SDE vs EBITDA for Dental Practice Valuation: A Complete Guide for Practice Owners

When selling your dental practice, choosing between SDE and EBITDA valuation methods can mean the difference between a good sale and a great one. Understanding which metric applies to your practice directly impacts your asking price, buyer pool and final transaction value.

SDE vs EBITDA: Which Metric Determines Your Dental Practice Value

The simple answer: Most dental practices under $1.5 million in annual revenue should use SDE (Seller’s Discretionary Earnings), while larger practices and multi-location operations typically use EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Why this choice is critical:

• SDE typically produces higher earnings figures but lower multiples (2-4x)
• EBITDA shows operational profitability with higher multiples (4-7x)
• The wrong choice can undervalue your practice by hundreds of thousands of dollars

Key Differences Between SDE and EBITDA for Dental Practice Owners

The fundamental difference: SDE tells a buyer what they’ll personally earn running your practice full-time, while EBITDA shows pure operational profitability regardless of who manages the practice.

Understanding SDE in Dental Practice Valuation

Seller’s Discretionary Earnings represents the total financial benefit you derive from owning and operating your dental practice. SDE calculation starts with net income and adds back specific expenses that benefit the owner directly.

What SDE Includes for Dental Practice Owners

Common SDE add-backs for dental practices:

• Your full salary and benefits package
• Health insurance premiums paid by the practice
• Vehicle expenses and professional memberships
• Personal expenses run through the practice
• One-time expenses like equipment purchases

Example calculation:

• Net Income: $200,000
• Owner Salary: $250,000
• Benefits & Personal Expenses: $35,000
• Total SDE: $485,000

Why Most Dental Practices Use SDE for Valuations

SDE works for dental practices because most operate as owner-dependent businesses where the selling dentist sees patients directly, makes clinical decisions, and manages operations personally. When you sell, the buyer steps into your role completely, making SDE the most accurate reflection of their potential income.

Understanding EBITDA for Larger Dental Operations

EBITDA focuses on operational profitability by removing expenses unrelated to core business performance, providing a cleaner view of practice performance independent of ownership structure.

When Dental Practices Move from SDE to EBITDA

The transition typically occurs when:

• Annual revenue exceeds $1.5 million consistently
• Multiple dentists work as employees rather than owners
• Practice operations don’t depend on the owner’s daily presence
• Strategic buyers like DSOs show acquisition interest

Key difference: EBITDA normalizes owner compensation. If you pay yourself $300,000 annually but market rate for a practice manager is $120,000, EBITDA adds back only the $180,000 excess compensation.

EBITDA Applications for Multi-Location Practices

Multi-location dental practices almost always use EBITDA because operational complexity requires professional management, strategic buyers evaluate scalability, and standardized metrics facilitate comparison with other investments.

Calculating SDE and EBITDA for Your Dental Practice

Step-by-Step SDE Calculation for Dental Practices

SDE Formula:

1. Net income + Interest + Taxes + Depreciation + Amortization
2. Add back total owner compensation and benefits
3. Add back personal expenses and one-time costs

Dental-specific add-backs:

• Professional liability insurance
• Personal dental work lab fees
• Vehicle usage and continuing education
• Professional association dues

EBITDA Calculation Method for Dental Operations

EBITDA Formula:

1. Net income + Interest + Taxes + Depreciation + Amortization
2. Normalize owner salary to market rate (typically $120,000-$180,000)
3. Add back legitimate one-time expenses only

Key difference: EBITDA doesn’t add back reasonable owner compensation, only excess amounts above market rate for managing your practice.

Common Adjustments Specific to Dental Practices

Equipment and revenue adjustments include:

• Dental equipment depreciation schedules
• Technology upgrade expenses
• Insurance reimbursement timing differences
• New patient acquisition costs

Professional Transition Strategies helps identify legitimate adjustments that maximize valuation while maintaining credibility with buyers through our comprehensive dental practice valuation process.

Real Dental Practice Valuation Examples

Small General Practice Example ($800K Revenue)

Practice Profile: Single dentist owner-operator, 1,200 active patients, owner works 4 days per week

SDE Calculation:

• Net Income: $180,000
• Owner Salary: $200,000
• Benefits & Personal Expenses: $40,000
• Total SDE: $420,000
• Valuation at 3x SDE: $1,260,000

This practice uses SDE because the owner’s direct involvement drives profitability.

Multi-Specialty Practice Example ($2M+ Revenue)

Practice Profile: 3 associate dentists plus owner, expanded services, $2,400,000 annual revenue, owner focuses on management

EBITDA Calculation:

• Net Income: $400,000
• Interest/Taxes/Depreciation: $100,000
• Owner’s Excess Salary: $150,000 (above $150K market rate)
• EBITDA: $650,000
• Valuation at 5x EBITDA: $3,250,000

This practice uses EBITDA because operations don’t depend on owner’s clinical production.

Dental Practice Multiples and Market Values

Typical SDE Multiples for Dental Practices

SDE multiples by practice size:

• 2.0-2.5x: Practices under $300K SDE
• 2.5-3.5x: Established practices $300K-$600K SDE
• 3.0-4.0x: Premium practices over $600K SDE

Factors increasing multiples: Strong new patient flow, diverse revenue streams, updated equipment, established referral relationships, and long-term lease agreements.

EBITDA Multiples in Dental Acquisitions

EBITDA multiples by operational sophistication:

• 4.0-5.0x: Multi-doctor practices with basic systems
• 5.0-6.5x: Practices with strong operational metrics
• 6.0-7.5x: Premium practices attractive to strategic buyers

Strategic buyers pay higher EBITDA multiples because they’re acquiring operational platforms for expansion.

How Professional Transition Strategies Maximizes Your Practice Value

Professional Transition Strategies is a dental practice brokerage specializing inspecializes in dental practice brokerage, helping practice owners navigate the complex transition process with expert guidance and comprehensive support.

Our Free Practice Prospectus Process

What we provide in your complimentary prospectus:

• Complete practice valuation using appropriate metrics (SDE or EBITDA)
• Financial analysis and practice health assessment
• Market positioning strategy for your specific situation
• Treatment plan with all available options for your practice

We act like your dental practice diagnostician – thoroughly examining your practice’s current condition and presenting you with a complete treatment plan so you can make fully informed decisions.

Our Comprehensive Brokerage Services

For sellers, we provide:

• Expert practice marketing to qualified buyers
• Buyer vetting and qualification process
• Transaction negotiation and management through closing
• Guidance on practice transitions, mergers, or partnerships

Our unique approach: We offer 30-day listing agreements (vs. industry standard 1-year contracts) with no penalties for cancellation, because we want you to sell when it’s right for you, not when we need a commission.

Preparing Your Dental Practice for Maximum Valuation

Strategic preparation significantly impacts your final sale value regardless of which metric you use. Proper preparation demonstrates professionalism and reduces buyer concerns during due diligence.

Financial Documentation Best Practices

Essential documentation for optimal valuations:

• Three years of complete tax returns and financial statements
• Monthly profit and loss statements showing trends
• Patient charts and production records by provider
• Equipment lists with current fair market values

Timing Your Practice Sale for Optimal Value

Market timing considerations:

• Dental practice acquisition activity peaks in Q4 and Q1
• Interest rate environments affect buyer financing options
• Practice performance should show consistent upward trends

Professional Transition Strategies monitors market conditions continuously, advising clients on optimal timing for maximum value realization.

Get Your Free Dental Practice Valuation Today

Professional Transition Strategies offers complimentary practice prospectus using the optimal metric for your situation. Our specialized expertise in dental practice transitions ensures you understand all options before making critical decisions about your practice’s future.

Contact Professional Transition Strategies today for your free, no-obligation practice prospectus and transition strategy consultation.

Frequently Asked Questions About SDE vs EBITDA

Can I switch from SDE to EBITDA valuation to get a higher selling price?

You cannot arbitrarily choose your valuation metric. The metric depends on practice size and buyer pool. Growing to $1.5M+ revenue can access higher-multiple strategic buyers.

How do dental practice specialties affect SDE and EBITDA calculations?

Specialties often command higher multiples due to specialized revenue streams, but the SDE vs EBITDA choice still depends primarily on practice size.

What happens to my practice valuation if I work part-time or have an associate?

Part-time ownership complicates SDE calculations, while productive associates actually strengthen valuation by demonstrating sustainability beyond owner involvement.