Professional Transition Strategies
Professional Transition Strategies
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Professional Transition Strategies

Unveiling the Truth Behind Dental Practice Sales: Beyond the Multiples Hype

2/22/2024 12:58:21 PM   |   Comments: 0   |   Views: 216
In this insightful blog, Professional Transitions Strategies delves into the complex world of dental practice sales, shedding light on a topic often glamorized: EBITDA multiples. These figures, often touted as the holy grail of a lucrative deal, may not carry as much weight as commonly believed.

Discussions among dentists exploring the sale of their practices often gravitate towards the topic of "multiples," especially when swapping stories about the successes achieved by colleagues. But what exactly are multiples? They're essentially a factor multiplied by a practice's EBITDA (earnings before interest, taxes, depreciation, and amortization) to ascertain the selling price. For instance, if a practice generates $2 million in revenue with a $600,000 EBITDA and receives a 6X offer, the resulting sale price would be $3.6 million.

However, the calculation isn't as straightforward as it seems. Many other factors come into play when evaluating EBITDA numbers. It's important to recognize that while people often boast about the multiples they've secured, these figures can be misleading, akin to golfers bragging about custom clubs that don't necessarily improve their game. Furthermore, there's a common tendency for individuals to exaggerate their multiples, so it's prudent to take such claims with a grain of salt.

Ultimately, the real value lies not just in flashy multiples but in aspects such as enterprise value (EV), which encompasses multiples, EBITDA, deal structure, and buyer type. Working with the wrong buyer can skew the equation; you might end up with a high multiple but a low EBITDA, reducing your enterprise value. This manipulation can be achieved by adjusting EBITDA figures to enhance apparent value, which may not truly reflect the practice's worth.

When presented with offers from investment groups, dental entrepreneurs should approach them with a critical eye, understanding that these groups may strategically adjust EBITDA to portray inflated value. Therefore, it's crucial to focus on the broader context rather than fixating solely on multiples.

When considering a practice sale, prioritizing safety (ensuring a substantial cash amount), equity (identifying investment growth potential), and future prospects (assessing rewards tied to practice expansion) is key. Deal structures vary, ranging from traditional DSO arrangements to equity roll arrangements, each offering different advantages based on individual goals and time frames.

Having a seasoned partner to optimize practice value and navigate the competitive landscape can be invaluable. Ultimately, the goal is to secure a deal that aligns with both structural and personal preferences. Therefore, it's essential to look beyond the allure of multiples and focus on finding the right fit.

To explore which deal structure best suits individual needs, consulting with experts such as Professional Transition Strategies is recommended. Making informed choices is paramount to securing a bright future for your dental practice.
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