Reviewing your Profit and Loss (P&L) statement is crucial for making informed financial decisions for your business. The P&L summarizes revenues, costs, and expenses incurred during a specific period of time, typically monthly, quarterly, or yearly. When reviewing your P&L, you should examine revenue, cost of goods sold (COGS), payroll, facility expenses, and administrative expenses to identify opportunities to decrease costs, increase revenue, and stay on budget.

Your P&L is a powerful tool for driving revenue growth. Utilizing the American Animal Hospital Association (AAHA) Chart of Accounts (CoA)to classify revenue and expenses is a crucial tool for understanding changes in your P&L and identifying which areas are driving those changes. When using the AAHA CoA, you can see a detailed breakdown of revenue by category and track changes over time. If you notice revenue trending downward in a specific area, engaging your staff is essential. For example, if dental revenue is declining, staff buy-in and education are critical. Educating all team members, including customer service representatives, kennel technicians, and veterinary technicians, on the importance of dental cleanings and their impact on the overall health of the pet ensures consistent communication with owners. This alignment enables clients to make informed decisions for their pets, ultimately supporting revenue growth.

COGS is typically the second-largest expense in veterinary medicine. Keeping COGS below 20 percent of total revenue is essential for maintaining a healthy financial statement. To achieve this, spot-check each COGS category on a monthly basis. Again, utilizing the AAHA CoA helps ensure costs are appropriately allocated and tracked.

If pharmacy or laboratory costs are high, start by reviewing inventory markups for those line items. If markups align with industry standards, shift your focus to staff education, not just what a product or service is, but why it matters. For example, staff may know what is included in a senior wellness blood panel, but do they understand why annual bloodwork is vital for early disease detection and to get accurate baseline values for each pet? That understanding enables them to educate pet owners more effectively.

Sticking to a weekly budget and using an A-B-C analysis can help keep COGS under control. An A-B-C analysis highlights which products sell most often, which items can be consolidated, and where reorder points should be set. These steps are just as critical as reviewing pricing markups and profit margins.

Payroll is usually the most significant expense in veterinary medicine, making it essential to control these costs to maintain a strong P&L. Payroll includes salaries, benefits, and payroll taxes, and the total payroll cost should be kept at or near the 40% of revenue benchmark.

The doctor payroll should ideally remain at or near 20% of the revenue. If it exceeds this benchmark, evaluate whether doctors are producing enough to cover their costs. This includes reviewing the number of patients seen per day, the average client transaction, and the doctor’s pay structure. Ensuring that transactions are charged under the correct provider in your practice information management system (PIMS) is critical for accurate production data. With reliable data, you can determine whether a doctor needs to increase their appointment availability or a revised compensation structure.

Staffing costs for all other employees should fall between 13% and 15% of revenue, with the practice manager accounting for approximately 2–4% of that total. Utilizing payroll calculators and staff-to-doctor ratios can help identify appropriate staffing levels.

Some facility costs are fixed expenses, such as rent, electricity, phone, and internet, and can be challenging to control. However, shopping for competitors for services like pest control or alarm systems on an annual basis may result in cost savings.

Administrative expenses, including office supplies, advertising, and subscriptions, are essentially within your control. Compare pricing on items such as paper and ink. It is sometimes easier to order from big companies, but often local businesses will match or beat their pricing, allowing you to decrease costs and help local businesses. Track how many new clients result from advertising activities such as hosting a booth at a local festival or running a Facebook ad, rather than focusing solely on how many people your post has reached.

Office subscriptions, such as reminder cards, can also be controlled. Whether reminders are produced in-house or outsourced, you can reduce costs by transitioning to digital reminders via email or text.

Merchant fees are not entirely within your control, but they are highly competitive. If merchant fees exceed 2% of your revenue, consider obtaining a quote from another provider and present it to your current merchant service company. In many cases, they will match or beat the competing rate.

Now that you understand the basics of a Profit & Loss statement, you are better equipped to make sound financial decisions for your business. Maintaining the financial health of your practice is just as crucial as any clinical aspect of veterinary medicine. When considering large purchases or hiring new staff, remember that even if the funds are in the bank, the numbers must align with your financial statement health.

Written by Georgia Colle