Dental practice valuation calculator
https://2147finance.com/dental-practice-valuation-calculator/
Method version valuation-1.0.0.
These figures are your own entered assumptions. They are not a lender offer, an approval, an appraisal, or a prediction of results.
Testing what a practice might be worth
Dental practice valuation calculator
What does this practice earn once owner pay is normalized, and what do multiples imply?
Hypothetical example Every figure here is an example you can edit. None of it is a lender offer, a market average or a customer result.
Live calculation needs JavaScript. The worked example below, the method and every explanation are part of this page and remain readable without it.
Earnings bridge, step by step
| Step | Effect | Amount | Running earnings | Why this step exists |
|---|---|---|---|---|
| Reported EBITDA | Starting point | $200,000 | $200,000 | Earnings before interest, income taxes, depreciation and amortization, as reported, after the owner pay already expensed in those accounts. |
| Add back owner compensation expensed in EBITDA | Add | $220,000 | $420,000 | Removed so the practice can be measured before any particular owner pay arrangement. Distributions are not an expense and are not added back. |
| Subtract market replacement cost for owner work | Subtract | $200,000 | $220,000 | Your own assumption for what it would cost to hire the clinical and management work the owners perform, including employer costs. |
| Add back specified non-recurring expenses | Add | $20,000 | $240,000 | Only genuinely non-recurring items you can identify. A recurring necessary expense does not become an add-back because a buyer would prefer not to pay it. |
| Subtract non-recurring income | Subtract | $10,000 | $230,000 | Income inside reported EBITDA that will not repeat. |
| Normalized operating earnings | $230,000 | Applied to the earnings multiples below. |
| Approach | Low | Middle | High |
|---|---|---|---|
| Earnings multiple (3.00x / 4.00x / 5.00x) | $690,000 | $920,000 | $1,150,000 |
| Percentage of collections (0.60x / 0.80x / 1.00x) | $720,000 | $960,000 | $1,200,000 |
- Earnings multiple approach
- Percentage of collections approach
Show the scenario values as a table
| Scenario | Earnings approach | Collections approach |
|---|---|---|
| Low | $690,000 | $720,000 |
| Middle | $920,000 | $960,000 |
| High | $1,150,000 | $1,200,000 |
| Earnings multiple | Indicated value |
|---|---|
| 3.00x | $690,000 |
| 3.50x | $805,000 |
| 4.00x | $920,000 |
| 4.50x | $1,035,000 |
| 5.00x | $1,150,000 |
How the assumptions drive the range
- Owner compensation add-back and replacement cost are two separate assumptions. The add-back removes the owner pay that is already in the accounts; the replacement cost puts back what hiring that work would cost. Changing the second changes earnings dollar for dollar.
- A collections multiple ignores profitability entirely. Two practices with identical collections and very different overhead get the same number from that approach, which is exactly why both approaches are shown.
- This is a range of modeled outcomes from the assumptions you entered. It is not an appraisal, a broker opinion of value, a fairness opinion or a lender valuation, and no part of it is a market benchmark.
- A transaction price depends on the asset or entity structure, the patient and payer mix, hygiene and provider capacity, lease terms, equipment condition, transition and non-compete terms, and what a lender will actually underwrite. None of that is modeled here.
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Qualitative factors to investigate
Tick anything that applies to see the specific question to ask. Nothing on this checklist changes a number above. There is no score, no automatic premium and no automatic discount: these factors change what you need to find out and how you would structure a purchase, and a buyer and seller can look at the same factor and reasonably reach different conclusions.
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How much production is the selling doctor personally responsible for, which procedures would leave with them, and what would it cost to replace that production in associate compensation or referred-out work? Ask for production by provider for at least three years.
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What share of collections comes from hygiene, how many hygiene days are scheduled, and what is the recall reappointment rate? A thin hygiene base makes collections more dependent on the doctor and harder to hand over.
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What is the split between fee-for-service, in-network PPO, discount plans and public programs? Which plan agreements exist, at what fee schedules, and can they be assigned to a new owner at all?
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What share of new patients or of revenue comes from the largest single referral source, employer group or marketing channel? What happens to that source when ownership changes?
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What are monthly collections, new patient counts and active patient counts for the last 36 months? Is a decline the reason the practice is for sale, and is it something a buyer can actually reverse?
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What is the tenure, compensation and role of each team member, who has signalled they will not stay after a sale, and what would replacing them cost in this labour market?
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What is the age and condition of chairs, compressors, vacuum, sterilization, imaging and software? Which items need replacing in the first three years, and at what cost? That is separate from the value of the practice.
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How much term and how many renewal options remain, at what rent and escalation, and will the landlord consent to an assignment? Is relocation realistic if the lease cannot be kept?
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Are there accountant-prepared statements and tax returns that reconcile to the practice management software? Can each add-back be traced to a specific line in the accounts rather than described verbally?
How this calculator works
The bridge starts from reported EBITDA and makes only the adjustments you specify:
normalized_operating_earnings = reported_EBITDA
+ expensed_owner_compensation
- replacement_cost_for_owner_work
+ qualifying_nonrecurring_expenses
- nonrecurring_income
earnings_scenario_value = normalized_operating_earnings * selected_earnings_multiple
collections_scenario_value = annual_collections * selected_collections_multipleWhy each step exists
- Owner compensation is added back because it was expensed inside the reported EBITDA, and the next owner will not pay the current owner's salary.
- Replacement cost is then subtracted because someone still has to do the clinical and management work. Adding back owner pay without subtracting what the work costs to replace is the single most common way a practice looks more profitable than it is.
- Specified non-recurring items are removed in both directions, so a one-off cost does not depress earnings and a one-off gain does not inflate them.
What this tool does not do
- It does not add back interest, income taxes, depreciation or amortization. Starting from EBITDA, those are already excluded; adding them again double-counts.
- It does not average the earnings-based and collections-based ranges into a single figure. They are different methods answering different questions, and blending them produces a number that looks validated and is not.
- It does not mix these earnings multiples with seller's discretionary earnings (SDE) multiples. An SDE multiple applied to a normalized-earnings figure, or the reverse, produces a meaningless result. The earnings definition and the comparable-transaction definition must match.
- It does not add equipment or asset value on top of an earnings-based figure. An earnings approach already assumes the operating assets are in place. Adding them again needs a distinct, justified method.
- It does not tell you the correct multiple. A multiple you select is an assumption you are responsible for, not an estimate of what the market would pay.
When normalized earnings are zero or negative
A positive-multiple earnings approach is not informative when there are no normalized earnings to multiply: multiplying a negative number by a larger multiple simply produces a more negative number. The tool keeps the actual earnings figure visible and does not invent a positive valuation. A collections-based scenario will still produce a figure in that situation, and that figure ignores profitability entirely, which is exactly the reason not to rely on it alone.
What these scenarios are not
These are scenarios for an operating practice under assumptions you selected. They are not equity proceeds to a seller, not the value of real estate, not an allocation of purchase price across asset classes, and not net cash after debt payoff, working-capital adjustments, escrows or taxes. Cash, debt, receivables, asset inclusions and transaction structure all need separate treatment.
A professional appraisal can apply income, asset and market approaches, reconcile them, and defend the result. This tool implements a limited earnings approach and a limited collections rule of thumb for exploration. It is not a formal appraisal, not a verified market range, and not a prediction of a sale price.
Questions to ask before relying on any multiple
- Which earnings definition do the comparable transactions use, and does it match the figure being multiplied?
- Were the comparables the same size, in the same payer environment, and with the same owner-dependence profile?
- Does the multiple assume the seller stays on, and for how long?
- Does it assume the buyer works in the practice, and at what compensation?
- Is the property included, leased from the seller, or separate?
- Does each add-back trace to a specific line in accountant-prepared statements?