The Question Every Buyer Asks

“Is this practice overpriced?”

It’s the question I hear more than any other. Dentists looking to buy their first practice want to know they are getting a good deal not a headache. And honestly, it’s the right question to ask! You’re about to make a decision that will potentially shape your financial future for the next decade or more. So, you should be concerned about paying too much.

But here’s the problem: most buyers are trying to answer that question with the wrong information.

When I talk to dentists evaluating opportunities, the conversation almost always starts the same way: “What are the collections? How many operatories? How many new patients?” These might seem like the right questions to ask. They’re concrete. They’re easy to compare across listings. But they can lead you straight into a bad deal, or even cause you to walk away from a great one.

I recently sat down with Marie Chatterley from CTC Associates on our podcast Dental Unscripted, and she put it perfectly:

Two practices can both collect $1 million, but one doctor takes home $200,000 while the other takes home $400,000. Those are drastically different opportunities. If you’re only looking at collections, you’re missing the story that actually matters.

Why the “Rule of Thumb” Fails You

You’ve probably heard it at study clubs or on dental forums: “Practices sell for 70-90% of collections.” It sounds simple. It’s easy math. And it’s dangerously incomplete.

That percentage tells you nothing about profitability. It ignores overhead structure, insurance participation, staffing efficiency, or even whether the seller has been running personal expenses through the business. A practice collecting $1.2 million with 65% overhead is a completely different animal than one collecting $900,000 with 45% overhead. The “rule of thumb” many doctors use would price these two practices similarly.

Marie shared something that completely reframes the valuation conversation and I love it. Most practices (in the Rocky Mountain region) sell for 150-200% of net income, not the percentage of gross collections. Gross collections represent the total amount you billed customers or patients. Net income is the money you actually collect in your bank account.

The difference comes from things like insurance discounts or bills that weren’t be collected. Income is the actual number that matters most, because that’s what determines what you’ll actually take home at the end of the day.

So when you’re asking “Is this practice overpriced?” The answer depends entirely on whether you’re looking at collections or profit.

Three Paths to Evaluating a Practice the Right Way

So how should you actually determine if a practice is worth the asking price? Here are three approaches I coach our clients through during the buying process:

Path 1: Lead with Profit, Not Revenue

Before you get excited about a practice’s top-line number, ask for adjusted net income. This means understanding what the owner actually takes home (after legitimate business expenses) and identify which expenses are discretionary.

Sellers commonly run personal items through the business: their car, a spouse’s salary, Costco runs, Amazon purchases, travel. These are legitimate tax strategies, but they can also suppress the net income on paper. A good broker will have already worked with the seller’s CPA to identify these “add-backs” and present an adjusted profit number. If they haven’t done that work yet, it’s a red flag about how organized and accurate that opportunity really is.

The adjusted net income should be your baseline. That’s what you should be using to determine if the asking price falls within that 150-200% range. Then you can determine whether you can service the debt needed to purchase and still pay yourself!

Path 2: Match Your Clinical Skills to the Production Report

This is something more buyers would ask about first:

How does my production makeup compare to the selling doctor’s?

You can work with a broker to pull a production-by-procedure-code report and study it carefully. If the practice generates 30% of revenue from implants and you don’t place implants, you’ve got a problem. That revenue disappears the day you take over. If the seller does all their own endo and you plan to refer it out, that’s lost production. The practice isn’t overpriced necessarily; it’s overpriced for you.

But here’s where it gets interesting. The inverse is also true. If you place implants and the current owner refers them out, that’s hidden upside. If you’re proficient in clear aligners and the seller doesn’t offer orthodontics, you’ve found growth potential that isn’t reflected in the asking price.

So how do you put a price on that?

This is where working with a reputable buyer representative and dental consulting group like NEXT LEVEL CONSULTANTS can help. The “Is this practice overpriced?” question gets personal. The same practice can be a bad deal for one buyer and a steal for another.

There’s no universal formula here. Best guess is looking at procedure codes the seller produces that you’ll refer out and estimate that lost revenue. Then look at procedures you perform confidently that the practice doesn’t currently offer, and project conservative growth. All these estimates should be based on the existing patient base. The gap between those two numbers starts to tell you whether the asking price makes sense for your specific skill set.

This clinical is where working with a buyer’s representative becomes invaluable. We help you build that model with years of looking at clinical codes and mapping your clinical strengths against the practice’s current production. Don’t forget to consider the competition and the market analysis of PPO’s in the area as well.

Path 3: Calculate Income After Everything

I know we started this article off talking about profit vs collections, but don’t just look at income after debt service for a purchase price. Also consider factoring in what you’ll need to invest post-close. Things like new equipment, software upgrades, a fresh round of marketing to stabilize patient flow, potential staff changes all are additional expenses the previous owner did not embrace.

A practice priced at $600,000 might look great on paper until you realize it needs $80,000 in equipment updates and a full technology overhaul. Run those numbers with your lender before you fall in love with an opportunity. Your true “day one” investment is the purchase price plus everything required to make the practice functional and aligned with how you want to operate.

The Opportunity Behind the Numbers

Here’s the thing when you shift your focus from “vanity” metrics to profitability, you start seeing opportunities dentists often overlook.

For example that 3-operatory, fee-for-service practice collecting $1.8 million, most buyers scroll right past. Because on a forum somewhere docs have been told they need five or more ops. A broker I talked to confesses they sold a practice with 3 ops and it was one of her most profitable listings she had available.

The mature practice with “only” 15 new patients a month? That might be exactly right for a stable, well-retained patient base with high case acceptance. Meanwhile, a 30-year-old practice getting 50 new patients monthly should raise a question: why is there so much attrition?

When you understand what drives value, you stop chasing the wrong practices and start finding the best one that fits your skills, your goals, and your financial future.

Moving Forward with Confidence

Buying a dental practice is one of the biggest financial decisions you’ll make. The doctors who succeed approach it with an open mind and curiosity. They focus on profit, clinical fit, and realistic projections rather than surface-level vanity metrics.

At NEXT LEVEL CONSULTANTS, we’ve helped hundreds of dentists navigate this exact process. Our buyer representation program is built around this kind of deep analysis and understanding of what a practice is actually worth. Whether it fits your clinical strengths and how to structure a deal that positions you for long-term success.

If you’re evaluating practices and want someone in your corner who’s been through hundreds of transitions, reach out. We’d love to help you find the right opportunity.