Financial reports tell you what’s happening—but not why. If accounting is the language of business, as Warren Buffett once said, here’s a Duolingo course on speaking it more fluently.

TO THIS DAY, most dentists enter the profession with years of clinical training but little preparation for the financial realities of practice ownership. It’s a skill acquired while on the job, between patients, during nights and on weekends. The danger is that not understanding your practice metrics can hold you back, both professionally and person­ally. Timely and accurate financial reports aren’t enough. You also need to know how to translate these reports into informed business decisions.

The importance of setting target KPIs. Your monthly profit-and-loss statements offer clues into your practice’s progress, but if you don’t know where to look, the numbers on the page can feel overwhelming. Setting clear monthly and annual targets based on a set of key performance indicators (KPIs) specific to your practice is critical to driving sustainable growth.

Not sure where to begin? To track progress toward growth and profitability, I recommend practice owners use a monitor to focus on metrics that matter most. For example, to improve profitability, focus on increasing the number of patient visits, boosting production per visit and improving collections. Work to reduce overhead costs, another critical KPI that affects your bottom line. For our clients, we offer a monthly report that helps visually track these metrics against the targets we defined earlier in the year.

Timely, accurate reporting is key. Most CPAs focus on creating cash flows, income statements and balance sheets, but to think like a CFO, dentists need to go beyond merely reviewing these reports. You need to understand how each contributes to the overall financial strategy of your practice. Consider these reports tools that help you diagnose the financial health of your business.

• Income statement: Shows profit or loss over time. When
  well formatted, it helps track expense percentages and assess whether overhead and profit align with industry norms.
• Cash flow statement: Tracks money coming in and going out.
• Balance sheet: Highlights assets and liabilities—essential information when seeking financing for equipment or improvements.

Understanding the nuances behind the numbers is key to deciding when it’s time to act.

Reviewing your targets monthly will keep you on track toward your annual goals, giving you regular insights into how well you’re aligning with your objectives. Year-over-year reports are also important. In both cases, we recommend using reports that also include industry data to provide a snapshot of how your practice is performing against the competition.

Translating accounting into action. The last piece of the puzzle is education: arming practice owners with the knowledge to translate their financials into actionable insights. For example, it’s always a good idea to monitor overhead. But understanding
why it’s trending up or down is where a doctor turns into a businessperson. Did merchant fees increase? Is there a one-time travel expense? Did the office upgrade computers or software? Understanding the nuances behind the numbers is key to deciding when it’s time to act.

To lead your practice with a CFO mindset, you need more than financial reports. You need the ability to interpret numbers and turn them into confident, data-driven decisions. Understanding what your financials are telling you gives you the insight to identify opportunities, avoid costly missteps and build a business that supports both your professional goals and personal lifestyle.

DAN WICKER, CPA, IAR is managing partner of Cain Watters & Associates (CWA), a full-service financial firm. For more than 40 years, CWA has provided dental professionals with financial education and comprehensive financial services. Contact Cain Watters & Associates at info@cainwatters.com.