Most dentists believe the negotiation starts when the offer arrives.
It doesn’t. By the time a DSO or a sophisticated private buyer sends you a Letter of Intent, the most important number in the transaction has already been calculated, argued over internally, and locked. You just weren’t in the room.
That number is adjusted EBITDA. And the work that determines it happened in your practice over the last three years, in decisions you probably never connected to your exit.
What Adjusted EBITDA Actually Measures
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. In plain terms, it estimates what your practice earns as a business, stripped of financing decisions and accounting conventions.
Adjusted EBITDA goes one step further. It asks a different question: what would this practice earn under a new owner, operating normally, without the personal choices of the current one?
Here’s why that distinction controls your outcome. Buyers do not pay a multiple of revenue. They pay a multiple of adjusted EBITDA. A practice collecting $2 million with sloppy earnings and a practice collecting $2 million with clean, defensible earnings are not worth the same, and the gap is rarely small.
Add-Backs: The Line Items You Have to Prove
An add-back is an expense currently sitting on your profit and loss statement that a buyer agrees does not belong there, because it wouldn’t exist under new ownership. Add it back, and adjusted EBITDA rises.
Common categories include:
- Owner compensation above market. Buyers normalize your salary to what it would cost to replace your clinical production with an associate at market rate.
- Personal expenses run through the practice. Vehicles, travel, family cell phones, memberships, family members on payroll.
- One-time or non-recurring costs. A build-out, a legal matter that has concluded, a one-off equipment purchase.
- Discretionary spending. Continuing education well beyond requirement, sponsorships, entertainment.
Every one of these is legitimate in concept. That is not the issue.
The issue is that an add-back is not a claim. It is a claim you have to document. And a buyer’s diligence team is under no obligation to accept anything you cannot support with clean records.
The Blind Spot: You Are Negotiating Against a Team That Does This Weekly
This is the asymmetry nobody warns sellers about.
A dentist sells a practice once, maybe twice in a career. The buyer across the table has a finance team that models these transactions constantly. They have a standard treatment for every add-back category, a documentation threshold, and a quiet internal expectation of how much of the seller’s proposed adjustment they’ll actually allow.
You are not being cheated. You are being outprepared.
And here is the part that costs real money: when an add-back is rejected during diligence rather than resolved beforehand, it doesn’t just reduce that line. It reduces confidence in the entire financial package. Buyers who find one soft number start pressure-testing all of them.
The Value Killers, Quietly Compounding Right Now
These are the patterns that erode adjusted EBITDA long before anyone goes to market:
Commingled personal and practice spending with no clear trail. The expense is real and the intent is defensible, but if it lives in a general category with no invoice or explanation, it is very hard to reclaim in diligence.
Cash-basis books that were built for the tax return, not for a sale. Minimizing taxable income for a decade is rational. It also produces a financial history that understates the business a buyer is being asked to price.
Family on payroll without a defined role. This is one of the most scrutinized categories in healthcare diligence, and one of the hardest to substantiate after the fact.
Below-market or informal rent when you own the building. A buyer will normalize occupancy cost to market. If your rent is artificially low, that adjustment reduces adjusted EBITDA. If it is artificially high, you may have created a different problem in the lease.
Associate compensation that doesn’t reflect what production actually costs. Buyers model what it takes to replace clinical capacity, not what your current arrangement happens to cost.
Waiting until the LOI to organize any of it. Once diligence begins, you are responding rather than presenting. Leverage has already moved.
None of these are catastrophic in isolation. That is exactly the point. Deals rarely die from one dramatic problem. They lose value through a dozen quiet ones that were never addressed because they never felt urgent.
How We Approach This
Our methodology applies here directly.
1. Understand the objective first. A seller planning to retire fully and a seller planning to roll equity and stay five years should prepare their financials differently. The target dictates the work.
2. Find the risk. Comprehensive review of the financial and legal record before a buyer sees it. Where are the soft numbers? What cannot currently be documented? What would a diligence team flag on day one?
3. Negotiate strategically. Not every add-back is worth contesting. Some categories are routinely accepted, others are routinely challenged, and knowing the difference means you spend leverage on the terms that move dollars and risk.
4. Control the deal to closing. One advisor coordinating the CPA, the broker, the lender, and the landlord so the financial story stays consistent from LOI through close.
The realistic window to do this well is twelve to twenty-four months before you go to market. Not because of any deadline, but because clean records are built over time and cannot be manufactured retroactively.
Every practice is different, and every transaction requires individualized legal and financial analysis. What is defensible in one deal structure may be irrelevant in another.
If you’re thinking about a sale in the next two years, or you’ve already received interest and want to understand how your financials will be read, that conversation is worth having before the offer arrives, not after.
Related reading
- Mastering Dental Practice Valuation in Florida: Key Factors for a Successful Acquisition
- The Letter of Intent in Dental Practice Sales: Why Most of Your Leverage Lives Here
- DSO vs. Private Buyer: Choosing the Right Exit for Your Dental Practice
- Legal Considerations in Selling Your Practice to a DSO
Practice area: Dental Practice Sale and Acquisition Attorney in Florida
This article is for informational purposes only and is not legal advice. No attorney-client relationship is formed by reading it.