Dental Practice Valuation

A valuation answers one question: what a buyer can reasonably pay for the practice's future cash flow and the assets that produce it. Most of the value in a general practice is usually goodwill, meaning the patients, the team, the reputation and the systems, rather than chairs and imaging. That is why the methods below lean on earnings, and why lenders look so hard at the numbers behind them. If you are earlier in the process, start with how to buy a dental practice, which puts the valuation in order with diligence, the letter of intent and financing.

Step one: normalize the seller's numbers

Tax returns are built to minimize tax, not to show what a new owner will earn. Every method below starts from normalized figures:

• Add back the owner's own salary and benefits, personal expenses run through the practice, one-off costs that will not recur, interest on the seller's debt, and depreciation.
• Charge a market cost for the clinical work the owner performs. A practice that only profits because the owner works for free in the chair is worth less than it looks.
• Adjust rent to market if the seller owns the building and charges themselves too little or too much.
• Reconcile collections to bank deposits and tax returns. Production is what was billed; collections are what arrived.

The SBA's acquisition guidance makes the same point for any small business: check existing cash flow and contracts, and get independent diligence (SBA: plan your business). The ADA's practice-sale checklist lists the records a buyer should expect, from financial statements and collections to active patients, payer mix and premises documents (ADA: what to do when selling a practice).

The three valuation methods

1. Percentage of collections

Value equals annual collections times a percentage. It is quick and easy to compare, which is why you will hear it most often. Its weakness is that it ignores profit: two practices with the same collections and very different overhead get the same answer. Use it as a sense check, not the conclusion.

2. Earnings multiple (SDE or EBITDA)

Value equals normalized earnings times a multiple. Seller's discretionary earnings (SDE) is profit before the owner's pay, interest, depreciation and personal expenses: what one owner-dentist takes home before debt. EBITDA, as normalized here, also deducts a market cost for the owner's clinical work, so it shows what the practice earns as a business. The multiple reflects risk: a practice with a stable team, a long lease and a broad patient base earns a higher one than a practice that depends on one dentist and one referral source. Because EBITDA is the smaller number, its multiple is higher; mixing the two is a common mistake.

3. Asset-based

Value equals the fair value of the tangible assets in the sale: equipment, technology, furniture, supplies and any receivables included. It usually sets a floor rather than the price, because it gives no credit for goodwill. It matters most for a practice with weak earnings, where the patients may not transfer, and for a lender deciding how much of the loan is backed by hard assets.

A worked example (illustrative)

Every figure below is a made-up assumption to show the arithmetic. The multiples and the percentage are chosen only to make the math visible. They are not market benchmarks, typical ranges or a valuation of any real practice.

A valuer reconciles these rather than averaging them blindly. Here the earnings methods agree, and the asset value shows that about three-quarters of the price would be goodwill. Assume the valuer concludes $770,000 and that is the agreed price.

How lenders use the valuation to size the loan

The valuation is not just a negotiating number. For an SBA 7(a) practice acquisition, the SOP 50 10 8.1 (Appendix 15) builds the loan around it:

• An independent valuation for the lender. It must come from an accredited Qualified Source (ASA, CBA, ABV, CVA or BCA), be requested by and prepared for the lender, and allocate value to land, building, equipment and intangibles. At a purchase price of $350,000 or less, the lender may value the practice itself unless buyer and seller are closely related.
• Debt capped at the valuation. Total acquisition debt, including seller debt that is not on full standby, cannot exceed the business valuation. Any price above it must be paid in equity.
• Equity of at least 10%. The minimum equity injection for an initial acquisition is 10% of the total project cost and cannot be waived.
• Debt service coverage of at least 1.25 to 1 for an initial acquisition, measured on the last fiscal year or the average of the last two.
• A quality of earnings report when the purchase price is $3 million or more, and the lender must use its adjusted earnings in the coverage test.
• A 10-year amortization for the business portion; only real estate in the deal can run up to 25 years, and it is appraised separately.

Continuing the illustrative example: a $770,000 price with 10% equity ($77,000) leaves a $693,000 loan. At an assumed fixed 9% over 10 years, that is about $8,779 a month, or about $105,300 a year. Against $130,000 of normalized EBITDA, coverage is about 1.23, short of 1.25. On these assumptions the loan would have to fall to about $684,000, with the buyer adding roughly $9,000 more equity or the seller agreeing a lower price or a note on full standby. The valuation caps the loan; cash flow can cap it further. Run your own figures in the dental practice loan calculator.

What moves the value up or down

• Dependence on the seller. Associates, systems and a planned transition period reduce the risk that patients leave with the selling dentist.
• Patient base. Active patients, new-patient flow and whether a few large cases drive collections.
• Payer mix. Fee-for-service, PPO and public plans convert production to cash at different rates and speeds.
• Lease. Remaining term, renewal options and whether the landlord will assign it.
• Equipment. Age and condition, and any capital spending a buyer will face soon after closing.
• Team. Tenure and the likelihood that key staff stay through the change of owner.

Once you have a supportable value, compare SBA, conventional and specialist routes on the dental practice loans page.

Sources for dental practice valuation

• SBA SOP 50 10 8.1 with technical updates (Word document) (SOP 50 10 8.1, effective 1 October 2026)
• SBA — Plan Your Business: Acquisition and Market Research
• ADA — What to Do When Selling a Practice

General information, not a valuation, appraisal, or legal, tax or financial advice. Ovesture does not value practices. All example figures are illustrative assumptions, not market benchmarks. SBA requirements are summarized from SOP 50 10 8.1 and may change; conventional lenders set their own policies. Get an independent valuation and advice on your specific deal.