When a buyer, a Dental Support Organization (DSO) or a lender looks at your practice, the first number they want is EBITDA. It tells them how much profit the practice produces from dentistry itself, before your personal financing and tax choices get in the way. And in most transitions today, it is the number your sale price is built on.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a standard way to measure a practice’s core operating profit. Because it strips out how the practice is financed, where it pays taxes and how its equipment is written off, it lets a buyer compare your office with any other practice on equal terms.
This article explains how EBITDA is calculated, how buyers adjust it, and what you can do to make yours stronger before you sell.
How EBITDA Is Calculated in a Dental Practice
Start with net income from the practice’s profit and loss (P&L) statement or tax return, then add back four items:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
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Interest: Interest on equipment loans, practice acquisition loans and lines of credit. A buyer will bring their own financing, so your interest cost does not carry over.
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Taxes: Income taxes paid by the practice. Most dental practices are S corporations, so federal income tax is paid on the owner’s personal return; the add-back is usually limited to entity-level taxes such as California’s 1.5% franchise tax or a pass-through entity (PTE) tax election.
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Depreciation: The write-down of equipment such as chairs, X-ray and CBCT units, scanners and computers, including Section 179 and bonus depreciation.
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Amortization: The write-down of intangible assets, such as goodwill from a practice you bought earlier.
Depreciation and amortization are added back because they are non-cash entries, not cash leaving the practice that year. A smart buyer will still ask how old your equipment is, because replacing it is a real future cost.
Adjusted EBITDA: The Number Buyers Actually Use
Plain EBITDA still reflects how you, the current owner, run the practice. DSOs and lenders want to know what it will earn under new management, so they use Adjusted EBITDA. It adds back owner-specific, personal and one-time expenses, then charges a fair market cost for the dentistry you perform.
The doctor compensation adjustment. This is the most important adjustment. Your own salary, draws, retirement contributions and benefits are added back in full. Then a market-rate cost for a replacement dentist is deducted, typically 25% to 35% of the collections from your personal clinical production. If you pay yourself well below market, your EBITDA will drop after this adjustment; if you pay yourself well above market, it will rise.
| Add-back | Dental examples | What a buyer will ask for |
|---|---|---|
| Owner compensation and benefits | Officer W-2 wages, owner’s retirement plan contribution, owner and family health insurance | W-2s, plan allocation report, premium invoices |
| Personal expenses | Personal vehicle, family travel, meals, family members on payroll who do not work in the practice | Mileage logs, receipts, payroll records |
| One-time costs | Major legal fees, a lawsuit settlement, structural repairs, a one-time startup marketing campaign, remodel downtime | Invoices showing the cost will not recur |
| Non-cash and financing | Depreciation, amortization, interest | Depreciation schedules, loan statements |
| Rent normalization | Rent paid to a building you own above or below market | A market rent study or broker opinion |
Every add-back must be documented. Buyers and their CPAs will challenge any add-back that is not supported, and an add-back they reject can lower your price by several times its amount.
Why EBITDA Matters to Dentists
It sets your practice’s value. DSOs and institutional buyers price practices as a multiple of Adjusted EBITDA, anywhere from about 3x to 8x or more depending on size, growth, location and how much of the production depends on the owner. Larger, multi-doctor practices with steady growth earn the higher multiples.
It measures how efficiently you run. EBITDA shows how well your team controls overhead, such as supplies, lab and staff payroll, relative to collections. Two practices with the same collections can have very different values because one keeps more of every dollar.
It lets buyers compare practices fairly. Because financing, taxes and depreciation are stripped out, a buyer can compare a heavily financed practice with a debt-free one, or a single office with a multi-location group, on equal terms.
EBITDA, SDE and Percentage of Collections
| Method | What it measures | Who typically uses it |
|---|---|---|
| Percentage of collections | Price as a share of annual collections | Traditional sales of solo practices to another dentist |
| Seller’s discretionary earnings (SDE) | All earnings available to one owner-dentist, before paying any doctor | Individual dentists buying a practice they will work in |
| Adjusted EBITDA | Earnings after paying a dentist at market rates | DSOs, private equity and lenders |
The same practice can show a very different value under each method, so it pays to know which one your likely buyer will use before you set an asking price.
How to Strengthen Your EBITDA Before a Sale
The best time to prepare is two to three years before you plan to sell, because buyers usually look at the last three years of results.
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Clean up your books. Keep personal expenses out of the practice, or record them clearly so they are easy to document as add-backs.
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Benchmark your overhead. Compare supplies, lab, staff payroll and rent with dental industry ranges, and find out why any line is out of range.
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Watch your payer mix. Heavy PPO write-offs lower EBITDA. Renegotiate fee schedules where you can before making any network changes.
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Document one-time costs as they happen, with invoices and a short note, so you are not reconstructing them during due diligence.
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Reduce owner dependence. A practice where associates and hygienists produce a meaningful share of collections earns a higher multiple.
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Get a pre-sale valuation. A CPA who specializes in dental practices can calculate your Adjusted EBITDA the way a buyer will, so there are no surprises at the negotiating table.
Your EBITDA is not just a number on a statement. It is the foundation of your practice’s sale price. If you are thinking about a transition in the next few years, schedule a practice valuation to see where your numbers stand today.