By Martin Traub-Werner, Founder & CEO, VetBooks
Every veterinary practice tells a story—one written not in words, but in numbers. Your profit and loss (P&L) statement is that story. When interpreted with precision and granularity, the P&L reveals what’s really happening inside your business, where money is earned, how it’s spent, and how much is left over.
In a recent VetBooks webinar, The Power of the P&L: Unlocking the Financial Story of Your Practice, Martin Traub-Werner broke down what every practice owner should understand about the P&L and how to use it to make better business decisions.
The P&L: Your Business’s Story in Numbers
When done right, the P&L isn’t just an accounting document, it’s a roadmap to understanding your practice’s performance. Every line tells part of the story:
- Revenue: The money coming in.
- Cost of Goods Sold (COGS): What it costs to deliver those services or products.
- Operating Expenses (OPEX): The fixed costs that keep the doors open.
- Profit: What remains after everything else.
Each of these categories gives insight into how your business operates—and together, they reveal what’s driving success or holding you back.
Why Granularity Matters
Most veterinary leaders understand their revenue but not necessarily what drives it. That’s where detail makes the difference.
A granular P&L, built using the VMG/AAHA Chart of Accounts, can answer 90 to 95% of the questions you have about your business.
By breaking down revenue and expenses into precise categories (e.g., vaccines, dentistry, prescriptions, labs), you can see not just totals, but trends. This level of detail lets you understand what’s profitable, what’s underperforming, and what changes might improve your bottom line.=
“When done with granularity, the P&L becomes a nitty-gritty story of every major line item that generates revenue, every expense, and the profit that results.”
The Four Key Elements of the P&L
- Revenue: This is the money earned from services and product sales. A typical general practice might see revenue from exams, diagnostics, pharmacy sales, lab work, dentistry, and surgery. Each area contributes differently—and identifying your top earners helps guide focus.
- Cost of Goods Sold (COGS): These are the direct costs tied to what you sell—like lab fees, prescription products, vaccines, and medical supplies. Understanding COGS helps calculate gross margin (revenue minus COGS), which shows how much money is left to cover expenses and profit.
- Operating Expenses (OPEX): These include payroll, rent, utilities, marketing, and technology—costs that don’t fluctuate with patient volume. Analyzing OPEX helps reveal where efficiency can be gained or where strategic investments are paying off.
- Profit: Profit isn’t a four-letter word. It’s the lifeblood that lets a business grow, reinvest, and take care of its team.
“Working in a profitable business is way more fun than working in a non-profitable business. You can just do more stuff when there’s profit.”
The Rule of 20: Understanding Finiancial Balance
To simplify the complexity, consider a framework called The Rule of 20.
Think of every dollar earned as being divided into five equal parts—five 20% buckets:
- 20% → Cost of Goods Sold
- 20% → DVM Labor
- 20% → Other Labor
- 20% → Operating Expenses
- 20% → Profit
This balanced model is aspirational but practical. If labor costs rise above 40%, that money must come from somewhere—COGS, OPEX, or profit. The key is knowing which levers you can adjust and what trade-offs you’re making.
Using the P&L to Spot Trends and Make Decisions
Your P&L should do more than report—it should inform. Tracking month-to-month and year-over-year trends shows whether revenue, costs, or profits are moving in the right direction.
For example:
- If revenue is up and COGS are steady, your gross margin is improving.
- If OPEX rises, ask why? A new hire or equipment upgrade might explain it, and if it’s a strategic decision, that’s okay.
- Always know the why behind the numbers.
The P&L also helps identify where to focus your energy. If lab revenue represents 20% of your total income, improving efficiency or pricing in that area will have a greater impact than tweaking a smaller revenue stream like anesthesia fees.
Discounts, Ratios, and Intellectual Honesty
Discounts may be well-intentioned, but they should never be invisible. Practices should itemize all discounts in their PIMS and P&L to understand their true impact.
“You can discount as much as you like, but you must have the intellectual honesty to count how many dollars you’re giving away.”
If you’re operating at an 8% profit margin but giving away 2% of revenue in discounts, you could improve your profitability by 25% simply by tightening discount policies.
Profit Is Not Cash Flow
Remember, profit and cash flow are not the same.
Cash flow considers balance sheet changes, inventory shifts, and one-time items, like tax refunds or large purchases, that don’t appear directly on the P&L. Still, the P&L is where you have the most control over performance through revenue growth and expense management.
Turning Curiosity Into Clarity
Ultimately, the P&L is a tool for curiosity, one that helps you ask better questions about your business.
When you analyze it regularly, you can make decisions with confidence, identify areas of improvement, and ensure your practice is positioned for sustainable success.
“Financial analysis is where storytelling happens. Clean, reliable data allows you to satisfy your natural curiosity about what’s happening in your business.”
Ready to Unlock the Power of Your P&L?
The P&L isn’t just a report, it’s your practice’s story. With the right tools and expert veterinary bookkeeping support, you can use it to make data-driven decisions that improve profitability and peace of mind.
Let VetBooks help you uncover the story behind your numbers.