The difference between a dentist who gets 60% of collections and one who gets 85% can be $500K+ on the same practice. Here's what separates them.
The process of determining the fair market value of a dental practice, typically calculated as a percentage of annual collections (60-85%) plus the fair market value of equipment and inventory. Unlike most businesses valued on earnings multiples, dental practices are primarily valued on collections because buyers can project their own profitability based on production capacity and overhead structure.
Collections-Based Valuation
Practice Value = (Annual Collections × Multiple) + Equipment FMV + Inventory
High Medicaid, declining patient base, owner-dependent
Solid fundamentals, typical GP practice
Strong hygiene, growth trend, transferable systems
| Component | Low (60%) | Average (72%) | Premium (85%) |
|---|---|---|---|
| Collections Value | $720,000 | $864,000 | $1,020,000 |
| Equipment FMV | $80,000 | $100,000 | $150,000 |
| Inventory | $15,000 | $15,000 | $15,000 |
| Total Value | $815,000 | $979,000 | $1,185,000 |
$370,000 difference between low and premium valuation on the same collections.
Collections vs. Production
A practice producing $1.5M but collecting $1.2M is worth less than a practice producing $1.3M and collecting $1.25M. The collection rate tells buyers about payer mix, fee schedule, and AR management.
What Moves Your Multiple
Practices with 30%+ of revenue from hygiene command premium multiples because hygiene revenue is:
"Active patients" = seen within 18 months. Quality metrics that matter:
| Metric | Below Average | Average | Premium |
|---|---|---|---|
| Production per Active Patient | <$400 | $400-600 | >$600 |
| New Patients/Month | <15 | 15-30 | >30 |
| Recall/Reactivation Rate | <70% | 70-85% | >85% |
Counter-intuitively, practices with below-UCR fees can command higher multiples:
Why Below-UCR = Value: If your fees are 20% below area UCR, a buyer sees immediate upside. Raising fees to market rate increases collections without adding patients. This "embedded growth" justifies a premium multiple because the buyer's first move creates instant ROI.
Your payer mix directly affects collections and multiple:
Red Flags That Lower Your Multiple
If patients come for YOU specifically, they may leave when you do. Practices with associates producing 30%+ of revenue show the practice has value independent of the owner.
Buyers deduct necessary equipment upgrades from purchase price. 15-year-old chairs, no digital radiography, or dying compressors = direct reductions. Get equipment appraised before listing.
Dental practice value is location-dependent. Short leases create risk the landlord won't renew or will increase rent. SBA lenders typically require 10+ years of lease remaining or option to renew.
Shrinking active patient count signals the practice is dying. Buyers want stable or growing practices. Document why patients left (moved, aged out, insurance change) vs. dissatisfaction.
Specialty Practice Multiples
| Specialty | Typical Multiple | Key Value Drivers |
|---|---|---|
| General Dentistry | 60-75% collections | Hygiene revenue, recall rate, new patient flow |
| Orthodontics | 80-100% collections | Contracts in progress, referral relationships, Invisalign tier |
| Oral Surgery | 75-90% collections | Referral network, hospital privileges, implant volume |
| Periodontics | 70-85% collections | Implant production, perio maintenance program |
| Endodontics | 65-80% collections | Referral base, microscope/CBCT technology |
| Pediatric | 70-85% collections | Medicaid capability, sedation services, parent loyalty |
What DSOs Actually Pay
Unlike individual buyers using collections multiples, DSOs value practices on EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization).
DSO Value = EBITDA × 5-8× (depending on size)
Why EBITDA? DSOs have centralized overhead (billing, HR, marketing) so they look at profit, not just collections.
Important: DSO deals are complex. The "multiple" headline number often includes earnouts, equity, and employment compensation. Get M&A counsel to compare apples-to-apples with individual buyer offers.
Valuation Documentation Checklist
Online calculators give you a range. We provide a defensible valuation backed by comparable sales data and decades of dental practice transactions.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com