Why Your CPA Has to Understand a Dental P&L
Let me say something nice about your CPA before I say the other thing. Your CPA is probably very good at taxes. They've kept you out of trouble, they've found deductions you didn't know existed, and every April they hand you a number that's smaller than you feared.
Here's the other thing. A P&L built to minimize taxes and a P&L built to show a buyer what your practice is worth are two different documents — and most general-practice CPAs only know how to build the first one. When it's time to sell, that difference costs dental owners real money, not because the CPA did anything wrong, but because they never learned what a dental buyer is looking for.
Let's walk through what a dental P&L needs to show, and why a generalist's chart of accounts hides it.
1. Hygiene Has to Be Its Own Line — Production and Payroll
A dental buyer reads your hygiene department before almost anything else. Hygiene production as a share of total production — 25 to 35 percent is the healthy range for a general practice — tells them whether the recall system works and whether the patient base is active or just on file. Hygienist compensation against hygiene production — roughly a third is the benchmark — tells them whether the department makes money or just makes the schedule look full.
Now open your P&L. If hygienist wages are sitting inside "Salaries and Wages" with the front desk and the assistants, and hygiene production doesn't appear anywhere because your CPA only books collections, none of that analysis is possible. The buyer either rebuilds it from your practice software or assumes the worst.
Action Items / Food for Thought:
Ask your CPA to break payroll into hygiene, clinical staff, front office, and doctor — four lines, not one
Get hygiene production and hygienist comp for the last twelve months and do the division. If it's over 40 percent, you have a department problem to fix before a buyer finds it
Could a stranger find your hygiene story in your books without opening Dentrix?
2. Lab and Supplies Need to Be Benchmarkable
Every dental buyer benchmarks lab fees and clinical supplies, because they're the two variable costs that reveal what kind of dentistry you do and how well you buy. Lab typically runs 6 to 10 percent of collections for a general practice — higher if you do a lot of crown and bridge or implant restorative, lower if you've moved to in-house milling. Supplies land around 5 to 7 percent.
When a generalist CPA books all of it as "Dental Supplies" or, worse, "Cost of Goods Sold" alongside your Invisalign lab fees and your nitrous refills, nobody can benchmark anything. And when a buyer can't benchmark, they don't give you the benefit of the doubt. They price in the risk.
Action Items / Food for Thought:
Separate lab, clinical supplies, and office supplies into three accounts. It takes an afternoon
Pull the last three years and calculate each as a percentage of collections. If lab is 14 percent, that's either a lot of prosthodontics or a lab that's overcharging you — and you should know which
3. Doctor Compensation and Distributions Can't Be a Blur
If you're an S corporation, you're paying yourself a W-2 salary and taking distributions, and your CPA has probably set the salary at whatever number keeps the IRS quiet. That's fine for taxes. It's useless for valuation.
A buyer needs to see three things clearly: what you actually take out of the practice in total, what an associate would be paid to produce what you produce — usually 28 to 32 percent of collections for a general dentist — and what any associates on staff are paid relative to their production. The first number drives SDE, the private-buyer math. The second drives EBITDA, the DSO math. If your books mix owner salary, distributions, associate pay, and a management fee to your own LLC into two undifferentiated lines, the buyer has to reconstruct it, and reconstructions never go in the seller's favor.
Action Items / Food for Thought:
Make sure owner W-2, owner distributions, and associate compensation are three separate, obvious lines
Calculate your production times 30 percent. Compare it to your total take. That gap is the DSO conversation, and it's better to have it with yourself first
Do you know what your practice earns if you're an employee in it instead of the owner?
4. Gross Production, Adjustments, and Collections Are Three Different Numbers
Most generalist CPAs book net collections and stop there. That throws away the single most valuable story in a PPO practice: how much you produced at your fee schedule, how much you wrote off to insurance, and how much you actually collected.
A practice producing $1.6 million gross and collecting $1.2 million has a $400,000 adjustment line. That line tells a buyer your PPO participation is costing you 25 percent — which is also a roadmap for a fee-for-service conversion, a narrower plan mix, or an in-house membership plan. Buyers pay for roadmaps. They don't pay for a collections number with no context.
Action Items / Food for Thought:
Book gross production, insurance adjustments, and collections as separate lines, even if only in a memo schedule your CPA maintains quarterly
Rank your PPO plans by write-off percentage. The bottom two are a conversation with your office manager, not a fact of life
5. Tax Minimization That Quietly Destroys Value
This is the section that gets me the angry emails, so let me be precise. Every dollar of legitimate deduction is worth taking. The problem is the aggressive stuff — and it's a math problem, not a moral one.
Say your CPA runs $45,000 a year of personal and semi-personal spending through the practice: the family cell phones, the second vehicle, the "continuing education" in Cabo, a spouse on payroll for light duties. That saves you maybe $15,000 to $18,000 in taxes. When you sell, you'll try to add all $45,000 back to earnings. A buyer will accept some of it, discount some of it, and reject the rest. Call it $25,000 that survives. The $20,000 that didn't survive, at a 5x multiple, is $100,000 off your price. You paid $100,000 to save $17,000.
The Section 179 version is the same trap. Buying a $120,000 CBCT in December to erase taxable income makes that year's P&L look like the practice barely broke even. A buyer normalizes for depreciation, but they also ask why a practice that "needed" a CBCT hasn't grown revenue since — and they look hard at whether the equipment is actually in use.
Action Items / Food for Thought:
Every dollar you hide from the IRS, you hide from the buyer. The IRS charges you 30 to 40 cents once. The buyer pays you four to six dollars for it, once. Do the arithmetic before December
Tell your CPA you plan to sell within three years and ask them to run the books "clean" from the next quarter forward. Watch their reaction — it tells you whether they've done this before
Which of your deductions would you be comfortable explaining line by line to the person writing your check?
6. How to Tell if Your CPA Gets It — Five Questions
You don't need to fire anyone. You need to find out, this month, whether your current CPA can produce a valuation-grade P&L, and if not, whether they'll work alongside someone who can.
Ask them: How many dental clients do you have? Can you show me my practice against ADA or Dental Economics benchmarks? Can you produce a normalized P&L with owner comp restated and add-backs scheduled? Do you close my books monthly or reconstruct them at year-end? Have you ever supported a client through a practice sale, and what did the buyer's diligence team ask for?
Good answers are specific. Bad answers include the phrase "we can figure that out."
Action Items / Food for Thought:
Ask the five questions in your next meeting. Write the answers down
If two or more answers are vague, engage a dental-specific CPA for the valuation work and keep your current CPA for taxes. They can coexist
Would you let a general surgeon do your root canal because they're a very good surgeon?
Final Thought
Your P&L is the first document a buyer reads, and it was built by someone who has never met a buyer. That's not a criticism of your CPA. It's a description of the problem.
A dental P&L should show hygiene on its own, lab and supplies you can benchmark, doctor comp you can restate, and a production-to-collections story that explains your insurance mix. If it doesn't, you're asking a buyer to trust a number they can't verify — and buyers don't pay for trust. They pay for clarity.
Get your books to speak dental before you list. If you'd like a second set of eyes on what a buyer would see in yours, the first conversation is on us.
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