Financial Statement Analysis and KPIs Made Simple for Orthodontists

Summer is done. Your orthodontist office has been bustling with back-to-school check-ups, brace fittings, and consultations for new smiles. But now that the rush has slowed down, it's time to reflect: “How did we really do?” This is the perfect moment to sit down and conduct a thorough financial statement analysis.

We get it; it’s not the most tempting task in the world. But it’s crucial for small businesses like yours. Aside from knowing your current financial health, analyzing your financial performance is critical to future growth and sustainability. According to a 2024 survey, only 35% of small businesses have a formal growth plan. What’s more, only 42% think they can handle economic slowdowns.

If you don't monitor your finances, you won't fully understand your risks or identify areas for improvement. This article will provide the necessary information, including which financial statements to analyze and how to leverage these insights to your advantage. By the end, you'll know how your business performed this summer and be better positioned for an even more successful season next year. Let's make those numbers work for you!

Five Essential Steps to Effective Financial Performance Analysis

‍

From gathering paperwork to knowing which indicators to watch out for, here are the key steps to analyze your financial performance.

‍

1) Collect Financial Statements and Reports

‍

Before you roll up your sleeves and dive into the numbers, you must know which statements to gather. There are three crucial financial documents for your orthodontist businesses:

‍

• Income Statement: Also known as the Profit and Loss Statement, this document summarizes your revenue and expenses within a timeframe. It helps you assess whether your revenue exceeds your costs, making your business profitable, and identifies which expenses are eating up your profits.

‍

• Balance Sheet: This document lists all your assets (like cash, inventory, and equipment) and liabilities (like loans or unpaid bills) within a specific period. It also lists your shareholder equity or the business’s net worth. Assets should always equal your combined liabilities and shareholder equity. If liabilities are higher, it signals to investors that your business might have borrowed more money than it can handle.

‍

• Cash Flow Statement: This statement tracks all cash inflows and outflows, including operating, investing, and financing activities. A positive cash flow means you are managing your liquidity well. Liquidity is the ease with which your business can get cash to pay short-term financial obligations.

‍

Knowing how to read these documents will help you make informed decisions regarding repaying your loans, negotiating with your suppliers, and calculating the correct pricing. Make it a habit to review these statements quarterly or even monthly so you know exactly what’s going on in your business.

‍

2) Identify and Analyze Key Performance Indicators

‍

Knowing your Key Performance Indicators (KPIs) will help you zoom in on what really matters in your financial statements. KPIs are specific measures that signal if you’re reaching your targets or need to improve your processes. Aside from total revenue and expenses, the following KPIs might be helpful for orthodontic practices:

‍

• Revenue Per Patient: If this decreases, it might be time to revisit your pricing strategy.
• New Patient Acquisition Rates: This measure will determine if your marketing efforts are working.
• Treatment Completion Times: This number can highlight operational hiccups you can immediately address.
• Retention and Turnover: This shows you how many patients have stopped coming to your practice. Conversely, it also tells you who your loyal clients are.

‍

3) Understand Your Revenue Streams/Categories

‍

Once you’ve determined your income and revenue, it’s time to categorize their origin. There’s always that one stream that will be your primary income contributor. However, it’s crucial to identify others with the potential to grow. Breaking down your income into categories helps you see which services or offerings can be improved, expanded, or added.

‍

For example, you might notice that traditional braces contribute the most to your revenue, however, new treatments are lagging. This information could guide you in investing in marketing for the underperforming category, including offering promotions. Another example is that consultations are more in demand during specific months. You can consider offering tiered service packages to cater to different preferences and needs.

Another valuable approach is collaborating with a general dentist. By building a solid relationship with a trusted general dentist, you can create a referral system where they direct patients to your practice for specialized orthodontic treatments. This partnership boosts your patient base and enhances the range of services offered to their patients, creating a win-win situation for both practices.

‍

4) Examine Your Expenses by Category

Don't just categorize your revenue streams—include your expenses as well! This will help you identify areas where you're overspending and find opportunities to cut costs without losing customers. For instance, if you notice that supplies or materials are driving up your total expenses, it might be time to renegotiate supplier contracts or explore better deals on the market.

Similarly, if you're not meeting your new patient acquisition targets despite increased marketing spending, consider reallocating those funds to different marketing channels or reevaluating your entire strategy.

5) Leveraging Your Findings

‍

Now that you know your key numbers and percentages, it’s time to put those insights to practical use. Here are some examples of how you can leverage financial performance information:

‍

• Adjust your pricing structure to boost your revenue, including pairing complementary services.
• Invest in automating your financial operations, including your bookkeeping and expense management systems, to generate more accurate and actionable analyses.
• Prioritize which areas to invest in, depending on their revenue contribution.
• You can hire independent contractors during peak periods to save on labor costs.
• You can renegotiate your loan repayment terms to reduce your liabilities.

‍

Streamline Your Financial Statement Analysis With Decimal

‍

Analyzing your financial performance helps you make confident decisions about how you want to grow your business. With Decimal’s bookkeeping services for orthodontists and financial reporting services, you don’t have to figure out your financial statements alone. Whether tracking KPIs, understanding revenue streams, or categorizing expenses, we’ve got you covered. Decimal’s experts will ensure you have all the required insights to thrive.

Schedule a meeting with us and get a free demo of our bookkeeping services to automate your financial statement analysis and align your financials perfectly.