What Percent of Collections Is a Dental Practice Worth?

When considering the sale or purchase of a dental practice, one of the most common questions is how much these businesses are actually worth. While every practice is unique, industry standards show that dental practices typically sell for 65% to 80% of their annual collections. However, this percentage varies significantly based on specialty, with orthodontic practices commanding around 80% while general dental practices average closer to 70%.

Dental Practice Valuation Ranges by Specialty

Different types of dental offices sell for different percentages of their yearly income. Specialty practices usually get higher prices than general offices because they make more profit and have less competition.

Orthodontics Commands the Highest Percentages at 79.81%

Orthodontic offices sell for the most money – about 80% of what they collect each year. This happens because orthodontists have patients for long periods (18-24 months) and make good profits. Most orthodontic work is elective, so patients often pay cash instead of using insurance.

General Dentistry Averages 69.87% of Annual Collections

General dental offices typically sell for about 70% of their yearly collections. This is lower than specialty offices because general dentists face more competition and deal with insurance companies more often. Good offices with loyal patients can get higher prices.

Specialty Practices vs. General Practice Differences

Other dental specialties fall between orthodontics and general dentistry. Pediatric dentistry sells for about 71%, oral surgery for 69%, and endodontics and periodontics for 65-68%. These specialties get higher prices because they require special training and get patients through referrals.

Critical Factors That Determine Your Collection Percentage

Several important things determine how much your office is worth. Understanding these helps you know what buyers will pay and how to improve your value.

Practice Profitability Matters More Than Raw Collections

How much money your office actually makes is more important than how much it collects. An office that collects $800,000 but keeps half of it is worth more than one that collects $1,000,000 but only keeps 25%. Buyers care about the money they’ll make, not just the total income. Understanding these profit margins requires a comprehensive practice appraisal that looks beyond surface-level collections.

Location and Patient Demographics Impact

Where your office is located affects its value. Offices in cities usually sell for more than rural ones. The type of patients you have also matters – offices with wealthy patients who pay cash get higher prices than those that mostly take insurance.

Fee-for-Service vs. Insurance-Heavy Practice Models

Offices with more cash-paying patients typically sell for higher percentages than those that mostly take insurance. Insurance creates problems like delayed payments and reduced fees. Cash patients are more profitable and predictable.

Why Collection-Based Valuations Can Be Misleading

Just looking at how much an office collects doesn’t tell the whole story. This method misses important details about how profitable and well-run a business really is.

Two Practices, Same Collections, Different Values

Two offices might both collect $900,000 per year but be worth very different amounts. If one spends $495,000 to run (55% overhead) and another spends $675,000 (75% overhead), the first one makes $405,000 profit while the second only makes $225,000. The more profitable office should sell for much more money.

Hidden Overhead Costs That Reduce Actual Worth

Some offices have hidden problems that reduce their real value. These might include old equipment that needs replacing, inefficient staff, or accepting too many low-paying insurance plans. Buyers will find these problems and pay less because of them.

More Accurate Valuation Methods Professional Brokers Use

Professional brokers use more accurate methods that look at profit and cash flow, not just collections. These methods give better ideas of what a dental business is really worth.

EBITDA-Based Valuations Provide Better Accuracy

EBITDA stands for earnings before interest, taxes, depreciation, and amortization – basically how much cash the business generates. Brokers multiply this number by 4 to 15 times depending on how good the office is. This method focuses on real profit instead of just total collections and provides a more accurate answer to how do you value a dental practice beyond simple percentages.

Capitalized Earnings Method for Sustainable Practices

This method takes the office’s yearly profit and divides it by 20-30%. It shows how much someone should pay based on the returns they’ll get. This works well for stable businesses with steady patient bases.

Professional Transition Strategies Complete Valuation Process

Professional Transition Strategies uses a complete process to find your office’s true value. They look at much more than just collections to give you accurate information about what your business is worth.

Free Practice Prospectus Reveals True Market Worth

PTS offers a free report that examines your office’s finances, location, and growth potential. This detailed look includes your financial records, local market conditions, and competition. You get this valuable information without any obligation to sell.

Multi-Specialty Team Analysis and Review Process

PTS has specialists in accounting, real estate, equipment values, and market analysis who work together. This team looks at every part of your business to make sure the valuation is accurate. Having multiple experts ensures nothing important gets missed.

Comprehensive Treatment Options Based on Your Goals

After analyzing your office, PTS shows you different options based on what you want to do. You might sell completely, sell part and stay as a partner, or merge with another office. They explain each choice so you can decide what’s best for you.

Frequently Asked Questions About Practice Valuations

How long does a professional practice valuation take to complete?

A complete professional valuation usually takes 2-4 weeks, depending on how complex your office is and what financial information you have available.

Can I get multiple valuations if I disagree with the first assessment?

Yes, you can get opinions from different brokers since they might use different methods. If valuations are very different, it usually means your business needs deeper analysis.

Do equipment upgrades significantly impact the collection percentage value?

Equipment upgrades can affect your office’s value depending on whether they help you work more efficiently or attract more patients. However, buyers care more about increased profits than expensive equipment.