Dental Practice Valuation Methods: EBITDA vs Collections vs SDE Explained

Three valuation methods dominate dental practice sales, and they can produce wildly different numbers for the same practice. Understanding which method applies to your situation is the difference between leaving $100K on the table and getting full value.

Method 1: Percentage of Collections

The simplest and most widely cited method. General practices typically sell for 60 to 85% of annual gross collections. Specialty practices (ortho, oral surgery, perio) may command higher percentages. This method is fast but ignores profitability entirely. A practice collecting $1.2M with 80% overhead and one collecting $1.2M with 55% overhead get the same value, which makes no sense.

Method 2: SDE Multiples

Seller's Discretionary Earnings (SDE) is net income plus the owner's salary, benefits, and personal expenses run through the practice. It represents the total financial benefit of ownership. Most single-owner private practices sell for 1.5 to 3.0x SDE. This is the standard method for practices where the owner is the primary producer.

Method 3: EBITDA Multiples

Earnings Before Interest, Taxes, Depreciation, and Amortization. Used primarily for larger, multi-provider practices and DSO acquisitions. EBITDA strips out owner compensation because the buyer will replace you with a hired dentist. Multiples range from 4 to 8x for private sales and can exceed 10x in competitive DSO transactions.

Which Method Should You Use?

• Solo owner-operator: SDE is your primary method. Collections as a sanity check.
• Multi-provider practice: EBITDA is more accurate. SBA lenders will still look at SDE.
• Selling to a DSO: They use EBITDA exclusively. Know your number before they make an offer.
• Quick estimate: Collections percentage gives you a ballpark in 30 seconds.

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