EBITDA

EBITDA strips out financing, tax and accounting decisions to answer one question: how much did the underlying business actually earn from operating. For a dental practice being bought or sold, it is almost always adjusted further (normal owner add-backs removed, and critically, a market-rate associate salary subtracted in place of what the owner-dentist actually paid themselves) because a buyer is purchasing the earnings that survive once someone has to be paid to sit in the clinical chair.

That adjustment is where most napkin valuations go wrong. An owner who nets $400,000 personally is not necessarily selling $400,000 of transferable earnings; if replacing their own clinical production with an associate would cost $150,000, the real adjusted EBITDA is closer to $250,000, and that is the number multiples get applied to. Skip that step and every valuation built on top of it is inflated.

Practices commonly transact at roughly 3.5–5.5 times adjusted EBITDA, run alongside a second check against collections, and the two methods are meant to be compared rather than averaged. When they disagree meaningfully, that disagreement is itself a finding about the business, not noise to smooth over.