Dental Practice Valuation Multiples
Valuation multiples are a key tool for buying, selling, or securing financing for a dental practice. A business appraiser analyzes these tools alongside other factors to provide an accurate dental practice valuation. Valuations can help business owners better understand their dental practice’s strengths and weaknesses. In this article, we list the three most common dental practice valuation multiples, as well as industry-specific factors that may be influencing your business.
Keep in mind that each dental practice is unique, and many factors affect a business’s value. Business appraisers know how to apply the best dental practice valuation multiples for an accurate value estimate.
Peak Business Valuation frequently conducts dental practice valuations. We are here to answer questions about valuing a dental practice and relevant dental practice multiples. For more information, schedule a free consultation with Peak today!
What are Dental Practice Valuation Multiples?
A dental practice valuation multiple is an industry metric used to determine the value of a dental practice. Common valuation multiples measure a business’s SDE, EBITDA, or revenue. A business appraiser performs a careful inspection of the practice and industry to determine the best multiples. When applying a valuation multiple, the resulting value represents the amount one might pay for the practice. Buyers and sellers can use this data to determine a fair market value.
Common Dental Practice Valuation Multiples
In the following sections, we explain SDE, EBITDA, and revenue multiples. Please note that these numbers are general and may not apply to your dental practice. Connecting with a valuation expert guarantees an accurate dental practice appraisal. Peak Business Valuation is happy to help! Schedule a free consultation today.
You can also read Valuation Multiples for a Dental Practice to learn more.
SDE Multiples for a Dental Practice
SDE (Seller’s Discretionary Earnings) represents an owner’s total earnings. It includes salary, perks, and non-recurring expenses. This value shows the owner’s true income, which is helpful for valuing small dental practices. A valuation multiple is then applied to determine the practice’s estimated market value. Businesses with a higher SDE will typically receive a higher value. Lower SDE may indicate greater risk, leading to a lower valuation.
Formula: Value = SDE x Multiple
Range: SDE multiples for dental practices can range from 1.0x to 2.0x SDE.
Dental Practice EBITDA Multiples
EBITDA multiples measure a dental practice’s earnings before interest, tax, depreciation, and amortization. It can give a clear indication of the practice’s operating performance. A business appraiser then normalizes the EBITDA to account for debt and equity uses. EBITDA is most appropriate for larger businesses or DSOs (dental service organizations), because they likely have higher, more predictable income. This dental practice multiple represents the business’s future earning potential.
Formula: Value = EBITDA x Multiple
Range: EBITDA multiples for dental practices can range from 1.8x to 2.7x EBITDA.
Revenue Multiples for a Dental Practice
Last, revenue multiples value a dental practice based on its revenue from the last 12 months. Revenue multiples provide limited insight due to cost and profit differences between practices on the market. It is thus more beneficial to rely on other valuation multiples.
Formula: Value = Revenue x Multiple
Range: Dental practice multiples often range from 0.46x to 0.67x revenue.
How to Value a Dental Practice Using Multiples
At Peak, business appraisers identify which dental practice valuation multiples apply best. They also combine the data with other methods to obtain an accurate estimate. Common valuation methods include the market, income, and asset approach. Weighted averages may also be applied. Check out How to Value a Dental Practice for more guidance.
The valuation process involves an in-depth review of financial statements, key value drivers, and other factors. Peak Business Valuation prioritizes exactness and efficiency. To learn more about dental practice valuation multiples, schedule a free consultation with Peak today!
Rules of Thumb for Dental Practices
There are several guidelines and industry benchmarks to help in valuing a dental practice. However, these benchmarks overlook important factors, such as current vs. outdated equipment. An accredited business appraiser knows how to best account for every element within a dental practice. Peak is happy to help in valuing your dental practice or valuing dental equipment.
Factors Affecting Dental Practice Multiples
Dental practices can be influenced by a variety of factors. Please consider the following aspects that may impact the value of your dental practice. Being aware of these factors is key to increasing your dental practice’s value.
- Market and Location: Practices in urban locations with recurring patients often receive more consistent revenue. This will likely grow the practice’s value.
- Equipment Quality: Up-to-date equipment and software will increase a dental practice’s value. Check out Dental Equipment Appraisals for additional information.
- Size of Practice: DSOs and other practices with multiple dentists reflect stability, increasing their value. Consequently, heavy reliance on one dentist may result in a lower value.
- Risk Factors: Dental practices frequently experience insurance reimbursement delays. This can hurt the business’s stability and may decrease value. When valuing a dental practice, the business appraiser will analyze the payor mix.
- Profit Margins: Consistent overhead costs of 60% or less will increase the value of a dental practice. Higher profits result in higher EBITDA and SDE multiples.
Conclusion
Peak Business Valuation regularly provides dental practice valuations. We run the necessary analyses to find the best multiples for a dental practice. We are happy to guide you through the valuation process and help your practice reach its highest potential! Schedule a free consultation with Peak today to learn more about applicable dental practice valuation multiples.
For more insights, check out Dental Practice Valuations and Valuing a Dental Practice.
