EBITDA for Dental Practices: A Guide for Private Practice Owners

February 26, 2026

EBITDA is a measure of operating profit before interest, taxes, depreciation, and amortization.

EBITDA is a non-GAAP measure, meaning definitions can vary. The best practice is to keep a simple reconciliation of net income and calculate it the same way every time.

EBITDA is not cash flow. Big equipment purchases and loan principal payments can reduce cash even when EBITDA looks strong.

In dental transactions, especially DSO/corporate offers, EBITDA is commonly used as a valuation starting point.

What EBITDA means

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

In plain English, EBITDA is designed to answer:

“How profitable is the practice’s day-to-day engine before loan structure, tax presentation, and certain non-cash accounting expenses change the view?”

EBITDA is a non-GAAP measure. That simply means it is not a standardized line item on financial statements, and different people can calculate it differently.

For owners, the practical takeaway is to define how you calculate EBITDA and maintain consistency over time.

Why EBITDA matters to private practice owners

EBITDA matters because it gives you a cleaner view of operating performance than net income alone. Most practice owners run into EBITDA in four situations:

• Performance tracking: Compare year-over-year results without financing terms distorting the picture.
  
  
• Financing conversations: Lenders often start by discussing operating profitability before layering in debt structure and repayment.
  
  
• Growth decisions: Evaluate whether the practice can support the next hire, add hygiene capacity, invest in new equipment, or expand to a larger facility.
  
  
• Transitions and valuation: In many sale contexts, especially DSO/corporate, EBITDA (often adjusted/normalized) is a common starting point for value discussions.
  
  

How to calculate EBITDA

There are two common ways to calculate EBITDA. Both can be correct if used consistently.

Method A: Start with net income (most common)

EBITDA = Net income + Interest + Taxes + Depreciation + Amortization

Method B: Start with operating income (EBIT), then add back D&A

EBITDA = Operating income (EBIT) + Depreciation + Amortization

Which line item should you start with on your P&L?

If your P&L has a subtotal like Net Operating Income (sometimes shown as Operating Income) above a separate “Officer Expenses” or “Doctor Compensation” section, start there.

On the financial statements we prepare for clients, Net Operating Income sits above the officer expense cluster so we can see operating performance before owner-doctor pay. Starting above that cluster keeps you from beginning with a number that already includes officer wages that you may later need to normalize for comparisons or a future sale model.

A simple step-by-step process

1. Start with net income for the period (or Net Operating Income/Operating Income if your statement separates out officer expenses below that line).

2. Add back interest expense (loan interest, equipment note interest, line-of-credit interest).

3. Add back income tax expense if it appears on your practice/entity P&L (many pass-through practices show little or none).

4. Add back depreciation expense (often shown as “depreciation” or “depreciation & amortization”).

5. Add back amortization expense if it is listed separately (otherwise, it may be included in a combined depreciation line).

6. The total is EBITDA for that period.

Example: calculating EBITDA and EBITDA margin

Assume a solo practice has annual collections of $1,200,000 and the following items on the P&L:

• Net income: $180,000
  
  
• Interest expense: $30,000
  
  
• Income tax expense on the P&L: $0
  
  
• Depreciation: $70,000
  
  
• Amortization: $20,000
  
  

EBITDA = $180,000 + $30,000 + $0 + $70,000 + $20,000 = $300,000

EBITDA margin

• EBITDA margin = EBITDA ÷ collections (or net revenue).
  
  
• Pick your denominator (collections or P&L revenue) and keep it consistent. If you change denominators, comparisons become misleading because the percentage is no longer apples-to-apples.
  
  
• EBITDA is not cash flow
  
  

Takeaway: EBITDA is a performance metric, not a cash metric. Two practices can have similar EBITDA and very different cash pressure.

Why EBITDA can look strong while cash feels tight

• Loan principal payments do not reduce EBITDA (only interest is added back).
  
  
• Large equipment purchases and build-outs (capital expenditures) do not hit EBITDA as an expense in the purchase month.
  
  
• Timing matters: collections timing, payables timing, and insurance reimbursements can move cash without significantly changing EBITDA.
  
  

Example: the CBCT purchase

Suppose you purchase a CBCT for $120,000.

The purchase itself does not show up as an operating expense on the P&L. Instead, depreciation is recognized over time, and EBITDA adds it back.

Cash can drop immediately if you pay cash or put money down. If you finance it, cash can still feel tighter due to monthly principal payments, even if EBITDA barely changes.

A simple bridge from EBITDA to cash reality

• Start with EBITDA
  
  
• Minus cash interest paid
  
  
• Minus cash taxes paid
  
  
• Plus/minus working capital changes (receivables, payables, inventory)
  
  
• Minus capital expenditures (equipment, build-outs)
  
  
• Minus loan principal payments
  
  
• Equals change in cash (simplified)
  
  

EBITDA vs. “owner benefit” (SDE)

In some small-business contexts, a related metric is Seller’s Discretionary Earnings (SDE), sometimes called owner benefit. SDE is designed to estimate the total economic benefit available to one full-time owner-operator.

• EBITDA focuses on operating profit before interest, taxes, depreciation, and amortization.
  
  
• Adjusted/normalized EBITDA removes one-time and non-operating items to reflect a normal, repeatable year.
  
  
• SDE (owner benefit) estimates the total financial benefit to one working owner, often including add-backs for discretionary or personal expenses.
  
  

Adjusted (or “normalized”) EBITDA

In lending, partner buy-ins, and sale contexts, adjusted EBITDA removes items that do not reflect a normal, repeatable year.

• Only add back items that are clearly non-recurring, non-operating, or personal/discretionary.
  
  
• Document every add-back with support and a short explanation.
  
  
• If an item happens every year, it is not a one-time event.
  
  
• Be consistent across periods.
  
  

Common areas reviewed include one-time professional fees, personal expenses paid through the practice, non-recurring repairs, owner compensation normalization, and related-party rent adjustments.

The lender lens: EBITDA is a starting point, not the finish line

EBITDA summarizes operating profitability. Debt service and capital needs determine how much of that operating strength is available for payments, reinvestment, and owner take-home.

• A practical way to think about it:
   
  • EBITDA tells you how strong the operating engine is.
    
    
  • Debt service and capital needs tell you how much of that operating strength is available for payments, reinvestment, and owner take-home.

DSOs and corporate buyers: how EBITDA gets used

In many DSO and corporate group offers, adjusted EBITDA is used as the valuation starting point. Buyers may calculate EBITDA differently than you do internally, so always review their definition and reconciliation.

• Some buyers model a market-based doctor compensation expense.
  
  
• Some include management fees or other pro forma adjustments.
  
  
• Buyers may adjust for non-recurring items, owner perks, and related-party rent.
  
  

One nuance: in many private practices, doctor pay on the books is not tied directly to production the way it may be in a DSO model. When modeling a future transaction, doctor compensation is often rebuilt using provider production or collections data (and then layered with payroll taxes and benefits) to match the buyer’s structure. That is why your “doctor wages” line on the P&L can differ from the “doctor compensation” a buyer uses in their EBITDA calculation.

About EBITDA multiples

Industry valuation guides often describe pricing as a multiple of a buyer’s EBITDA calculation. Ranges vary by location, size, specialty mix, growth profile, and risk.

Common EBITDA mistakes in solo practices

• Mixing personal and practice expenses.
  
  
• Switching between production and collections when discussing margins.
  
  
• Inconsistent expense categorization.
  
  
• Assuming EBITDA equals cash.
  
  
• Comparing EBITDA figures without aligning compensation, rent, and add-back definitions.
  
  

How to use EBITDA as an owner

• Track EBITDA monthly and review it on a trailing twelve-month basis.
  
  
• Pair EBITDA with a simple cash view, including principal payments and capital plans.
  
  
• When EBITDA shifts, review staffing, schedule flow, supplies, lab, open chair time, cancellations, and collections follow-up.
  
  
• Keep notes on unusual events for future reference.
  
  

A quick EBITDA checkup

• Do I have a clear reconciliation from net income?
  
  
• Am I consistent with my denominator?
  
  
• Were there true one-time items this month?
  
  
• Did staffing hours outpace patient flow?
  
  
• Did supplies or lab spike?
  
  
• Is open chair time increasing?
  
  
• Did equipment purchases affect cash?
  
  

EBITDA is a clarity tool. It helps you understand what your practice produces from normal operations before loans, taxes, and certain accounting entries complicate the view. Used consistently and paired with a simple cash perspective, it becomes a practical metric for benchmarking, planning, financing conversations, and transition readiness.

Not sure where to start? Contact us today!

References

Deloitte Development LLC. (2025). 4.6 EBIT and EBITDA, and adjusted EBIT and EBITDA. Deloitte Accounting Research Tool.

Ernst & Young. (2023). Technical Line: Navigating the requirements for non-GAAP financial measures.

Henry Schein Dental Practice Transitions. (2025). A guide to practice valuations.

International Business Brokers Association. Glossary of terms used by business brokers and advisors.

Kenton, W. (2025). Understanding adjusted EBITDA. Investopedia.

KPMG LLP. (2023). Non-GAAP financial measures.

Mishler, M. D. (2025). Exercising caution with non-GAAP measures and disclosures. Journal of Accountancy.

Montevirgen, K. EBITDA. Britannica Money.

U.S. Securities and Exchange Commission. (2022). Non-GAAP financial measures.

Vipond, T. (2025). What is EBITDA? Corporate Finance Institute.