Most practice owners hear about valuations long before they ever get one. A colleague sold for a number that sounded enormous. Someone at a study club mentions DSOs paying eight times earnings. A broker’s mailer promises top dollar. It’s natural to run the math on your own practice and land on a big number, and for most owners that number is higher than what the practice is worth right now.
Take a general practice collecting about $1.6 million a year. The owner takes home roughly $600,000 in salary, distributions and perks. He’s heard practices sell for about five times earnings, so he figures his is worth $3 million.
It’s a great number to think about. It’s also a number no buyer is going to pay.
The real math tells a different story. That $600,000 includes pay for the dentistry he does himself, and any buyer will have to pay a dentist to do that work. A reasonable compensation for it is about $220,000, and the real cost runs higher: add roughly $14,600 in employer FICA and a 3% retirement plan match of $6,600, and it’s about $241,000 a year. Take that out and the practice’s real EBITDA is closer to $360,000. At the multiples buyers actually pay, roughly 3.5 times from an individual dentist and 5.5 times from a DSO, that’s a value of about $1.26 million to $1.98 million, well short of the $3 million he had in mind.
EBITDA, as a buyer uses it, is the practice’s profit before interest, taxes, depreciation and amortization, after paying a fair market wage for the dentistry you do yourself.
If you’re thinking about selling in 2027 or a few years after, the gap between those two figures is the most important thing to understand about how your practice will be valued, whoever ends up buying it. And the buyer pool is changing: about one in six U.S. dentists was affiliated with a DSO in 2024, up from about one in fourteen in 2015, according to the ADA Health Policy Institute.
Most dentists hear about multiples first. The multiple matters, but it’s the second number in the equation.
The first is the earnings figure it gets multiplied against, and that’s where valuations go wrong. (The practice above is an illustrative example, not a specific client.)
What Are Dental Practice Valuation Multiples in 2027?
A valuation multiple is the number a buyer applies to your practice’s earnings to arrive at a price. Earnings times multiple equals value.
The whole conversation comes down to which earnings figure you use and which multiple the market supports for a practice like yours.
In our experience, a general practice sold to an individual dentist typically lands around 3.5 times recast EBITDA, and one sold to a DSO or other corporate buyer around 5.5 times. (Recast just means the books redone the way a buyer sees them: personal and one-time expenses taken out, and a market wage counted for the dentistry you do yourself.) Specialty practices and larger multi-doctor groups can command more, and the biggest DSO and private equity deals can reach 8 times or higher. Size moves the range: the larger and less owner-dependent the practice, the more buyers compete for it and the more room there is to recast the financials.
Those higher DSO multiples come with strings, though. Part of the price is usually paid in equity, and you’re typically asked to keep working for several years. We’ll come back to why that matters.
Industry rules of thumb are blunter. In a 2023 Dental Economics article, the valuation firm Windham Brannon compared 46 dental practice valuations it completed in 2019 against common shortcuts, including 0.6 to 0.8 times revenue and 3 to 4 times EBITDA. None of the 46 came in below 4 times EBITDA, and 41 came in above 0.8 times revenue. It’s one firm’s sample, but it’s a clear signal that shortcuts can undervalue a well-run practice.
Those ranges only mean something once you know what they’re multiplying. A dentist will usually see two different earnings figures quoted, and they aren’t interchangeable. Always ask which one a quote is built on.
SDE and EBITDA Measure Two Different Things
Seller’s discretionary earnings, or SDE, is the total cash benefit the practice produces for one full-time owner. It adds the owner’s own pay back into profit.
It answers the question: what does this practice put in my pocket if I own it and work in it?
EBITDA is the practice’s operating profit before financing costs and non-cash accounting charges. It assumes the owner is paid a fair market wage for the clinical work, the same as an associate would be. What’s left is the profit a buyer earns for owning the practice, separate from doing the dentistry.
Because SDE includes the owner’s pay, it’s always the bigger figure. That’s why SDE multiples run far lower than EBITDA multiples. Applied correctly, the two methods should land in a similar place. Trouble starts when someone takes an SDE-sized earnings figure and puts an EBITDA-sized multiple on it. The result can overstate a practice by 50% to more than double, which is exactly the mistake in the example above.
You’ll sometimes see the two labels used loosely, so always ask which one a quote is built on. Our guide to dental practice valuation walks through the recast step by step.
A private buyer, often another dentist who plans to work in the practice, tends to think in SDE terms: after the practice loan is paid, what will this practice pay me for owning it and doing the dentistry?
A DSO or private equity group thinks in EBITDA, because it will pay a dentist to do the clinical work. In many deals, that dentist is you.
Knowing which lens your likely buyer uses tells you which number to watch.
How a Free Valuation Can Double a Practice’s Earnings on Paper
A flattering valuation usually doesn’t get the math wrong. It gets the inputs wrong. Often it skips the owner’s replacement wage entirely, and the add-backs it does include are ones a buyer’s accountant would strip out in the first week of due diligence.
Add-backs are expenses you add back to profit because a new owner wouldn’t have them. Some are legitimate. Many aren’t. Skip the replacement wage and stretch the add-backs, and a practice with real earnings of $360,000 can show $600,000 on paper.
Thomas Gore, CPA, CFP®, our president, puts it simply: the number can be flattering and completely wrong at the same time. That’s the risk with any valuation built by a firm that doesn’t specialize in dental. The same danger runs the other way, too. A crude rule of thumb can undervalue a well-run practice and leave money on the table.
We built our own free dental practice valuation calculator for owners who want a starting point.
A starting point is useful. What matters is that the add-backs behind any number are ones a buyer will accept, and that comes down to a few specific tests.
Which Add-Backs Will a Buyer Actually Accept?
A buyer accepts an add-back when it’s clearly personal, clearly one-time, or clearly above what the practice needs to run. Everything else stays an expense. Before anyone quotes you a price, sort your add-backs into two buckets.
Add-backs that usually hold up:
- Personal expenses run through the practice, like a vehicle, travel or meals that serve the owner rather than the business
- Family members on payroll who don’t work in the practice
- Genuine one-time costs, like a lawsuit settlement or a one-off remodel
- Rent above market, when you own the building and the practice pays your real estate entity more than a fair rate
- Owner pay above what it would cost to hire a dentist to do the same clinical work
Add-backs that usually get rejected:
- Staff the practice would need no matter who owns it
- Ordinary supplies, lab fees and marketing
- Equipment purchases labeled one-time, when the practice will keep needing to replace chairs, imaging and technology
Rent works both ways. If you own the building and charge the practice above-market rent, the excess is usually a legitimate add-back. If you charge below-market rent, a buyer will adjust EBITDA down to reflect fair rent, and the practice looks less profitable once the building is priced properly. Either way, the lease the buyer signs becomes part of the deal, so the real estate and the practice sale need to be planned together.
Clean books make this sorting fast and believable. Messy books make every add-back a negotiation. Our dental accounting work keeps personal and practice expenses separated every week, all year, so the list is ready long before a buyer asks for it.
A Flattering Number Costs More Than a Low One
An inflated valuation feels harmless because nobody has to pay it. In practice it does damage in four ways, and the third is where deals die.
It anchors you. An owner who believes the practice is worth $3 million will turn down a fair $1.9 million offer and wait. Waiting can backfire if the market softens or your production dips in the meantime.
It shapes your retirement plan, and your family’s. If you’ve built your retirement number around a sale price that won’t happen, the shortfall shows up at the worst possible time. You’d have found it years earlier with a realistic figure.
It kills deals late. When the Exit Planning Institute asked its advisor community in 2021 why businesses put on the market don’t sell, 55% named unrealistic value expectations, by far the top answer. The buyer’s diligence team rebuilds your EBITDA from your tax returns, payroll records and practice-management reports. When their number is far below yours, the conversation usually ends.
And it points your effort at the wrong thing. An owner chasing a higher multiple spends time on things that don’t move the price. What does move it is the earnings figure underneath the multiple.
A Higher Multiple Isn’t Always a Bigger Check
The highest multiple on the table usually comes from a DSO. Before you treat it as the winning bid, look at what’s attached to it. A DSO typically pays part of the price in equity in the DSO itself and asks you to keep practicing as its employee for several years. Dental transaction attorneys writing in Dental Products Report put typical rollover equity at 20% to 30% of the price and employment contracts at three to five years.
That changes the comparison. During those years, the practice’s profit belongs to the DSO, and you’re paid a wage. A private buyer may offer a lower multiple, but if you’d have kept working anyway, those years of ownership profit are part of what a DSO deal asks you to give up. Put both offers on the same timeline and the gap is often much smaller than the headline suggests.
And the price isn’t what you keep. How a sale is allocated among goodwill, equipment, a non-compete and any post-sale employment changes how much is taxed as capital gain and how much as ordinary income. In an asset sale, buyer and seller generally both report that allocation to the IRS on Form 8594, so it belongs in the negotiation from the start, not after the terms are set.
The goal is the same whoever buys: a premium price, on terms that fit the life you want after the sale. Our guide to selling your dental practice to a DSO walks through what that life can look like.
How Do You Raise Your Practice’s Value Before a 2027 Sale?
In dentistry, the multiple is largely set by the market. You won’t move it much on your own. What you control is the earnings figure underneath it, and that comes down to three levers: profitability, owner dependence and the quality of your books. We cover the full list of buyer value drivers in what increases the value of a dental practice before a sale.
Profitability is the biggest one. Every dollar of sustainable EBITDA you add is worth several dollars at sale: at 3.5 to 5.5 times, $50,000 of added annual profit is roughly $175,000 to $275,000 of value. Overhead that has crept up, fees that haven’t kept pace with your payer mix and a hygiene schedule with gaps all show up directly in the price.
Owner dependence matters because buyers price risk. If production falls apart when you take a week off, a buyer sees that. A strong associate and hygiene bench makes the earnings more believable and more transferable.
Clean, timely financials make the whole number credible. A buyer will ask for several years of tax returns, your employee list with compensation, your fee schedule and production reports from your practice-management software. If you’re planning a 2027 sale, the returns you file for 2025 and 2026 are the ones a buyer will read most closely.
That’s also why the years before a sale call for a different tax conversation. Some moves that make sense while you own the practice can make your earnings harder for a buyer to read, or can cost you more at closing than they saved along the way. Your tax plan and your exit plan have to be built together. Tracking your practice KPIs monthly through a dental CFO relationship is how you see those numbers move while there’s still time to act.
Chase the Margin, Not the Multiple
The owner in our example didn’t need a bigger number. He needed a realistic one and a plan to grow it. Those are two different conversations, and most practice owners only ever have the first one.
If you know your real EBITDA today, you know what a buyer will likely pay today. The distance between that and the number you want is your work plan for the next few years. It’s the same work that makes the practice more profitable while you still own it.
Whoever you sell to, the goal is the same: a premium price, a buyer who fits what you want for your team and your patients, and a plan for your family on the other side of the closing.
If you’re weighing the other side of the table, our guide to what it costs to buy a dental practice walks through how buyers think about price and financing.
If you’d like a realistic read on what your practice is worth and what’s holding the number down, Core Advisors can help. Our team, including Jeremiah D. Barwick, CEPA, works with dental practice owners on valuation, tax, profitability and exit planning under one roof, so the sale, the tax bill and the retirement plan are built together.
This article is for educational purposes only and does not constitute tax, legal, investment or financial advice. Every practice is different. Consult your own tax, legal or financial advisor before acting on anything here.
