The Practice Buyer's Corner - Random Musings from the Buy-Side
The Practice Buyer's Corner - Random Musings from the Buy-Side
The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.
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seanepp
seanepp

Sausage Making 101

Sausage Making 101

5/13/2026 9:03:00 AM   |   Comments: 0   |   Views: 17

Valuation Metrics to Consider

Multiples

Revenue or Collections 

- As reported for tax purposes, does not capture any barter or “off the books” income
- Doctor-to-Doctor transactions have historically been in the range of 80-100% of revenue
- Group transactions typically exceed this range driven largely by multi-year work-back commitments from the sellers

Seller Discretionary Income (SDE)

- Represents total owner economics beyond practice overhead expenses
- Commonly used in doctor-to-doctor transactions as this number includes the free cash flow available to service acquisition-related debt
- Multiples usually range from 1.5x-2.0x; practices located in the most desirable communities often exceed this range

Earning Before, Interest, Taxes, Depreciation & Amortization (EBITDA) 

- Restates the income statement of any practice on a group-basis - i.e. net cash flow after paying the providers in the practice a market associate wage
- This is the most common metric used by group buyers
- This is also the most misunderstood/abused term in the industry
- Before applying any multiple, it is crucial to make sure the EBITDA is calculated appropriately
- Far beyond the veracity of any add-backs or adjustments is the overarching question - are these results sustainable over the long-haul? 
- What does the practice look like when we replace the selling doctor(s) with new associates?  
- Is it reasonable to assume they can replicate the outgoing doctors’ contribution?
- Many practices that look amazing based on initial summary financials tend to fall apart quickly when fundamentals are analyzed
- EBITDA multiples can and do vary widely, often for the same transaction depending on who is telling the story
- It is fair to say that healthy practices are still trading at or near their historical high water marks

Per Provider Metrics

- Production (UCR or adjusted) by hour, day, or other interval - how does that compare to your personal production or the average results in your group?
- Production per Active Patient - does the practice appear to be producing unusually high or low restorative care levels?  Are there any concerns that the Crown & Bridge opportunities in the patient base have been accelerated or strip-mined in advance of the sale?
- If either or both of these metrics are above the norm, it likely merits a deeper clinical dive to understand historical treatment planning and resultant patient base expectations
- Overall Mix of Services - are there any concentrations of services that are unlikely to be sustainable in the event of provider turnover - i.e. specialty services being delivered by GPs?

Zoom Out

- Today, the typical family practice generates ~$175K-200K of EBITDA per full-time GP; this figure used to be as high as $250K (Note:  these figures are for PPO-driven practices)
- Practices demonstrating results meaningfully above this range merit further review of the sustainability of those results over the long-term
- High-margin practices are usually only great opportunities for the current owners as their model and the related margins tend to fall apart upon transition because the practices were run overly lean

Good luck, have fun, don't die!

Be well,

Sean
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