The short answer
Australian general dental practices are commonly quoted at somewhere between 50 and 80 per cent of annual gross fees, or three to five times normalised EBITDA for owner-operated practices — with larger multi-chair, multi-clinician practices attracting higher multiples, particularly from corporate buyers. Both benchmarks are real, both are quoted daily by brokers and lenders, and both conceal the work that determines where a specific practice lands. Two practices with identical fees can defensibly sit at opposite ends of the range depending on how full the chairs are, how much of the dentistry walks out the door with the principal, and what the earnings look like once a market clinical wage is charged for the principal’s own dentistry. A valuation that quotes the benchmark without doing that work has not valued the practice; it has described the market the practice sits in.
Percentage of fees or multiple of EBITDA — why the two benchmarks disagree
The percentage-of-fees method is the legacy rule of thumb: take average gross fees over recent years and apply a percentage, with smaller practices generally attracting higher percentages and larger practices lower ones. Its appeal is simplicity. Its defect is that it ignores profitability entirely — a $1.5m-fee practice that converts 25 per cent of fees to normalised earnings and one that converts 10 per cent are priced identically, which no informed buyer would accept. The earnings-based approach — capitalisation of normalised EBITDA — is what corporate buyers, specialist health lenders and valuers actually use, because it prices what the buyer receives: maintainable profit after every clinician, including the principal, is paid a market rate for the dentistry they produce. In our engagements the percentage-of-fees figure serves as a cross-check, not a conclusion. Where the two methods diverge sharply, the divergence itself is diagnostic: it usually means the cost structure, the remuneration mix or the utilisation is unusual — and that is exactly where the valuation analysis concentrates.
How chair utilisation moves the number
Chairs are the practice’s productive capacity, and utilisation is the first thing a sophisticated buyer prices. A three-chair practice running two chairs four days a week is a different asset from the same practice running three chairs six days — even at identical current fees — because one has demonstrated capacity headroom and the other is at its ceiling. But capacity is only worth something in a valuation when the evidence supports it: an under-utilised chair is upside if the appointment book, recall performance and new-patient flow show unmet demand, and merely a cost if they do not. Vendors are often tempted to price the potential; a valuer prices maintainable earnings and lets documented capacity inform where within the supportable range the conclusion sits. The evidence that does the work here:
- ·Appointment-book utilisation by chair and by day, over at least twelve months
- ·Active patient numbers and the proportion seen within the last 12–24 months
- ·Hygiene recall and rebooking rates — recurring revenue in dental clothing
- ·New-patient flow and its source: referral, location or paid acquisition
- ·Hours the practice actually operates against the hours the fit-out could support
Single-operator dependency: the adjustment that matters most
The most common value question in dental engagements is dependency. Where the principal personally generates the majority of fees, part of what looks like practice goodwill is personal goodwill — attached to the dentist, not the entity — and personal goodwill does not transfer at settlement. The valuation response is not a slogan but a measured adjustment: provider-level fee reports establish exactly how much of the dentistry is the principal’s, and the durability of the rest is tested against associate tenure, the strength of the hygiene program and recall system, and whether patients attach to the practice’s location and brand or to an individual. High dependency shows up as a lower multiple, a specific risk discount, or both — with the reasoning documented rather than asserted. The mitigants are equally concrete: associates with multi-year tenure and their own patient bases, a hygiene department generating recurring diagnostic flow, and transition arrangements keeping the principal clinically present through a handover period. A practice that has spent two or three years reducing its dependency before sale is often worth materially more than one that has not — for reasons a valuation file can demonstrate.
A worked normalisation: the principal’s clinical wage
Consider a three-chair suburban general practice with gross fees of $1.6m. The principal works four clinical days, personally bills $700k of those fees, and takes profit as distributions rather than a wage — so the reported EBITDA of $560k includes the value of the principal’s own dentistry as if it were free. It is not free. A buyer must pay someone to produce that dentistry, and in the Australian market associate dentists are commonly engaged at a percentage of the fees they generate. Charging a commercial rate against the principal’s $700k of billings deducts roughly $280k. Add back $25k of genuinely private expenses running through the practice, and adjust rent up by $15k to market because the premises are owned by a related family trust at below-market rent. Normalised EBITDA: $560k less $280k plus $25k less $15k — approximately $290k. At a multiple of 3.5 to 4.5 times, appropriate for a practice of this scale with moderate dependency, the enterprise value bracket is roughly $1.0m to $1.3m. The percentage-of-fees rule of thumb at 60 per cent would have said $960k without asking a single question about profit. The gap between the two is the reason normalisation is done — and every figure in this example is illustrative, not a benchmark.
Why the corporate consolidator’s offer is not market value
Corporate and private-equity-backed consolidators buy dental practices on different economics from an individual associate buyer, and the headline multiple reflects it. The corporate is pricing the practice plus synergies — procurement, rostering, marketing, centralised administration — plus, critically, the principal’s committed future labour: consolidator offers are almost always conditional on the principal signing a multi-year services agreement, with a meaningful portion of the price deferred, subject to earn-out hurdles, or clawed back if revenue or tenure conditions are not met. A quoted “six times” offer is therefore not a spot price for the practice as it stands; it is a price for the practice bundled with contractual commitments that the market value definition excludes. Market value — the Spencer v Commonwealth willing-but-not-anxious standard, carried through IVS 104 — assumes a hypothetical buyer, not the specific buyer to whom the practice happens to be worth most. Special value to a particular purchaser is real money and worth negotiating hard for, but it is not the market value a tax-purpose valuation concludes. For the principal this cuts both ways: an independent market valuation tells you what the practice is worth without you contractually tied to it — which is both a negotiating floor and the honest measure of what you are being paid for the equity versus your future labour. The CGT treatment of earn-out arrangements is its own area, and it belongs with your accountant, not with us.
When the sale funds small business CGT concession claims
For many principals the practice sale is the retirement event, and the small business CGT concessions in Division 152 of the ITAA 1997 — the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption with its $500,000 lifetime limit, and the rollover — determine how much of the proceeds are kept. The sale price itself is usually not the valuation issue: an arm’s-length price stands as the capital proceeds. The valuation issue is eligibility. The maximum net asset value test requires the net value of CGT assets of the taxpayer, connected entities and affiliates to be no more than $6m just before the CGT event — and for dental principals that calculation typically sweeps in the service entity, related trusts and premises held outside the practice entity. A corporate’s headline offer is evidence of nothing beyond the practice itself, and even there it may embed special value the test should not count. Where the position is anywhere near the threshold, the file needs a documented market valuation of the relevant assets at the relevant date — methodology stated, evidence retained, prepared with the ATO’s market valuation guidance in mind so the position is defensible if reviewed. The active asset test in s 152-35 — with 'active asset' defined in s 152-40 — raises its own questions, including which entity actually owns the goodwill where a service arrangement has been in place. We prepare the valuation evidence; whether and how the concessions apply is tax advice, and that belongs with your accountant.
What a defensible dental practice valuation looks like
A defensible dental practice valuation is built the same way regardless of who commissions it: normalised earnings with every adjustment evidenced — the principal’s clinical wage above all; a primary earnings methodology with a market cross-check and a net asset floor for the equipment and fit-out; provider-level fee analysis so the dependency conclusion is measured rather than assumed; utilisation evidence so any capacity claim is supportable; and a concluded position within the supportable range, with the reasoning written down. For most practice sales and pre-sale planning, the Comprehensive tier (from $3,995 + GST) is the right level. Where the sale funds small business CGT concession claims, or the net asset position sits anywhere near the $6m threshold, the Defensible Valuation File (from $8,995 + GST) is what the review risk warrants. Every report is senior-reviewer signed under an independence statement, the working file is retained for ten years, and fees are fixed at engagement — never contingent on the outcome. And where a vendor wants a number that flatters the negotiation rather than the position the evidence defends, we will say so and decline the engagement on those terms. The entire value of the report is that it was not written to order.