Well-managed bank and credit card statements are your practice’s ticket to a reliable profit and loss statement. Here’s a primer on some key terms and equations.
A business’s profit and loss (P&L) statement is one of its most crucial living documents, so-called because it’s never truly static. Rather, it’s updated in regular cycles, with each cycle yielding valuable data that could – and often should – be used to implement wider operational changes.
While all such statements essentially break down into two components (income and expenses), there are various levels involved. Here are some important P&L terms and metrics, some of which have more than one name. A working grasp of these will help your practice discover actionable data and control your finances:
All fixed and operating costs necessary to conduct business. A few examples are salaries, rent, and advertising.
- EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization)
- Gross Revenue/Total Revenue
All money received in exchange for services and products.
- Cost of Goods Sold (COGS)
- Net Revenue/Gross Income/Gross Profit
Your total revenue after COGS is deducted.
- Net Profit/Net Income
This is where any losses can be found. It is measured by deducting total expenses from net revenue.
P&L statements can be structured by either the accrual or the cash method. Accrual records all revenue and expenses as transactions take place, but prior to the actual funds being received or spent. The cash method does the opposite, recording only when cash is spent or received.
Studying Your Profit Margins
Your gross profit margin percentile is calculated by dividing gross profit by the year’s total revenue, then multiplying by 100. Net profit margins are calculated in the same way, just substituting gross profit for net profit.
Then there’s your operating profit, which is how much remains after meeting operating expenses, but before paying property and income taxes, and interest. This can be measured by dividing operating profit by revenue, then multiplying by 100.
Healthy figures for one practice could be underperformance for another depending on an organization’s size and scope. It can therefore be helpful to compare your figures to other chiropractors of similar size and service models.
How Often to Read P&L Statements
Check your P&Ls as often as you want updated information on all the above. Your P&L statement does more than simply reveal income and expenses and act as a handy resource at tax time; it can be a spotlight on what’s right and wrong with your current processes. These statements can also be valuable to investors, loan companies, or future buyers with an interest in your business as verification of financial history and proof of diligence.
Generating monthly P&L statements, then aggregating them, can be a highly effective way to create a quarterly and end-of-year data pool that could reveal positive and negative financial patterns over time. Investing in accounting software is a simple way to generate P&L statements whenever you wish, so here are some suites to consider.
Dr. Ray Foxworth, DC, FICC, is founder and CEO of ChiroHealthUSA. For over 35 years, he worked “in the trenches” facing challenges with billing, coding, documentation, and compliance, in his practice. He is a former Medical Compliance Specialist and currently serves as chairman of The Chiropractic Summit, an at-large board member of the Chiropractic Future Strategic Plan Committee, a board member of the Cleveland College Foundation, and an executive board member of the Foundation for Chiropractic Progress. He is a former Staff Chiropractor at the G.V. Sonny Montgomery VA Medical Center and past chairman of the Mississippi Department of Health.