Revenue and profit come apart for a small number of reasons, and they are diagnosable in about an hour with the right statements.
Rising revenue with falling profit is the most common complaint a dental practice owner brings to a CFO, and it almost always has one of four causes. They are listed here in rough order of how often they turn out to be the answer.
The diagnosis matters because the four have completely different fixes. Treating a collections problem as a cost problem produces cuts that do nothing.
The usual causes, in order.
- Collections have not kept pace with productionProduction is what you diagnosed and delivered. Collections is what arrived. If production is up ten percent and collections up four, revenue on the P&L may look healthy while cash and profit do not follow. Check adjusted production against collections by payer, and days in A/R.
- Overhead grew faster than revenueStaffing added ahead of the volume that justified it, supply cost drifting, a lease step-up, or software subscriptions accumulating. Overhead percentage is the number to read, not overhead in dollars — dollars always rise when revenue does.
- The revenue mix shiftedHigher volume in lower-margin services, or a payer mix that moved toward plans with deeper contractual adjustments. Same revenue line, less margin behind it.
- Deferred revenue is inflating the top lineMembership plan collections booked as income on receipt make revenue look larger than the care actually delivered. Profit does not move because the earnings were never real.
How to tell which one it is
The reason this question is hard to answer from a standard P&L is that all four causes look identical on it. Revenue is up, expenses are up, profit is down. Nothing on the statement distinguishes a collections problem from a mix problem.
Distinguishing them requires the production-to-collections bridge, overhead expressed as a percentage rather than a dollar figure, margin by service line, and a deferred revenue balance on the balance sheet. Practices that have those four things can answer the question themselves.
Frequently asked.
Why is my dental practice revenue up but profit down?
Usually one of four things: collections lagging production, overhead growing faster than revenue, a shift toward lower-margin services or payers, or deferred revenue inflating the top line. They look identical on a standard P&L and are separated by the production-to-collections bridge and margin by service line.
Can a dental practice grow revenue and lose money?
Yes, routinely. Adding capacity ahead of demand, or growth concentrated in low-margin services, will raise revenue while reducing owner earnings.