Two questions decide a dental practice owner’s financial life. What is my overhead really, and what would somebody pay me for this. Most dental P&Ls answer neither, because they were set up by a bookkeeper to satisfy a tax return, and a tax return does not care about either question.
The fix is not more reports. It is a chart of accounts arranged so that both answers fall out of the monthly close without anyone building a spreadsheet.
What is dental practice accounting?
Dental practice accounting is the practice of structuring a dental office’s books around production, adjustments and collections rather than around a single revenue line, so overhead can be measured against the categories the industry benchmarks and owner pay can be separated from practice profit.
The mechanics differ from general small business accounting in three specific ways. Revenue arrives in three stages rather than one, because what you produce, what you write off to insurance contracts, and what you actually collect are three different numbers. Payroll is the largest cost and includes the owner, who is both an employee and the residual claimant on profit. And the practice is an asset with a market, so the books are simultaneously a management tool and the document a future buyer will underwrite.
A properly structured dental practice close reports:
- Production, contractual adjustments and collections as three separate lines
- Overhead grouped into the categories practices benchmark against, not alphabetically
- Owner compensation on its own line, below the overhead block
- An EBITDA line that a lender or a buyer would recognize
- Accounts receivable aged by payer, with insurance and patient balances separated
The four-line restructure that makes a dental P&L readable
Open a typical dental practice profit and loss statement and you find one income line called something like “patient revenue” and then thirty expense accounts in alphabetical order, from Advertising to Utilities. That layout is fine for filing a return and useless for running a practice. Here is the restructure, and it is four changes rather than a rebuild.
- Split revenue into production, adjustments and collections. Production is what you did. Adjustments are what the insurance contracts took back. Collections are what arrived. The gap between the first and the third is the single largest controllable number in the practice and most owners see it once a year, if at all. Reporting it monthly turns fee schedule decisions and payer mix decisions into something you can actually evaluate.
- Group overhead into benchmark categories. Staff compensation, dental supplies, laboratory, facility and occupancy, and general and administrative. Every meaningful dental benchmark in circulation uses roughly these buckets, so a P&L organized any other way cannot be compared to anything. Ask your bookkeeper to add a grouping level above the natural accounts rather than renaming anything, so the tax mapping is untouched.
- Pull owner compensation out of payroll. This is the change that surprises people. When the owner’s pay sits inside “salaries and wages” alongside the hygienist and the front desk, the staff cost percentage is wrong, the overhead percentage is wrong, and, most importantly, profit is invisible. The owner’s pay and the practice’s profit are two different things, and a practice that cannot separate them cannot answer either of the two questions this article opened with.
- Add an EBITDA line. Earnings before interest, taxes, depreciation and amortization, calculated after normal market-rate compensation for the dentists who actually produce and before the owner’s discretionary draw. That is the number a bank, a partner buy-in or a group practice acquirer starts from, and building it into the monthly close means you are never surprised by it.
Exact Partners approaches this the way it approaches unit-level reporting for franchise and multi-unit operators, and for the PE-backed businesses it advises through acquisitions: the reporting structure is designed backwards from the decision it has to support. A practice owner deciding whether to add an operatory, hire an associate, or entertain an offer needs three different views of the same ledger, and all three come from the coding, not from month-end effort.
DENTAL PRACTICE ACCOUNTING
Can your P&L tell you your overhead and your EBITDA?
exact_ restructures the chart of accounts, runs the monthly close and reports production, adjustments, collections and EBITDA in a form a lender or a buyer recognizes. Your tax mapping stays intact.
Cash basis, accrual basis, and the number a buyer normalizes
Most dental practices keep cash-basis books, and for tax purposes that is usually correct and usually advantageous. The problem is what happens when the cash-basis P&L is used as a management report.
On cash basis, a heavy month of insurance collections from work produced in the prior quarter reads as a profitable month. A month with a big supply order and slow payer remittance reads as a bad one. Neither is true. The practice’s actual economics are set by production and the cost of delivering it, and those two things are separated in time by the payer.
This matters most at exit. A buyer, a partner buying in, or a bank underwriting an acquisition loan will normalize the numbers: convert to accrual, adjust owner compensation to market, strip out personal expenses running through the practice, and arrive at an EBITDA figure. If that exercise happens for the first time during diligence, the owner learns what the practice is worth at the least useful possible moment. Running both views internally, cash for tax and accrual for management, is the fix, and it is a coding decision rather than a second set of books. The same discipline separates a real result from a reported one in private equity portfolio company reporting.
Dental practice accounting vs general small business accounting
| Function | General small business | Dental practice |
|---|---|---|
| Revenue | One line, invoiced or collected | Production, adjustments, collections tracked separately |
| Receivables | Aged by customer | Aged by payer, insurance separated from patient balances |
| Largest cost | Varies | Staff compensation, with the owner inside it unless separated |
| Benchmarking | Rare | Overhead by category against industry ranges |
| Owner pay | Salary or draw | Salary, draw, and a market-rate adjustment for valuation |
| Equipment | Occasional | Recurring, large, and financed |
| Exit relevance | Sometimes | Always, the practice is a tradeable asset |
A caveat on the benchmarking row. Published overhead ranges vary by source, by region, by specialty and by whether the source counts owner compensation inside overhead or outside it, which is the difference between two numbers that look wildly incompatible. Before comparing your practice to any benchmark, confirm what the benchmark includes. Comparing a figure that excludes owner pay to one that includes it produces a panic with no basis.
Why the timing of this matters more than it used to
The dentist workforce is aging into a transition. According to the American Dental Association Health Policy Institute’s 2025 workforce update, there were 202,485 professionally active dentists in the United States as of 2024, of whom 18.7 percent were aged 55 to 64 and a further 15.5 percent were 65 or older. Over a third of the profession is inside fifteen years of a likely exit.
The same report shows the average retirement age rose to 68.7 in 2024 from 64.7 in 2001, and the average career span to 41.3 years from 37.8. Dentists are working longer, which extends the runway but does not remove the event. You can read the full data in the ADA’s dentist workforce research.
The practical consequence for the books is simple. Whatever a practice is eventually worth, the number will be calculated from three to five years of financial statements. Restructuring the P&L the year before a sale improves the presentation. Restructuring it five years out improves the number, because you spend those five years managing the things it makes visible.
What about multi-location and associate-driven practices?
Add a second location and every problem above multiplies, because a consolidated P&L will hide a struggling office behind a strong one. The requirement is the same one a franchise operator has: full profit and loss by location, with shared costs allocated on a stated basis, plus a consolidated view.
Associates add a second layer. Whether an associate is paid on production, on collections, or on a flat salary changes both the compensation calculation and the way the practice’s own margin should be read, and the calculation has to reconcile to the general ledger rather than living in the practice management software. Where the group grows past two or three sites, the mechanics are the same as any multi-location business accounting build, and the oversight layer that owns the monthly consolidation is usually an outsourced controller rather than the office manager.
Frequently asked questions
What overhead percentage should a dental practice run at?
There is no single correct figure, and any answer that does not state whether owner compensation is included is not usable. Ask three questions of any benchmark before comparing yourself to it: does it include owner pay, does it include debt service, and is it based on collections or production? Two practices with identical economics can report overhead twenty points apart depending on those three choices.
Should a dental practice use cash or accrual accounting?
Cash basis for tax, where the practice qualifies, and an accrual view for management and valuation. Both come from the same ledger.
Why should owner compensation be separated on the P&L?
Because pay and profit are different things, and mixing them makes both invisible. With the owner inside staff wages, the practice cannot benchmark its staff cost, cannot see whether the business is profitable independent of the owner’s clinical production, and cannot produce an EBITDA figure. Every buyer, lender and partner will separate them anyway. Doing it in the monthly close means the owner sees the same number they will see.
What is the difference between production, adjustments and collections?
Production is the value of the dentistry performed, measured at your full fee schedule. Adjustments are the reductions taken off that: contractual write-offs required by the insurance plans you participate in, plus any courtesy discounts or write-offs you grant. Collections are the cash that actually arrives. Production minus adjustments is the most you were ever going to be paid, sometimes called net production, and collections measured against net production tells you how well the practice bills, submits and follows up. Two separate management problems hide in that chain and they need separate fixes. A widening adjustment percentage is a payer mix and fee schedule problem, and it is solved at the contract level. A collections figure that lags net production is an operational problem in claims submission and patient balance follow-up, and it is solved at the front desk. A practice reporting only collections cannot tell which of the two it has, which is why the improvement effort so often lands in the wrong place.
Do we need a dental-specific accountant?
You need someone who will build the structure above and read the practice management reports alongside the general ledger. Familiarity with dentistry shortens that conversation. What matters more is whether the firm will restructure the chart of accounts rather than just close the month on the structure it inherited, and whether it can produce the reporting a lender or an acquirer will ask for.
Talk to exact_ about your practice reporting →
About the author. This article was written by Dan Spada, CPA, at Exact Partners, a national outsourced accounting, fractional CFO and business tax firm founded in Buffalo, New York in 2021 and named No. 152 on the 2026 Inc. 5000 list of America’s fastest-growing private companies. Dan and the Exact team build owner-level and unit-level reporting for practice and multi-unit owners, including the M&A and diligence reporting PE-backed businesses need. Learn more about Dan Spada and the Exact Partners team.
This article is general information, not accounting, tax or valuation advice for your practice. Confirm any accounting method or valuation question with a qualified advisor.
