How to read your P&L in ten minutes a month

Set a timer for ten minutes, open last month's P&L next to the month before it, and check the same five things in the same order every time.

What your P&L is telling you

Your P&L, short for profit and loss statement, is a list of what came in and what went out for one month. Money in sits at the top. Expenses sit in the middle. What's left at the bottom is net income, the profit for that month on paper.

It isn't your bank balance. Cash moves for reasons that don't show up as income or expense, like the principal part of a loan payment or money you take out as the owner. So the P&L answers one question. Did the practice make money doing its work this month? If profit looks fine and the bank account doesn't, this post on profit and cash walks through why.

The ten minute read

Ask your bookkeeper for a version with this month and last month in side by side columns. Then go down it in this order.

• Minutes 1 and 2, membership revenue. Is it up, down or flat? Does that match what you know about your panel?
• Minute 3, other revenue. Enrollment fees, meds, labs, employer contracts. Is anything new or missing?
• Minutes 4 to 6, your three biggest expenses. Usually that's payroll, rent and medical supplies, but use whatever your top three are.
• Minute 7, anything new. A line you don't recognize, or one that jumped.
• Minutes 8 and 9, net income. Compare it to last month and to what you expected.
• Minute 10, write down your questions.

What a normal change looks like

Here's a made-up example. Say last month you had 390 members at $75, which is $29,250 in membership revenue. This month you have 400 members at $75, which is $30,000. That's a $750 increase, and it lines up with 10 new members. Nothing to chase.

Now say membership revenue went down by $750 while your panel count went up. That's worth a question. Maybe a batch of payments failed, maybe some members moved to a cheaper plan, maybe a deposit landed in the wrong month. If you're on Hint, deposits arrive net of fees, refunds and failed payments, so the books have to separate those back out for revenue to read right.

What I'd look for in the expenses

Expenses in a DPC practice tend to be steady month to month. Rent is rent. Software is software. So when a line moves, it stands out.

The ones I'd watch are payroll, medical supplies and meds, and software subscriptions. Did you add hours or pay a bonus? Did you stock up on supplies, or is usage climbing faster than your panel? Is there a subscription you signed up for and forgot? A one-time purchase that hits a single month isn't a problem. A line that creeps up three months in a row is worth a closer look.

If there's a line called uncategorized or suspense with a balance in it, that's money nobody has labeled yet. Ask about it.

What to do with your questions

Write them down as you go. Short is fine. Why did supplies jump? What's that line in other income? Then send them to your bookkeeper in one message instead of one at a time.

A good bookkeeper can answer most of those quickly, because they touched every transaction during the monthly close. If the answer is "I'm not sure," that tells you the books need more attention. It doesn't mean you asked a dumb question.

If the same questions come up every month, that's useful too. It tells you which numbers you care about. Those are the ones worth tracking on a short dashboard, and they're usually the same ones in the four numbers every DPC owner should know.

Do this once this week with last month's P&L. Ten minutes, two months side by side, one list of questions. Things are usually fine. The point is knowing that instead of hoping it.

Common questions

What if I don't understand a line on my P&L?
Ask. Your bookkeeper should be able to explain any line in a sentence or two, and if a label doesn't make sense to you, it can be renamed so it does.

Should I read the Balance Sheet too?
Yes, but not in the same ten minutes. Once a quarter, look at cash, what the practice owes, and what you've put in or taken out.

How do I know if my net income is good?
Compare it to last month, the same month last year, and what you planned. One month on its own tells you less than the trend over three to six months.