The formulas everyone quotes
There are three ways a dental practice usually gets valued, and a listing will normally lean on whichever produces the friendliest number.
The first is a percentage of collections. A general practice commonly lands somewhere between 60 and 80 percent of the last twelve months of collections. It is quick, it is what most brokers reach for, and it is close to useless on its own because it says nothing about profitability.
The second is a multiple of earnings, usually adjusted EBITDA, typically in the region of three to six times. This is closer to how any other business is bought and sold, and it at least accounts for how much of the revenue actually reaches the owner.
The third is asset based, adding up equipment, leasehold improvements and goodwill. It matters most when a practice is struggling, because it sets a floor.
- Percentage of collections, commonly 60% to 80%
- Multiple of adjusted EBITDA, commonly 3x to 6x
- Asset value plus goodwill, which sets the floor
Why the same practice is worth different amounts to different buyers
A valuation is not a fact about a practice. It is a statement about what a particular buyer can do with it.
If seventy percent of production comes from procedures the selling dentist performs and you do not, that production is not transferring to you at full value no matter what the spreadsheet says. If the hygiene department is running at half the days it should, an experienced owner sees upside where a first-time buyer sees a problem. If the seller has been the reason patients come, the goodwill you are being asked to pay for is walking out with them.
This is the difference between a valuation and an evaluation, and it is the whole reason to have someone look at the operation rather than only the accounts.
The adjustments that change the number
Before any multiple is applied, the earnings have to be normalised. Sellers adjust in their favour and it is rarely dishonest, just optimistic. The car on the books, the family member on payroll, the personal expenses running through the practice, the one unusually good year being presented as typical.
Working the other way, there are costs the practice has been avoiding that you will not be able to. Equipment at the end of its life. Software nobody has updated. A team paid below market who will need bringing up. Deferred maintenance on the building. Each of those is a real number and each one should come off the price.
- Owner perks and personal expenses added back honestly
- One-off years separated from the actual trend
- Equipment nearing replacement, priced properly
- Staff pay that is below market and will have to rise
- Deferred maintenance nobody has budgeted for
What we do with a valuation
We are not appraisers and we do not issue formal valuation opinions. What we do is tell you whether the number in front of you is supported by the business underneath it.
That means going through the production reports rather than the summary, working out how much of the revenue depends on the person leaving, checking whether the patient base is actually active or has simply never been archived, and identifying the fixable inefficiencies that would change what the practice earns under you rather than under them.
Sometimes that conversation ends with us telling a client the asking price is fair and they should move. Sometimes it ends with a number they can defend in a negotiation. Occasionally it ends with us telling them to walk, which is the cheapest advice we ever give.
Questions we get asked
What is the rule of thumb for valuing a dental practice?
The most commonly quoted rule of thumb is 60 to 80 percent of the previous twelve months of collections. It is a starting point rather than an answer, because it ignores profitability, how much of the production depends on the selling dentist, and the condition of the equipment and the team.
What EBITDA multiple do dental practices sell for?
Independent general practices commonly trade in the region of three to six times adjusted EBITDA, with larger, better systemised practices at the higher end and small, doctor-dependent practices at the lower end. Group and DSO buyers will sometimes pay more, because they are buying scale rather than a job.
Do I need a formal valuation to buy a practice?
Your lender will usually require one. That formal valuation answers whether the bank is comfortable lending against the asset. It is a different question to whether the practice is a good business for you to own, which is the question we help you answer.