While most dental practices that Dental Economics reviews financials for in thier valuation process have achieved growing revenues in the last 12 months, that growth rate is decelerating. The recent record five-year low in the University of Michigan Consumer Sentiment Index (below mid-COVID-era levels) is a harbinger of potentially lower collections in the near future. This is not a positive for practice values.
One of the key metrics in determining practice values is its operating profit, or earnings before interest, taxes, depreciation, and amortization and after doctor compensation (EBITDA). Collections growth rates are also a crucial driver of practice values. If a practice is valued at seven times EBITDA on today’s growing $500,000 in EBITDA for the past 12 months, its value is $3,500,000. If EBITDA were to drop to $400,000, its value declines by $700,000 (seven times $100,000), or probably more due to declining, not increasing profitability. Read more.
