What’s Your Dental Practice Really Worth? The Power of Enterprise Value in Practice Transitions

When it comes to selling a dental practice, determining the enterprise value (EV) is one of the most critical steps you can take. This figure doesn’t just show a snapshot of what your practice might be worth; it’s a comprehensive look at its total value, from income-generating assets to any debt or liabilities that come with the deal. Here’s how EV is calculated and why it plays such a vital role in understanding, evaluating, and maximizing your practice’s potential in a sale.

What is Enterprise Value?

Enterprise Value is the total value of a business a dental entrepreneur receives at the sale of their practice, calculated by adding the market value of equity and any outstanding debt, while subtracting cash and cash equivalents. Unlike standalone profit metrics, EV considers all aspects of the business — making it a key measure for practice owners aiming to maximize value in a transition.

In other words, EV helps provide an answer to: “What’s the true value of everything my practice encompasses?”

Calculating Enterprise Value

Enterprise value represents the total worth of a dental practice and reflects the buyer’s willingness to pay, payment terms, and the type of capital used (cash, debt, or equity). This value is often simplified into the practice’s EBITDA (earnings before interest, taxes, depreciation, and amortization) and a multiple applied to that cash flow.

Together, these components create a number that represents the total value of the transaction.

Why Enterprise Value Matters in Your Transition

When groups make an offer, their goal is like yours when buying a car or house: to pay the lowest price for the asset. There’s nothing misleading here, as long as they’re transparent, because they’re responsible to their investors to secure the best deal.

For dental entrepreneurs, this means dental service organizations (DSOs) often calculate an adjusted EBITDA that considers factors impacting profitability. We explain to clients that EBITDA can be “squishy” or adjusted to create the impression of a higher multiple, even if the actual enterprise value remains unchanged.

Here’s an example. An investor may calculate EBITDA by factoring in costs the current owner doesn’t have — such as adjusted management expenses, doctor pay or rent if the seller owns the building. Then, they may offer a higher multiple based on the adjusted EBITDA.

So, a practice with $400,000 EBITDA might receive a 6X offer of $2.4 million, while the same practice adjusted to $280,000 EBITDA might get an 8X offer of $2.24 million. Although the 8X multiple may sound more impressive, the true enterprise value was higher in the first case — proving that enterprise value is the most accurate determinant of a practice’s value.

When doctor’s understand that EV is the most important metrics to key in on when assessing offers, they’re then able to make the best decision for their practice.

Making Enterprise Value Work for You

As you prepare to transition your dental practice, remember that enterprise value is more than just a number; it’s a tool that allows you to represent your practice’s full worth accurately. An experienced broker or advisor can help you calculate and understand EV, empowering you to enter negotiations with a clear view of your practice’s strengths and value.

Whether you’re aiming to sell to another dentist, a DSO, or private equity, understanding EV will help you recognize the true potential in every offer. It’s the number that tells the full story — use it to unlock your practice’s worth and secure the future you’ve worked so hard to build.