Many dental practice owners spend years focused on delivering great patient care and keeping the day-to-day operations running smoothly. At some point, though, questions naturally arise about the bigger picture.
Practice value is often misunderstood. It is not just a snapshot of revenue or last year’s profit. A more accurate way to think about value is through a simple formula:
Value = Benefit Stream / Risk
The benefit stream represents the future cash flow a practice is expected to generate. Risk reflects the uncertainty around achieving those results.
A practice with steady, predictable performance and lower risk will typically be valued more highly than a practice with similar revenue but greater uncertainty.
Practice value is about future economic benefit balanced against risk. Buyers are looking for predictable cash flow and confidence that the practice can continue performing well under new ownership.
Two practices with similar revenue can have very different values if one feels more stable, scalable, and transferable than the other.
This forward-looking mindset is why historical financials matter so much. Several years of consistent performance can tell a compelling story about sustainability. Sharp swings, unexplained expenses, or declining trends raise questions and increase perceived risk.
A formal valuation starts with gathering information. At SVA, we request financial statements and tax returns from the past five years, along with operational details like production reports, fee schedules, lease agreements, and staffing information. While the process can feel data-heavy, it allows the full picture of the practice to come into focus.
From there, earnings are adjusted to reflect true operating performance. This step, often called normalization, removes one-time expenses, owner-specific costs, or non-recurring items that would not carry over to a new owner. The goal is to show what the practice would reasonably generate on an ongoing basis.
Valuations usually rely on one or more of three approaches:
| Income Approach | Focuses on future cash flow and applies a rate that reflects the level of risk. |
| Market Approach | Compares the practice to similar transactions in the dental market. |
| Asset Approach | Looks at the value of tangible and intangible assets, often serving as a baseline. |
Rather than producing just a single number, a valuation tells a story. It explains the assumptions used, the adjustments made, and how the final conclusion was reached.
You may hear simple formulas such as a multiple of revenue or earnings tossed around in casual conversations. While these shortcuts can offer a rough starting point, they rarely capture the nuances of an individual practice.
A more detailed analysis digs into what makes your practice unique, including the strengths that support value and the weaknesses that may limit it.
That deeper understanding is especially useful when planning ahead. Knowing where value is leaking allows you to address issues before they become obstacles in a future transaction.
Several recurring themes tend to carry the most weight in valuations:
Buyers favor practices with steady revenue growth and healthy profit margins. Strong top-line growth paired with controlled overhead sends a positive signal about long-term viability.
A practice that depends heavily on the owner for clinical work, management, or decision-making may struggle to command a higher value. Practices with systems, documented procedures, and capable team members who can keep things running smoothly without constant owner involvement are typically more appealing.
Clean, well-organized financials make a difference. Clear reporting helps buyers understand what is happening in the business and builds confidence in the numbers.
Practices that provide a broad range of services in-house often look stronger than those that refer significant procedures elsewhere. Buyers prefer seeing proven production rather than hypothetical opportunities.
A stable, transferable lease or owned real estate with market-based rent reduces uncertainty. Location continuity matters, especially for patient retention.
Fair market compensation for doctors and staff is important. Overpaying or underpaying can distort financial results and lead to adjustments that affect value.
Not all buyers evaluate practices the same way. Larger organizations may be willing to pay more due to operational efficiencies, purchasing power, or existing infrastructure. Individual buyers often place more emphasis on lifestyle fit, continuity of care, and personal involvement.
Neither path is inherently better. The right option depends on your goals, whether that is maximizing sale proceeds, maintaining a certain culture, or planning a gradual transition.
Waiting until you are ready to sell can limit your options. Many of the factors that improve value take time to develop. Growth trends, staffing stability, system improvements, and financial cleanup rarely happen overnight.
Thinking about value three years or more in advance allows you to be proactive. It gives you time to address inefficiencies, strengthen operations, and position the practice in a way that aligns with your long-term plans.
Even if a sale or transition feels far off, there are some actions you may want to consider now:
Understanding what drives practice value puts you in control. It helps you make informed decisions, whether you are planning an expansion, bringing on a partner, or simply building a stronger practice for the future.
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