Format of the Profit and Loss Statement for Service Related Businesses
Service related businesses require a different format than the traditional profit and loss statement AKA the income statement. The traditional profit and loss focuses on sales of products and a corresponding cost of goods sold section to help the reader evaluate the gross margin. But in service, the owner needs a profit and loss statement formatted to key in on overall productivity and costs of that productivity.
To get results that are usable to the reader, the profit and loss statement for a service related business should provide the following information:
Revenues related to professional services rendered
Revenues related to support staff
Revenues related to non-service items
Direct costs of professional services
Direct costs of support staff
Other direct costs
Fixed and Variable Personnel Related Costs
Overhead
Profit Before Taxes
A properly formatted profit and loss for a service related business helps the reader determine how much his professional staff contributes to the overall value of the business. In addition, it allows the reader to relate costs associated with the revenue generated by that respective cost. This format works well for the following service related industries:
Medical Offices
Nursing and Geriatric Care
Legal and Accounting
Consulting Firms
Technology Services
Cleaning/Maid Operations
Hair Salons/Barbers/Personal Hygiene Operations
Education Services
Engineering/Surveying/Architecture
Mental Health/Social Services/Child Care/Adult Care
The following sections describe each of the above elements and illustrate the profit and loss statement to that point in format.
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Professional Services Rendered (Revenue)
In general, the professional services rendered are those billings associated with the professional staff. Simply put, any licensed or key individual in your organization is considered the professional. In most service related operations, a separate software used to track time and billings calculates the total revenue earned by professional and support staff. Even average time billing software can break out the information into these two groups. You can even subdivide the professional services rendered into subgroups for each revenue line.
Support Staff Billings
It is not uncommon for support staff to earn revenue or generate billings for the service related company. The key is to identify and separate the staff into the two fundamental groups of either professional or support. Support staff includes office personnel, assistants, researchers and/or aids. Examples include non-licensed nursing staff, non-degreed assistants, employees in training; field workers and general staff members. Do not include your administrative staff in this section as they track the information for the organization as a whole and do not provide any direct or indirect services to clients.
Non-Service Fees
Any item not requiring human labor to execute and is billed to the client is included here. Examples include:
· Copying
· Fax
· Travel Costs
· Pass-Through Costs (room rentals, court fees, technology fees)
For the purpose of this article, the writer is using a medical practice (family practice) as the example to illustrate the proper format for the profit and loss statement. The revenue section of the profit and loss will look like this:
Sunville Medical Practice
Profit and Loss Statement
Period Ending October 31, 2019
Medical Billings:
Medical Practitioners $Z,ZZZ,ZZZ
Medical Support (LPN, Physical Therapist) ZZZ,ZZZ
Sub-Total Medical Billings $Z,ZZZ,ZZZ
Non-Medical Fees:
Weight Loss/Diabetic Program Subscriptions ZZ,ZZZ
Copy/Fax/Report Fees ZZZ
Sub-Total Non-Service Fees ZZ,ZZZ
Total All Billings/Fees $Z,ZZZ,ZZZ
Note how the revenue section is subdivided into the two major revenue generating departments, medical and non-medical. Each revenue generating department has sub-groups to clearly identify who earned fees for the service related operation.
A reader of this format wants to be able to separate the professional fees and its associated costs from the non-medical related revenue and its corresponding costs. The next major section is referred to as the Costs of Services Rendered. This section is divided into two subgroups, the first are those costs directly related to the billings and fees earned. The second section includes the indirect costs associated with earning the revenues. The sections below describe and an illustration of the formatted report is provided to aid the reader in understanding.
Direct Costs of Services Rendered
This section of the report includes those salaries and wages paid to the professional and support staff to provide the service to the patients. In addition, a line of information associated with the non-medical fees is included. Here any direct costs, such as materials, supplies, etc. are identified to aid the reader of the report. The following illustrates the direct costs section.
Direct Cost of Professional Services:
Professional Provider Salaries $ZZZ,ZZZ
Support Staff Salaries & Wages ZZZ,ZZZ
Sub-Total Direct Labor ZZZ,ZZZ
Medical Supplies (Pharmaceutical, kits, bandages) ZZ,ZZZ
Weight Loss/Diabetic Program Supplies ZZ,ZZZ
Sub-Total Supplies ZZZ,ZZZ
Total All Direct Costs of Services Rendered $ZZZ,ZZZ
Review and compare the direct costs line for line to the revenue section. There is an easy to identify process of comparing a line of revenue to the actual direct costs of that revenue. The only exception is the medicinal supplies cost. Here the reader has to infer that this cost is a function of total medical billings as the exemplified information of pharmaceutical, kits and bandages relate to medical billings and not the non-service fees function of revenue.
The second section of the total costs of services rendered is indirect costs. Indirect costs are those costs incurred to provide services and non-services to the patients but cannot be directly identified to any individual or are fixed in nature. Examples include payroll taxes, health and benefits for the staff, training, licensing and laboratory fees. The section below illustrates the indirect costs section of the costs of services rendered:
Indirect Cost of Professional Services
Payroll Taxes $ZZ,ZZZ
Medical Billing ZZ,ZZZ
Professional Liability Insurance ZZ,ZZZ
Gen Liability/Workmen’s Comp ZZ,ZZZ
Lab/Outside Services (Temp Staff) ZZ,ZZZ
Payroll Benefits ZZ,ZZZ
Retirement Matching Contributions ZZ,ZZZ
Training/Accreditation/Compliance Z,ZZZ
Medical Waste Removal Z,ZZZ
Total Indirect Cost of Professional Services $ZZZ,ZZZ
Let’s now take a look at the formatted profit and loss statement for a service related business at this point. Please see below:
Sunville Medical Practice
Profit and Loss Statement
Period Ending October 31, 2019
Medical Billings:
Medical Practitioners $Z,ZZZ,ZZZ
Medical Support (LPN, Physical Therapist) ZZZ,ZZZ
Sub-Total Medical Billings $Z,ZZZ,ZZZ
Non-Medical Fees:
Weight Loss/Diabetic Program Subscriptions ZZ,ZZZ
Copy/Fax/Report Fees ZZZ
Sub-Total Non-Service Fees ZZ,ZZZ
Total All Billings/Fees $Z,ZZZ,ZZZ
Direct Cost of Professional Services:
Professional Provider Salaries ZZZ,ZZZ
Support Staff Salaries & Wages ZZZ,ZZZ
Sub-Total Direct Labor ZZZ,ZZZ
Medical Supplies (Pharmaceutical, kits, bandages) ZZ,ZZZ
Weight Loss/Diabetic Program Supplies ZZ,ZZZ
Sub-Total Supplies ZZZ,ZZZ
Total All Direct Costs of Services Rendered ZZZ,ZZZ
Indirect Cost of Professional Services:
Payroll Taxes ZZZ,ZZZ
Medical Billing ZZ,ZZZ
Professional Liability Insurance ZZ,ZZZ
Gen Liability/Workmen’s Comp ZZ,ZZZ
Lab/Outside Services (Temp Staff) ZZ,ZZZ
Payroll Benefits ZZ,ZZZ
Retirement Matching Contributions ZZ,ZZZ
Training/Accreditation/Compliance Z,ZZZ
Medical Waste Removal Z,ZZZ
Total Indirect Cost of Professional Services ZZZ,ZZZ
Gross Profit $ZZZ,ZZZ
From this point, overhead costs are subtracted to calculate the net profit before taxes. Overhead costs include several groupings. They are as follows:
Occupancy – rent, utilities, cam fees, repairs and maintenance to the property
Communications – internet, phone system, cell phones and pagers
Office – office supplies, copier costs, charts, cleaning, reception area magazines, etc.
Marketing – advertising, marketing, information pamphlets, website cost
Professional Fees – legal, accounting, outside consultants
Taxes & Licenses – local revenue taxes, state incorporation fees, state licensure fees, personal property taxes
Other – any other costs not included above
Depreciation and Amortization – equipment depreciation and start-up amortization, goodwill amortization
With this information, the final formatted profit and loss statement will look like this:
Sunville Medical Practice
Profit and Loss Statement
Period Ending October 31, 2019
Medical Billings:
Medical Practitioners $Z,ZZZ,ZZZ
Medical Support (LPN, Physical Therapist) ZZZ,ZZZ
Sub-Total Medical Billings $Z,ZZZ,ZZZ
Non-Medical Fees:
Weight Loss/Diabetic Program Subscriptions ZZ,ZZZ
Copy/Fax/Report Fees ZZZ
Sub-Total Non-Service Fees ZZ,ZZZ
Total All Billings/Fees $Z,ZZZ,ZZZ
Direct Cost of Professional Services:
Professional Provider Salaries ZZZ,ZZZ
Support Staff Salaries & Wages ZZZ,ZZZ
Sub-Total Direct Labor ZZZ,ZZZ
Medical Supplies ZZ,ZZZ
Weight Loss/Diabetic Program Supplies ZZ,ZZZ
Sub-Total Supplies ZZZ,ZZZ
Total All Direct Costs of Services Rendered ZZZ,ZZZ
Indirect Cost of Professional Services:
Payroll Taxes ZZZ,ZZZ
Medical Billing ZZ,ZZZ
Professional Liability Insurance ZZ,ZZZ
Gen Liability/Workmen’s Comp Ins ZZ,ZZZ
Lab/Outside Services (Temp Staff) ZZ,ZZZ
Payroll Benefits ZZ,ZZZ
Retirement Matching Contributions ZZ,ZZZ
Training/Accreditation/Compliance Z,ZZZ
Medical Waste Removal Z,ZZZ
Total Indirect Cost of Professional Services ZZZ,ZZZ
Gross Profit ZZZ,ZZZ
General and Administrative (Overhead)
Occupancy ZZ,ZZZ
Communications ZZ,ZZZ
Office ZZ,ZZZ
Marketing & Advertising Z,ZZZ
Professional Fees Z,ZZZ
Taxes & Licenses Z,ZZZ
Other ZZZ
Depreciation & Amortization Z,ZZZ
Total G&A (Overhead) ZZZ,ZZZ
NET PROFIT $ZZ,ZZZ
From the above report the reader can evaluate the overall performance of the service related operation. The reader of this report can identify direct cost to the correlating revenue. Indirect costs can be evaluated against the overall revenue. Revenue is divided between medical and non-medical billings. Overhead is summarized for easy reading and understanding. The above example should be slightly modified to suit your service related company. It can be further refined to correlate with the business entity type too (partnership, corporation etc.). By having an easy to read and understandable formatted profit and loss, the reader of the report can quickly pinpoint any issues that may exist in the business operation. Act on Knowledge.