Whether these businesses were selling 2x EBITDA (earnings before interest, taxes, depreciation, and amortization) or 16x EBITDA, all that mattered was that the bank would fund the sale and a buyer could live off the cash flow. Whether you're looking to sell now or in 10 years, make sure you get what your practice is worth. The first step in calculating EBITDA is to differentiate between what the owner/dentist earns for tax and personal reasons as opposed to what an investor can actually do. Understanding what EBITDA is very important when buying a Dental Practice. With the influx of private equity money in the industry it is becoming more common to use a multiple of EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). In addition, other factors that may be considered include the number of new patients, recurring work, revenue growth, and the client base (private insurance, government-funded, cash). Please reach out via email or phone call. Feb 20, 2020 | Business Valuation, Dental Practice, Multiples, Small Business. Here are some general rules of thumb for thinking about your practice value in terms of a multiple: Solo practitioner: 3–4 times; Multidoctor practice: 4–5 times; Multilocation, multidoctor practice: 5–6 times; Group practice with management infrastructure and scalability: 6-plus times It is calculated by multiplying the amount of revenue or sales a business makes by the valuation multiple. Multiple of Collections The U.S. dental industry is made up of more than 180,000 practicing dentists. ... a common way to value a practice is to multiply EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) by a multiple. Common valuation methodologies: 1. It is mandatory to procure user consent prior to running these cookies on your website. Simple Dental Practice A is a typical practice, where I used average data and simple round numbers to show a practice that collects $1 Million, has expenses totaling $600,000 and profit left over for the doctor of $400,000. Copyright © Samera International Ltd. All rights reserved. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. The average EBITDA multiple for dental practices in 2019 was 1.63x. © 2021 Peak Business Valuation. The first formula uses operating income as the starting point, while the second formula uses net income. We have worked with several dental practice owners to provide a business valuation. As a dental platform’s number of facilities expands, not only will the valuation increase due to the additional EBITDA, but it will also likely raise the multiple applied to that EBITDA. When looking at multiples for a dental practice, keep in mind there are many unique factors that impact a business and the multiple used to value that business. Therefore, this inherent potential is reflected in the higher valuation enjoyed by tech companies in general as opposed to manufacturing companies, which in turn means a higher EBIDTA multiple. Be very careful – Do not be misled when reviewing sales details where EBITDA has been calculated by adding on items that you will still have to pay – we often see subscriptions, travel, repairs and renewals added back on but they will still be a cost to you going forward. If you are planning to sell your practice within the next 6-12 months, these steps can help you prepare and ultimately, pull the highest sales price possible. The higher the EBITDA, the higher the value. The following graphic shows how SDE multiples have trended over the last few years in the dental services industry. A multiple of this adjusted net profit figure, or EBITDA, is then used to value your business. Industry Description The dental industry is generally defined as the professional and licensed practice of preventing, diagnosing and treating diseases, injuries, and malformations of the teeth, jaw, and mouth. But opting out of some of these cookies may affect your browsing experience. H… Most calculations of value utilize multiple valuation formulas averaged together to arrive at a final estimate. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. The calculation is as follows: For example, if a dental practice has seller’s discretionary earnings of $850,000 and is estimated to sell at a 1.70x multiple, then the business is worth approximately $1,445,000. See the below graphics for how revenue multiples have trended over the last few years and how they trended by company size in the dental industry. e.g In many cases repairs and renewals may have been high one year if they can be expected to reduce then the difference can be added back. We would love to talk with you more about the factors that may impact the value of your dental practice.