How can I Determine the Value of my Dental Practice?

Changes in Technology and Demographics Influence Dental Practice Valuations

Key Takeaways:

• AI is streamlining scheduling and diagnostics in dental practices.
• Modern technology investments drive higher profitability and valuations.
• Adjusting to changing patient demographics is essential for long-term growth.

Rapid changes in technology and demographics are increasingly influencing the profitability and valuations of dental practices. As these changes play out, dental practice owners who respond with investments in technology and the right mix of services will have the strongest valuations. 

AI in the Dental Chair 

The role of technology in dental practices has expanded to include the use of artificial intelligence (AI) for functions from practice management to diagnostics. AI tools are available to help dentists streamline scheduling, train staff and run their practices more efficiently. On the diagnostics side, AI tools enhance diagnostic accuracy and assist in clinical decision making, which often helps improve patient buy-in for treatments that may not be covered by dental insurance.  

Additionally, software that includes AI can ensure that every day is filled with appointments, enabling a strong mix of higher-fee services such as crowns and fillings along with lower-fee services like regular checkups and cleanings, further maximizing the dentist’s time and staff allocation. 

Software tools that incorporate AI can help you ensure that your practice is achieving important profitability benchmarks, such as enabling the dentist to generate at least 75% of production, with the hygiene department generating the remaining 25%. This breakdown represents healthy levels of activity in the hygiene department, treatment acceptance, care system, and the pace of pre-booking hygiene appointments. Software tools that incorporate AI can help you achieve this benchmark and maintain it going forward. 

Consequently, AI tools can make a material difference in a dental practice’s profitability and valuation. However, keeping up with the latest technology and equipment requires consistent investments in the practice’s hardware and software. 

Factors Affecting Dental Practice Valuation 

The increasing use of technology has helped push valuations of dental practices higher in recent years, but challenges remain. 

In many dental practices, patient demographics are changing. In many dental practices, patient demographics are changing, which may change the mix of lower-fee and higher-fee services a dental office provides. Moreover, for dentists looking to retire and sell their practices, location can be a hindrance. Younger dentists and those just out of dental school often want to locate in larger cities where there are more diverse patient populations needing more dental services, as well as more practices they can join as a non-owner while they get experience and save money to buy a practice. 

That being said, dental practice valuation works very similarly to valuations of other companies, but with some added factors that influence the ultimate range of value. 

The key factors in valuing a dental practice include location, patient base, revenue, equipment, staff and reputation. These are factors that could apply to any type of company. In addition, unique factors that come into play for a dental practice valuation include: 

• Patient retention 
• Mix of dental services and price per service 
• Payment systems 
• Percentage of the price paid by insurers 
• Number of days per year that the practice is open 

A valuation professional will generally look at sales of comparable dental practices that have occurred in the past three to five years, and will try to match up any specialties. For instance, if a general dental practice also had an endodontist who performed root canals, it would need to be compared to a similar-sized practice with the same specialty. 

As with most companies, practice valuations also consider the dental practices’ KPIs, cash flow and the stability of earnings. If a practice is growing at a healthy rate, the valuation professional may apply a discounted cash flow method in reaching the valuation. 

Investment in Equipment 

Investments in new equipment often depend on how technology-driven the owner wants a dental practice to be. Many dental practices don’t have the cash flow to regularly upgrade their equipment, requiring the owner to finance the purchase, which adds debt. 

But the dental industry is moving into a more technology-driven age, and the cost of adding equipment must be weighed against the risk of lower growth that may result from not adding it. 

Deal Volume and Pricing 

Dental practice valuations have remained strong in recent years with transaction volume increasing. Multiples peaked in 2022 (using the price to sales multiple as a metric); however, it is important to consider the qualitative aspects of each practice. Another multiple that is commonly used is Seller’s Discretionary Earnings, which equals EBITDA plus owner’s compensation. 

Source: DealStats, a database from Business Valuation Resources. Asset transactions only, about 51% of the transactions were companies in CA or FL. Information downloaded on 3/14/2025. 

If you would like to discuss a valuation of your practice, contact an Adams Brown dental advisor.