Understanding EBITDA in Dental Practice Sales and Acquisitions
- chuck7298
- Jul 10
- 4 min read
When a dentist considers selling a practice or acquiring a new one, one financial term often takes center stage: EBITDA. This acronym—short for Earnings Before Interest, Taxes, Depreciation, and Amortization—is a key performance metric that can significantly influence a practice’s valuation and final sale price.
In this article, we’ll break down what EBITDA is, why it matters in the dental industry, how to calculate it, and how it can be used strategically during a sale or acquisition.
What Is EBITDA?
EBITDA is a financial metric that evaluates a business’s operational profitability by removing the effects of financing decisions (interest), government obligations (taxes), and non-cash expenses (depreciation and amortization).
Formula:
EBITDA=Net Income+Interest+Taxes+Depreciation+Amortization
This formula gives buyers and sellers a clear view of how profitable a dental practice is purely based on its operations—excluding factors that might vary based on ownership or accounting practices.
Why Is EBITDA Important in Dental Practice Transactions?
Dental practices are attractive acquisition targets due to consistent cash flows and recession-resistant demand. But determining what a practice is truly worth requires more than simply looking at revenue. That’s where EBITDA comes in.
Key Roles of EBITDA:
Standardizes Valuation Across Practices:
Because interest, taxes, and depreciation vary widely, EBITDA levels the playing field so two practices with different financial structures can be compared apples-to-apples.
Focuses on Operational Profitability:
It tells a potential buyer how much the practice earns from its actual operations, regardless of how it’s financed or taxed.
Forms the Basis of the Valuation Multiple:
Most dental practice valuations use an EBITDA multiple, typically ranging from 4× to 8×, depending on factors like location, specialty, payer mix, and profitability.
Calculating EBITDA for a Dental Practice
To determine EBITDA for dental practice transitions, start with the practice’s net income, then add back the following:
Interest Expenses: May vary depending on how much debt the practice carries.
Taxes: Local, state, and federal taxes paid.
Depreciation: Equipment and facility wear-and-tear.
Amortization: Accounting write-downs of intangible assets like goodwill.
Example Calculation:
Let’s say Dr. Smith’s dental practice shows:
Net Income: $250,000
Interest Expense: $15,000
Taxes Paid: $60,000
Depreciation: $25,000
Amortization: $10,000
EBITDA=250,000+15,000+60,000+25,000+10,000=$360,000EBITDA=250,000+15,000+60,000+25,000+10,000=$360,000
This $360,000 becomes the anchor point for valuing the practice.
EBITDA Multiples: What Affects the Final Price?
EBITDA alone doesn’t tell the whole story. The multiple applied to EBITDA varies based on several risk and performance indicators.
Factors That Increase EBITDA Multiples:
Strong hygiene program and recall base
High patient retention and low churn
Favorable location with growth potential
Updated technology and modern equipment
Consistent cash flow with low overhead
Minimal reliance on Medicaid or PPOs
Factors That Decrease EBITDA Multiples:
Owner-dentist dependent (no associate in place)
Outdated technology or deferred maintenance
Declining patient base or poor online reviews
High staff turnover
Heavy debt or inefficient operations
EBITDA Multiple Ranges:
Practice Type | Typical EBITDA Multiple |
Solo GP (Rural) | 2.5x – 4x |
Urban/Suburban GP | 4x – 6x |
Multi-location Group | 6x – 8x |
Specialty Practice (Ortho, Endo) | 5x – 8x |
EBITDA in the Sale of a Dental Practice
If you're a dentist planning to sell your practice, maximizing your EBITDA should be a top priority 12–24 months before a sale.
Seller Tips:
Clean Up Financials: Eliminate personal expenses run through the practice.
Boost Collections: Focus on increasing production and reducing uncollected receivables.
Streamline Costs: Reduce unnecessary overhead (e.g., unused software, inefficient staff scheduling).
Add an Associate: Having an associate in place makes transitions easier and improves your multiple.
Normalize EBITDA: Adjust for one-time, non-recurring, or discretionary expenses to show "true" profit potential.
⚠️ Pro tip: Work with a dental CPA or broker to prepare a detailed “EBITDA normalization” report to justify adjustments during negotiations.
EBITDA in the Acquisition of a Dental Practice
As a buyer, EBITDA helps you understand the earning power of the practice after you take over.
Buyer Tips:
Validate Adjustments: Ensure that add-backs claimed by the seller are legitimate and not inflated.
Evaluate Owner Compensation: If the seller’s salary is low, you’ll need to account for paying yourself or hiring an associate.
Understand Patient Mix: Does the EBITDA come from a stable base, or are there looming risks (e.g., expiring insurance contracts)?
Forecast Debt Service: Make sure EBITDA can comfortably cover loan payments with a cushion.
Case Study: Two Practices, Same Revenue, Different EBITDA
Category | Practice A (Lower EBITDA) | Practice B (Higher EBITDA) |
Annual Revenue | $1.2 million | $1.2 million |
EBITDA | $300,000 | $500,000 |
EBITDA Multiple (5x) | $1.5 million (estimated value) | $2.5 million (estimated value) |
Doctor Compensation | $250,000 | $250,000 |
Hygiene Production | 20% of total revenue | 35% of total revenue |
Overhead | 65% | 50% |
Staff Salaries | High – inefficient scheduling | Optimized team and scheduling |
Insurance Participation | Heavy PPO, low reimbursement rates | Balanced PPO/FFS with better margins |
Facility | Outdated equipment, no tech upgrades | Modern equipment, digital systems |
Collections | 91% of production collected | 99% of production collected |
Owner Dependency | 100% doctor-dependent | Associate in place |
Marketing/Online Presence | Minimal or outdated | Strong online reviews and active SEO |
Key Factors That Strengthen Practice B’s EBITDA:
Lower Overhead: Efficient staffing, better vendor contracts
Higher Hygiene Contribution: Drives recurring revenue and boosts margins
Technology Investment: Increases efficiency and case acceptance
Better Payer Mix: Less dependence on low-fee PPOs
Collections Discipline: Fewer write-offs and AR issues
Team Leverage: Associate allows for scalability and transition flexibility
Even with the same revenue, Practice B is worth $1 million more due to its stronger EBITDA.
Conclusion: EBITDA as a Strategic Tool for Dentists
Whether you’re preparing to exit your practice or evaluating your first acquisition, EBITDA should be at the center of your financial strategy. It’s not just a number—it reflects the operational health, efficiency, and future profitability of a dental business.
Take the time to understand, analyze, and optimize EBITDA. Work with financial advisors who understand the dental industry. Doing so can mean the difference between an average deal and a life-changing one.
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