Every dental practice valuation conversation eventually lands on a single sentence: "Practices sell for about 70% of collections." It is a useful anchor and a dangerous shortcut. Two practices collecting $1.2 million can be worth wildly different amounts, because one keeps $500,000 of that before the doctor is paid and the other keeps $300,000. And the same practice can draw offers that differ by hundreds of thousands of dollars depending on whether the buyer is a young dentist with an SBA loan or a dental support organization paying a multiple of earnings.
This post explains the methods behind the numbers, runs a full hypothetical valuation both ways, and lays out what actually moves price. If you are earlier in the process, our acquisition guide covers finding a practice, diligence, and financing at a higher level. This is the deeper dive on price.
Key takeaways
- General practices in private sales are commonly described as trading somewhere around 60% to 80% of trailing annual collections, with figures near 70% often quoted as a rough midpoint. That is a market convention, not a law, and it hides most of what matters.
- The real driver of value is normalized cash flow: what the practice earns after market-rate expenses, before the owner is paid.
- Private buyers are constrained by what their loan payment and living costs allow. DSOs price on a multiple of adjusted EBITDA after paying a replacement dentist a market wage.
- Owner-dependent, single-doctor practices often look better to private buyers. Efficient multi-doctor practices with associates in place often look better to DSOs.
- In DSO deals, the headline number is not the cash number. Rollover equity, earnouts, and multi-year employment terms change what the seller actually receives.
The three numbers every valuation starts from
Before any method is applied, an appraiser or buyer builds three figures from at least three years of financials and practice management reports.
| Number | What it is | Why it matters |
|---|---|---|
| Trailing collections | Money actually collected over the last twelve months or last full year (not production) | The base for the percentage-of-collections shortcut; easy to compare across practices |
| Normalized pre-doctor cash flow | Collections minus operating overhead at market rates, before any dentist compensation, debt service, depreciation, or personal expenses | What a buyer who does all the dentistry can use to pay debt and themselves |
| Adjusted EBITDA | Pre-doctor cash flow minus a market-rate wage for the dentistry the owner currently performs | What an investor-owner earns after paying someone else to do the clinical work; the basis for DSO multiples |
The gap between the second and third numbers is the entire story of why private and corporate buyers disagree. A private buyer is buying a job plus a business. An investor is buying only the business, and has to hire the job.
Percentage of collections: the shortcut and its limits
The percentage-of-collections method takes trailing collections and multiplies by a factor that brokers derive from comparable sales. For general practices, figures in the range of roughly 60% to 80% are commonly cited, with specialty practices varying by specialty and market. Brokers who publish their own data tend to show a central tendency near 70% for general dentistry, while noting that location, payer mix, and profitability move it substantially.
The method persists because it is simple, it roughly tracks what private buyers can finance, and dental lenders are comfortable with it. Its weakness is that it ignores cost structure entirely. Consider two hypothetical practices, each collecting $1,000,000:
| Hypothetical practice | Normalized overhead | Pre-doctor cash flow | Value at 70% of collections | Price as a multiple of cash flow |
|---|---|---|---|---|
| Practice A | 55% | $450,000 | $700,000 | 1.6x |
| Practice B | 72% | $280,000 | $700,000 | 2.5x |
Same headline price, very different deals. The buyer of Practice B is paying far more per dollar of cash flow and will have much less left after the loan payment. A good appraisal adjusts the percentage for exactly this, which is why a formal valuation report usually blends several methods rather than applying one factor.
How formal appraisals actually work
A practice appraiser (often a broker's valuation team or an independent valuation firm) typically considers some combination of three approaches:
- Income approach. Estimates future cash flow and converts it to a present value, either by capitalizing a single normalized year of earnings or by discounting several projected years. The capitalization or discount rate reflects risk: an owner-dependent practice in a declining area gets a higher rate and therefore a lower value.
- Market approach. Compares the practice to sales of similar practices, which is where percentage-of-collections and multiple-of-earnings figures come from.
- Asset approach. Values the tangible assets (equipment, supplies, leasehold improvements) and treats the rest of the price as goodwill. Rarely the main method for a healthy practice, but it sets a floor and matters for the tax allocation.
Ask any appraiser which approaches they weighted and why. A report that simply applies a collections percentage without normalizing the P&L is a broker opinion, not an appraisal.
Normalizing earnings: the add-backs that make or break price
Normalization converts the seller's P&L (built to minimize taxes) into the P&L a new owner would actually experience. Common adjustments include:
| Adjustment | Direction | What to verify |
|---|---|---|
| Owner salary, draws, and owner retirement contributions | Add back | Payroll records and retirement plan statements |
| Depreciation, amortization, and interest | Add back | Tax returns and loan statements |
| Personal expenses run through the practice (vehicles, family phones, travel) | Add back | General ledger detail, not just the seller's list |
| Related-party rent above or below market | Adjust to market | A current market rent estimate for comparable space |
| Family members on payroll who do little work | Add back, but replace if the role is real | Who actually does the job after closing |
| Deferred equipment replacement | Subtract (or reduce price) | Technician assessment of major equipment |
| Below-market staff wages that will need to rise | Subtract | Local wage data and staff tenure |
Buyers should check every add-back against source documents. Our overhead benchmarks post walks through the same normalization process from the owner's side, and it is worth reading before you look at a seller's adjusted numbers. Unusually low overhead is a flag, not a feature, until you know why.
Watch the year before sale. A sharp jump in production in the final year can mean aggressive diagnosis to inflate the number, or deferred maintenance and suppressed spending to flatter the P&L. Value on a multi-year view, and ask why any year stands out.
Worked valuation: one practice, two buyers (hypothetical)
Hypothetical example. A single-doctor general practice with five operatories and three hygiene days a week. The owner does all the dentistry. All figures are made up for illustration.
| Item | Amount |
|---|---|
| Trailing twelve-month collections | $1,200,000 |
| Normalized operating overhead (60%, excluding all doctor pay) | $720,000 |
| Normalized pre-doctor cash flow | $480,000 |
View 1: a private buyer
The broker lists the practice at 70% of collections, or $840,000. The buyer's question is not "is 70% fair?" but "can I pay this loan and live?"
Suppose the buyer borrows $900,000 (purchase price plus some working capital) over 10 years. At a hypothetical 8% interest rate, the payment is about $10,900 a month, or roughly $131,000 a year. (Rates and terms change; run your own numbers in our practice loan calculator.)
| Private buyer view | Amount |
|---|---|
| Pre-doctor cash flow | $480,000 |
| Annual debt service (hypothetical) | ($131,000) |
| Left for the buyer's pay, taxes, and reserves | $349,000 |
That is a workable deal if collections hold. The buyer also has to stress-test it: what if 10% of patients leave during transition and collections fall to $1,080,000? With most overhead fixed in the short run, pre-doctor cash flow might drop by far more than 10%. A buyer who can still cover the loan and a modest salary in that scenario is buying with a margin of safety.
View 2: a DSO
The DSO has to pay a dentist to do the dentistry the owner does today. Assume the buyer normalizes doctor compensation at 30% of collections (a rough assumption for this example; the actual rate used is market-dependent and negotiable).
| DSO view | Amount |
|---|---|
| Pre-doctor cash flow | $480,000 |
| Market-rate dentist compensation (30% of $1.2M) | ($360,000) |
| Adjusted EBITDA | $120,000 |
| Value at a hypothetical 6x multiple | $720,000 |
Here the private buyer's price is higher. That surprises sellers who assume corporate buyers always pay more. For a small, owner-dependent practice, a 6x multiple applied to a thin EBITDA can land below a percentage-of-collections price.
Now change the practice
Hypothetical example, continued. Take a two-doctor practice collecting $2,400,000 with tight cost control (52% normalized overhead) and an associate already in place.
| Item | Amount |
|---|---|
| Pre-doctor cash flow (48% of $2.4M) | $1,152,000 |
| Market-rate dentist compensation (30% of $2.4M) | ($720,000) |
| Adjusted EBITDA | $432,000 |
| Value at a hypothetical 7x multiple | About $3,020,000 (roughly 126% of collections) |
| Value at 70% of collections | $1,680,000 |
Now the EBITDA view is far higher. This is the core pattern: EBITDA-based pricing rewards scale and efficiency heavily, while percentage-of-collections pricing treats every dollar of collections the same. A few points of overhead, or an associate who is already producing, can swing the EBITDA value dramatically.
Sensitivity check. In the second example, if the buyer normalized doctor pay at 33% instead of 30%, adjusted EBITDA falls by $72,000, and at 7x the price drops by about $504,000. When you get a DSO offer, ask exactly what doctor compensation rate and what add-backs they used. Small assumptions move large numbers.
What DSOs and private buyers actually pay for
Beyond the method, the two buyer types structure deals differently. Transaction advisors describe DSO deals for single practices and small groups with multiples in roughly the mid single digits of adjusted EBITDA, rising for larger multi-location groups, and larger platform deals higher still. Treat those as rough, reported ranges that shift with interest rates and investor appetite.
| Typical private buyer | Typical DSO | |
|---|---|---|
| Pricing basis | Percentage of collections, tested against loan affordability | Multiple of adjusted EBITDA |
| How the seller is paid | Mostly cash at closing from the buyer's lender; sometimes a seller note | Cash at close plus, often, rollover equity in the DSO and sometimes an earnout |
| Seller's role after closing | A negotiated transition period, often weeks to months | Often a multi-year employment commitment; some advisors report five-year terms becoming common |
| What the buyer values most | Patient base, hygiene program, staff continuity, lease | EBITDA, scale, associate capacity, growth potential |
| Owner-dependence | Tolerated if the transition is well planned | Penalized; doctor retention risk reduces the multiple |
| Culture and autonomy after sale | Up to the new owner | Set by the DSO's systems and policies |
Reading a DSO offer
A DSO letter of intent might say "$3 million." Break it into parts before comparing it to anything:
- Cash at close. The amount you receive at closing. In larger transactions, advisors report this is often well below 100% of headline value, with the rest in equity or contingent payments.
- Rollover equity. Ownership in the DSO or its holding company. It can be valuable if the DSO is later sold at a higher value, and it can be worth much less if it is not. You usually cannot sell it on your own timetable.
- Earnout. Additional payments tied to future performance, often production or EBITDA targets. Read the targets, the measurement period, and what happens if the DSO changes staffing or fees in ways that affect your numbers.
- Your employment agreement. Compensation, term, non-compete, and termination terms. Your post-sale pay is part of the deal's value. Our post on non-compete agreements for dentists covers how those restrictions work.
For a broader comparison of working inside a DSO versus private practice, see DSO vs. private practice.
What moves price up or down
| Pushes value up | Pushes value down |
|---|---|
| Three or more years of stable or growing collections | Declining collections, or one unusual spike year |
| Normalized overhead in or below the typical range | High overhead with no clear fix |
| Strong hygiene program and high reappointment rate | Weak recall, shrinking active patient base |
| Diversified payer mix, or a successful fee-for-service base | Heavy dependence on one PPO or on low-fee plans |
| Associates or staff likely to stay through transition | Revenue tied to the seller personally |
| Long, assignable lease with renewal options | Short lease, no assignment rights, landlord problems |
| Well-maintained equipment and current software | Deferred capital needs the buyer will fund |
| Room to grow (open operatories, unscheduled treatment) | Fully maxed space with no expansion path |
Several of these are within an owner's control two or three years before a sale. Improving hygiene reappointment, cleaning up the books, securing a lease extension with assignment rights, and reducing personal dependence can all move price. Our guide to dental practice KPIs covers how to measure the operating numbers buyers will examine.
Price allocation, taxes, and the parts of the deal that are not price
How the purchase price is allocated among equipment, supplies, goodwill (practice goodwill and personal goodwill where applicable), and a non-compete affects both parties' taxes. Buyers and sellers generally report the allocation to the IRS for asset purchases, and their interests often conflict: sellers prefer allocations taxed at capital gains rates, buyers prefer allocations they can depreciate or deduct faster. Settle the allocation in the purchase agreement with both CPAs involved, not after closing.
Other terms carry real economic value too: whether the seller keeps accounts receivable (common in private deals), how the transition period is structured and paid, who pays for work the seller did that needs to be redone, and how the lease is assigned. None of these show up in "70% of collections," and all of them affect what the deal is worth to each side.
Before you accept (or offer) a price
- Get three years of P&Ls, tax returns, and production and collections reports by provider
- Normalize the P&L yourself and compare to the seller's adjusted figures
- Calculate the price as a multiple of pre-doctor cash flow, not just as a percentage of collections
- Run loan affordability at your expected rate, including a 10% collections drop scenario
- For DSO offers, separate cash at close, rollover equity, earnout, and employment terms
- Ask what doctor compensation rate and add-backs the buyer used
- Confirm the lease is assignable and has enough remaining term
- Agree on price allocation with your CPA before signing
- Have a dental-specific attorney review the letter of intent and purchase agreement
The practical bottom line
A percentage of collections tells you the neighborhood. Normalized cash flow tells you the house. Whether you are buying or selling, rebuild the P&L, understand which buyer type the practice suits, and test the price against the cash flow that will actually be available to pay for it. Valuation and deal structure have significant legal and tax consequences, so confirm your analysis with a dental-specific CPA, attorney, and lender before you sign a letter of intent.
Next, read startup vs. acquisition if you are still deciding which path to take, and how to price equipment when selling a practice for the asset side of the deal. The practice acquisition loan calculator will show you what a given price means for your monthly payment.
Educational content only. It is not legal, financial, tax, or clinical advice. Prices and ranges are approximate and vary by region, condition, and year. Verify current rules with your state dental board and qualified professionals. ChairsideSource is not affiliated with any manufacturer, the ADA, or the DAT.