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Authors: Phill Hoover & Dr. Michael Weis
If you have spent any time researching dental practice transitions, you have probably come across some version of the same formula: take the practice's gross revenue, multiply it by a percentage, and there is your number. It is a clean, simple calculation, and it has been used in the industry for decades. The problem is that it is also incomplete, and in today's market, relying on it alone can lead buyers to overpay or sellers to undervalue what they have spent years building.
At Western Practice Sales, our team has been involved in thousands of transitions across the country. Phill Hoover spent over 15 years working with one of the largest dental lenders in the nation and has helped facilitate more than $500 million in loan originations. Dr. Michael Weis has been on every side of the equation, as an associate, a buyer, a practice owner who grew his practice significantly, and ultimately a seller. When we sit down with a client, whether they are buying or selling, we bring that combined perspective to the table. And one of the first things we address is how practice valuation actually works in today's market.
Why the "70% of Collections" Rule Is Just a Starting Point
The traditional gross revenue method works like this: take what a practice collects annually, apply a standard percentage, usually somewhere in the range of 60 to 80 percent, and use that figure as the asking price. It is a rough benchmark that gives everyone a place to begin the conversation, and it is not without its uses.
But it is exactly that: a starting point. A practice producing $1 million in collections is not automatically worth $700,000, and treating that figure as a firm valuation does a disservice to both sides of the transaction. Two practices can have identical top-line revenue and wildly different values depending on what is happening underneath that number. The formula tells you what a practice is bringing in. It does not tell you what it is actually worth to the person buying it or what it will realistically support going forward.
In 2026, buyers have more access to information than ever, lenders are scrutinizing deals more carefully, and the market has matured enough that sophisticated buyers and their advisors are asking harder questions. The gross revenue shortcut simply does not hold up under that level of scrutiny.
The Numbers That Actually Tell the Story
When we evaluate a practice at Western Practice Sales, we work through three distinct layers of financial analysis, and each one adds a different dimension to the full picture.
The first layer is the top-line production number. This is where most people start, and it is relevant. It gives you a sense of scale and sets a general range for the conversation. But on its own, it is surface-level information.
The second layer, and arguably the most important, is the bottom line. How much money is the doctor actually taking home after all expenses are paid? This is the number that determines whether a buyer can service their acquisition debt, support their family, and build toward the future they are envisioning. A practice with strong top-line revenue but bloated overhead can leave a buyer financially squeezed from day one. Understanding the true take-home is essential before any serious offer is made.
The third layer is the P&L or tax return analysis. This is where you get into the real texture of how a practice operates. What does staff overhead look like as a percentage of revenue? What are supply costs running? What is being spent on lab? These line items reveal patterns that the headline numbers never show, and they are the foundation on which a lender will build their credit decision. Skipping this layer means making a major financial commitment based on incomplete information.
The Subjective Side of Practice Value
Here is something that does not get talked about enough in practice transitions: value is not purely a mathematical output. At the end of the day, value is in the eye of the beholder, and the subjective factors can be just as significant as the financial ones.
Dr. Weis experienced this directly when he was searching for his first practice. He knew that being near family was non-negotiable. That geographic priority shaped everything about how he evaluated opportunities, and the practice he ultimately bought probably would have been valued conservatively on paper. But he saw what the numbers alone did not capture: a strong team, a location that aligned with his personal and professional goals, and a foundation he could build on. He paid for that vision, and it paid off.
For some buyers, the value accelerates when they walk into a space and feel genuinely excited about the dentistry being done there. For others, it is the opportunity to be in a market with room to grow, whether that is outside a major metropolitan area or right in the middle of one. The practice that looks unremarkable on a spreadsheet can be the right practice for the right buyer. And the practice with pristine numbers may not move the needle for someone whose personal goals point in a different direction.
This is why working with a broker who takes the time to understand what you are actually looking for matters so much. The financial analysis is something we do for every client. But helping you find the practice that fits your life is a different kind of work, and it is work we take seriously.
What Sellers Should Do Before They List
If you are thinking about selling your practice, the single most valuable thing you can do is start that conversation earlier than feels necessary. Our recommendation is to engage with a broker three to five years before your target sale date. Most sellers wait too long, and by the time they are ready to move, they have missed the window to meaningfully improve the value of what they are selling.
That three-to-five-year window is where we can have a real impact. Depending on where your practice is, we may recommend targeted capital improvements or operational adjustments that make the practice more attractive to a buyer without requiring a full renovation. Technology upgrades are often among the most straightforward and highest-return investments a seller can make in that window. Transitioning to digital charts, adding digital sensors, updating imaging equipment: these are not extravagant expenditures, but they signal to a younger buyer that the practice is current, and they can meaningfully shift how a buyer perceives the value of what they are walking into.
We also want to be clear that this conversation does not happen in isolation. Before you talk to us, you should be talking to your CPA, your financial planner, and your tax advisor. Ideally, that planning is happening five to ten years before a sale. We want to be involved in the three-to-five-year window as part of a broader team that is helping you get to the right outcome, not as the only voice in the room.
If you are already in a situation where you need to move quickly, we can work with that too. In those cases, we focus on the numbers as they are, put together the strongest representation of the practice we can, and take it to market. But sellers who have time on their side have a genuine opportunity to expand their value, and we encourage them to use it.
Why Clean Financials Are Non-Negotiable
One of the most common misconceptions we encounter is the idea that cleaning up your financials before a sale will make the numbers look better than they actually are. We want to address that directly, because the goal is not to inflate your value. The goal is to solidify it.
Lenders want to see three years of clean financials. That means a clear Schedule C or a clean S-corp return, depending on how your entity is structured. It means that any personal or discretionary expenses running through the business, what Phill refers to as the ownership slush fund, are clearly documented and can be properly added back in the analysis. When a lender can follow the money without ambiguity, they can finance the deal cleanly, often without requiring seller participation.
When the financials are messy or unclear, lenders start asking harder questions. The deal gets complicated. The value that was right there on paper becomes harder to defend, and buyers and their advisors start to lose confidence. Clean financials do not create a number out of thin air. They lock in the number you have already earned and make it possible for a qualified buyer to actually acquire your practice.
This is why the relationship with your accountant in the years leading up to a sale is not optional. It is one of the most important financial partnerships you can maintain as a practice owner.
Let's Talk About Your Practice
Whether you are five years out from selling, actively searching for your first acquisition, or somewhere in between, the team at Western Practice Sales is here to help you navigate the process with clarity and confidence. We are not just brokers. We are a team with real experience on every side of a dental practice transition, and we are committed to being a resource from the first conversation through to the closing table.
Reach out to us at (800) 641-4179. We would love to learn more about where you are in your journey and how we can help you get to where you want to go.
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