A practice is valued on its earnings, not its collections. A valuator starts with the profit and loss statement, normalizes it by adjusting for owner compensation, personal expenses run through the business, and one-time costs, then applies a multiple to the adjusted earnings figure. Collections matter only because they produce those earnings, which is why two practices collecting identical amounts can carry very different values.

What are buyers actually buying?

Future cash flow that continues without you. Every element of a valuation is an attempt to estimate how much of today’s profit survives your departure.

So the questions underneath the number are behavioral as much as financial. How much production is tied to your hands and your name? How full is the hygiene schedule? Will the assistants and the front desk stay? Is the lease assignable, and for how long?

A practice where the owner performs nearly all the dentistry, refers out anything complex, and has no associate transfers harder than one with a stable team and a broad patient base. Valuation methods try to capture that, imperfectly.

What are the main valuation approaches?

Three approaches show up in dentistry.

• Earnings-based. Normalized earnings multiplied by a factor. This is the method lenders and group buyers build their models around.
• Percentage of collections. A shortcut that applies a ratio to trailing collections. Fast to quote and blind to overhead, which is why it can land badly wrong in either direction.
• Asset-based. Fair market value of equipment, technology, leaseholds, and supplies, plus goodwill. Most relevant when earnings are thin or the practice is winding down.

The multiple itself is not a fact you can look up and apply to yourself. It is an output of a specific practice, a specific buyer, and the financing available at that moment. Anyone who quotes you a figure without examining all three is quoting a rumor.

Why do two valuations of the same practice disagree?

Because normalization is judgment, and because the buyer changes the arithmetic.

An individual dentist borrowing to buy is constrained by debt service. The lender needs post-sale cash flow to cover the note and still pay the buyer a living wage, so financing terms set a ceiling that has nothing to do with anyone’s opinion of the practice.

A group buyer models it differently. They may substitute an assumed associate compensation figure for your owner’s draw, then fold in their own supply and billing costs. Same practice, different math, different answer.

Know who paid for the document you are holding. An opinion of value produced while someone is competing for your listing is not the same instrument as an independent appraisal, and neither is a formal valuation prepared for litigation or an estate. Different standards produce legitimately different results.

What should you ask before accepting a number?

Ask which earnings figure was used and exactly what was added back. Ask whether owner compensation was replaced with an assumed associate figure, and on what basis that figure was chosen. Ask whether real estate sits inside or outside the number. Ask which transactions informed the multiple, how recent they were, and how genuinely comparable.

Then ask the uncomfortable one: what is this worth if the doctor stops producing tomorrow? The distance between that answer and the headline is the part of your net worth that is a job rather than an asset.

Well before any transaction, a valuation works best as a diagnostic. It shows you which lever moves the number, whether that is overhead, hygiene, associate leverage, or lease security, while there is still time to pull it.

This is general information about how valuations get constructed. It is not an appraisal and not a recommendation about your practice.

FAQ

When is a valuation actually useful?
Earlier than a sale. A baseline while you still have runway tells you which operational levers move value and gives you time to work them. Close to a transaction, a valuation mostly confirms what you already built. Both have a purpose, but only one changes the outcome.

Does my building get included?
Practice value and real estate value are generally assessed separately, because the building is an independent asset with its own market and its own buyers. If you own it, the lease between your property and your practice affects both figures, so review that lease long before anyone is negotiating.

Is an opinion of value the same as an appraisal?
No. An opinion of value is a marketing-stage estimate, often provided at no cost by someone seeking your business. A formal valuation follows a defined standard, documents its assumptions, and is what lenders, partners, or courts will generally engage with. Know which one you are reading.