Basic Elements of Overhead and Profit and Loss Statements

A Peer-Reviewed Publication Written by Alan Richardson

Abstract

It is essential for doctors to have ongoing knowledge of the financial condition of their practices. This requires an understanding of overhead and profit and loss (P&L) statements. Practice income comes from patient payments and insurance payments. Practice overhead is the amount of money required to meet all practice expenses, excluding doctor compensation. A profit and loss statement is where the elements comprising overhead are noted and quantified. The P&L must be prepared and reviewed monthly. Comparing the current statement with the year to date P&L and the previous year P&L is important to understand trends.

Educational Objectives

At the conclusion of this educational activity participants will be able to:

1. Discuss the elements which comprise practice overhead and the maximum percentages of variable costs.

2. Discuss the elements contained in a profit and loss statement.

3. Discuss the frequency for reviewing current and previous profit and loss statements.

4. Accurately interpret the profit and loss statement and understand the financial health of the practice.

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