“Performance Metrics” vs. “Financial” Metrics in Your Dental Practice

There are many ways to measure the performance of your practice, but which metrics matter most? Should you be measuring Gross Production or Net Production? And how do those differ from Collections? If “Production” & “Collections” are so important, why are they nowhere to be found on your financial statements? 

Two sets of data play a vital role in assessing a dental practice’s financial health: the information tracked in your practice management software and the data reflected in your Profit and Loss Statement (P&L) or financial statements. 

In this blog post, we’ll review important Practice Management Metrics & Financial Metrics, as well as where you can expect to find each one.

While the definitions can vary depending on which software(s) you use, we have outlined below the most high-level and/or consistent definition from the softwares our clients use most.  

 

  1. Gross Production
  • What is Gross Production?
    • Gross production represents the total value of services billed to patients before any deductions or adjustments are made. This should be the largest number you see with regards to your production – anywhere.
  • Practice Management Software:
    • This number can definitely be found in your Practice Management software, though its location may vary. Check for a “Production Report”, “Production Summary”, “Charges Report”, or “Sales Report” to find this information in your system.
  • Financial Statements
    • Gross production is not typically included in financial statements as it is too high level’. For this reason, you will not likely see a number on your Income Statement that matches Gross Production.
  1. Net Production
  • What is Net Production?
    • Net production is the amount of money your practice generated after adjustments and write-offs have been applied to your gross production. For many practices (especially those who accept insurance), your Net Production may look significantly smaller than your Gross Production as the difference between what is charged for a procedure, and what insurance will reimburse for a procedure, can be substantial.
  • Practice Management Software:
    • Net Production will often be found in the same reports as “Gross Production”. Please note, certain softwares may refer to this number as “Net Charges”, “Net Office Revenue”, or “Net Revenue” as well.
  • Financial Statements:
    • Like gross production, net production is not explicitly mentioned in financial statements, yet it can contribute to the revenue line item depending on how your revenue is portrayed.
  1. Adjustments
  • What are Adjustments?
    • Adjustments encompass any reductions in the charges initially billed (i.e. Gross Production). These may include contractual adjustments, discounts, or uncollectible amounts.The difference between your “Gross Production” and “Net Production” should equal your “Adjustments”.
  • Practice Management Software:
    • Certain softwares may actually have an “Adjustments” Report, though more often than not this will also be found in the same place as the two aforementioned metrics (i.e. the “Production Report”, “Production Summary”, “Charges Report”, and/or “Sales Report”).
  • Financial Statements
    • Adjustments are not usually separately stated in your financial statement, but they can be factored into the “Revenue” and/or “Bad Debt Expense” section of your P&L, ultimately affecting your Net Income.
  1. Gross Collections
  • What are Gross Collections?
    • Gross collections refer to the total payments received from patients and third-party payers, before any patient refunds or write-offs.
  • Practice Management Software
    • Your “Collections” figure may show up in a variety of places depending on your software. It is not uncommon for you to have a separate “Collections Summary”, “Collections Breakdown”, or “Sales Report” which outlines how much your practice earned and by service type. It’s also possible for this to be found on the same Production breakdown as the items before, but notice the difference between your Charges/Revenue/Production and Collections/Payments.
  • Financial Statements
    • Just like Adjustments, gross collections are not directly listed on your financial statements, but sometimes they can be – depending on how your bookkeeper set up your chart of account. They can contribute to the revenue section and may be factored into the cash flow statement but are not typically broken out as a separate item you can compare to in your financials.
  1. Net Collections
  • What are Net Collections?
    • Net collections represent the actual revenue collected by the practice after all adjustments, refunds, and write-offs have been applied to the gross collections.
  • Practice Management Software
    • Wherever you find your “Collections” figure is, nine times out of ten, where you will find your “Net Collections” as well.
  • Financial Statements
    • Net Collections are the one item on your practice management software that can show up as an “Income” or “Revenue” item on your Profit & Loss and/or Balance Sheet. This number represents how much your practice ended up earning over a given period of time, which is information that is generally shown on your P&L.
  1. Cash
  • What is “Cash”?
    • While “Net Collections” indicates how much you earned in a given period, this includes revenue generated from checks, credit cards, and cash. Some systems can break out the payment method for revenue earned, so you can identify what amount was paid in cash over a period of time, while sometimes it is not shown.
  • Practice Management Software
    • Your Practice Management software will show the amount of payments you received over a period of time, but will not necessarily indicate how much CASH you have on hand. For this, you will have to refer to your Financial Statements.
  • Financial Statements:
    • Your Balance sheet will show what your practice has in cash at a fixed point in time. This amount will reconcile with your bank account and, as a result, should be the best way of determining how much true cash you have available. Your Income Statement, or P&L, will show how much money your practice earned (or spent) over a period of time (we prefer to review this monthly). Lastly, your cash flow statements show the exchange of money between your practice and the outside world (also over a certain period of time).

 

In summary, your practice management software tracks a more comprehensive view of your practice’s “day-to-day” financial operations with terms like gross production, net production, adjustments, gross collections, and net collections while your Financial Statements do a better job presenting a view of your business’ financial health, focusing on income, profitability, and cash. Both sets of data are essential for assessing your dental practice’s performance, and identifying any disconnects between the two can be a very helpful clue in determining whether there are any underlying issues at play. Understanding the nuances between these terms is pivotal for effective financial decision-making for a dental practice owner, which is why we review all these metrics every month with every one of our clients.

 

Need help deciphering your business and financial metrics? Request a meeting with one of our financial experts to help!