly, or yearly.

Here’s what to look for:

1. Revenue

This is the total amount your practice earned before expenses. It includes patient payments and insurance reimbursements.

2. Cost of Goods Sold (COGS)

These are the direct costs of providing care, such as dental supplies, lab fees, and materials.

3. Gross Profit

This is your revenue minus your COGS. It tells you how much money is left after covering the basic costs of doing dental work.

4. Operating Expenses

These include rent, payroll, utilities, marketing, software, and other costs not directly tied to patient care.

5. Net Profit

This is the final number—your “bottom line.” It’s what’s left after all expenses. If this number is positive, your practice is profitable. If it’s negative, you’re losing money.

Reviewing your P&L regularly helps you see where your money is going and where you might be able to cut costs or improve efficiency.

Step 3: Review Your Cash Flow Statement

Your cash flow statement tracks the actual movement of money in and out of your bank account. While the P&L shows profitability on paper, cash flow tells you whether you have enough money on hand to pay your bills.

This report includes:

• Cash inflows: payments from patients, insurance companies, and financing

• Cash outflows: bill payments, payroll, equipment purchases, taxes, and loan repayments

Sometimes, a practice can be profitable on paper but still struggle to pay its bills because of poor cash flow timing. Reviewing this report helps you plan for slow months, large expenses, or delayed insurance payments.

Step 4: Know Your Break-Even Point

Your break-even point is the amount of money you need to earn each month just to cover your expenses. Once you pass this number, you’re making a profit.

To calculate your break-even point, add up your fixed monthly costs (like rent and payroll) and divide them by your average profit margin. Knowing this number helps you set realistic goals and stay focused on maintaining profitability.

Step 5: Use Key Performance Indicators (KPIs)

KPIs are simple metrics that help you measure how well your practice is doing. A few helpful KPIs to track include:

• Profit margin (Net Profit ÷ Revenue): shows how much of each dollar earned turns into profit

• Collection rate (Total Collected ÷ Total Billed): measures how well you’re getting paid

• Overhead ratio (Total Expenses ÷ Revenue): tells you how much of your income goes toward costs

• Average production per patient: helps you understand value per visit

Tracking these numbers over time helps you spot trends and make smart decisions about staffing, pricing, and services.

Step 6: Keep Your Books Clean and Updated

None of this works if your bookkeeping isn’t up to date. Accurate financial reports depend on accurate records. If your numbers are messy or missing, it’s nearly impossible to get a true view of profitability.

That’s why so many dentists rely on experts who specialize in bookkeeping for dentists. By working with professionals who understand how dental practices operate, you can trust your numbers and use them to grow your business.

Final Thoughts

Knowing if your dental practice is profitable doesn’t have to be complicated—but it does require the right tools and habits. By regularly reviewing your P&L, cash flow statement, and key financial ratios, you can get a clear picture of your financial health and make smarter choices moving forward.

Profitability isn’t just about what’s in your account today—it’s about setting your practice up for long-term success. With clean books, reliable reports, and a little financial know-how, you can build a thriving business and a healthier bottom line.