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Welcome to Dental Unscripted, a podcast brand that meets doctors wherever they are at in their professional journey. We talk about starting a practice, buying a practice, and running a practice. We cover a lot of ground on this channel!

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Dental Unscripted

Unlocking the "True Value" of Your Dental Practice

Determining the value of a dental practice is a complex journey that transcends simple math and EBITA percentages. Whether you are a first-time buyer or a seasoned owner preparing for retirement, understanding the nuances of valuation is critical for a successful transition.


Beyond the "Rule of Thumb"

A common industry myth suggests that dental practices should be valued based on a fixed percentage of gross collections, such as 95% or 100%. However, experts like Marie Chatterley of CTC Associates emphasize that this "rule of thumb" rarely tells the full story. Two practices can both collect $1 million, yet one might net $200,000 while the other nets $400,000. Consequently, these businesses should not command the same price. In many markets, a more accurate range for practice value is 150% to 200% of the adjusted net income (profit).

Key Drivers of Value

While profit is the primary contributing factor, several other elements influence where a practice falls within a valuation range:

                                        
• Operating Efficiency: Overhead costs, adjustments and "ad backs" during the due diligence process
                                        
• Production Mix: Buyers should analyze production by procedure code to ensure they can replicate the current owner’s work or identify opportunities to keep referred-out services in-house. 
                                        
• Patient Dynamics: Consider high new patient numbers (50+ per month) in an established office can actually be a red flag indicating high attrition. 

The Rise of Fee-for-Service

A significant trend in the Rocky Mountain region (as explained in by Marie in this episode) is the shift away from insurance participation. Many owners are transitioning to fee-for-service models due to rising supply and labor costs. This shift is driving practice values higher, as net incomes that once averaged $400,000 are now reaching $600,000 to $900,000. Contrary to old fears, buying a fee-for-service office is often less risky because patient loyalty in dentistry remains incredibly high.

Private Practice vs. DSOs

When selling, many owners wonder if a Dental Support Organization (DSO) will offer a higher payout. While a DSO might offer 100% of collections, these deals often include significant "strings," such as 40% of the price being withheld for performance bonuses or equity that requires the seller to work back for several years. In contrast, independent buyers often provide a high "cash at close" amount with fewer strings, allowing the seller to exit more quickly. Remarkably, nearly 95% of some brokers' clients still prefer selling to independent practitioners.

Conclusion

Preparation is the ultimate key to unlocking value. Sellers should ideally begin the process one to seven years before a transition to optimize their systems and financials. By focusing on profitability and clinical fit rather than just top-line revenue, both buyers and sellers can ensure a legacy of success.