--- title: "Dental practice valuation: the three common methods" description: "Dental practice valuation uses income, market and asset approaches. See how the IRS and SBA describe each one, why no single number fits, and who to hire." url: https://joncopeland.multisites.ai/blog/dental-practice-valuation-methods publisher: Copeland Consulting Services email: drcopeland@joncopelanddds.com contact: https://joncopeland.multisites.ai/contact --- # Dental practice valuation: the three common methods Valuation professionals commonly use three approaches: income, market and asset. The IRS says all three should be considered and judgment used to choose among them. The ADA suggests a valuator who specializes in dental practices. This post explains terms only and gives no price or multiple. Practice managementPublished October 26, 20264 min read A dental practice does not have one fixed price. Its value depends on the method used, the facts fed into it and the purpose of the valuation. This post explains the three common approaches in plain words, with sources from the IRS, the Small Business Administration (SBA) and the American Dental Association (ADA). It gives no price, no multiple and no rule of thumb. It is not valuation, tax or legal advice. ## What are the three valuation approaches? Professionals commonly use an income approach, a market approach and an asset approach. The IRS Internal Revenue Manual states: “The three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach. Consideration should be given to all three approaches. Professional judgment should be used to select the approach(es) ultimately used and the method(s) within such approach(es) that best indicate the value of the business interest.” The IRS text is guidance for its own valuation work, not a rule for dentists. It still shows how a professional thinks: look at all three, then choose with judgment. The SBA lists the same three for owners who plan to sell. Approach SBA plain-words description Glossary entry Income “Looks at projected revenue and accounts for potential risks.” [Income approach](https://joncopeland.multisites.ai/glossary/income-approach) Market “Compares your business to other similar businesses that have recently sold.” [Market approach](https://joncopeland.multisites.ai/glossary/market-approach) Assets “Subtracts total business liabilities from the total value of all assets.” [Cost approach](https://joncopeland.multisites.ai/glossary/cost-approach) The glossary uses “cost approach” for the asset-based method. The SBA and the IRS manual call it the “assets” or “asset-based” approach. Same idea, different label. ## How does the income approach work? The income approach asks what future earnings the practice can produce, and how risky they are. The SBA says it “looks at projected revenue and accounts for potential risks.” An appraiser starts from past financial statements, adjusts them, and then applies a rate that reflects risk. The IRS manual says the appraiser “should select the appropriate benefit stream, such as pre-tax or after-tax income and/or cash flows, and select appropriate discount rates, capitalization rates or multiples.” That sentence shows why a single published number is not enough. The result depends on which earnings measure the appraiser picks and which rate. The IRS lists factors that go into the rate, including “the stability or irregularity of earnings.” Two appraisers can reach different results with different, defensible choices. The [adjusted EBITDA](https://joncopeland.multisites.ai/glossary/adjusted-ebitda) concept, covered in the [EBITDA in a dental practice sale](https://joncopeland.multisites.ai/blog/ebitda-dental-practice-sale) post, is one common way to state earnings. ## How does the market approach work? The market approach compares the practice to similar practices that sold. The SBA says it “compares your business to other similar businesses that have recently sold.” The quality of the result depends on whether the comparison sales are truly similar and recent. Practices differ in location, payer mix, equipment, lease terms and how much of the revenue depends on the owner. Be careful with figures from brokers and articles. A percent of collections or a multiple of earnings is a summary of past deals. Ask where the number came from, which deals it covers, and which year. This post names none because no source opened for it supports one. ## How does the asset approach work? The asset approach adds up what the practice owns and subtracts what it owes. The SBA says it “subtracts total business liabilities from the total value of all assets.” For a dental practice, assets can include equipment, supplies, records and real estate if it is part of the sale. The ADA says a valuator can assess “the actual worth of the practice, the patient population, equipment and, if applicable, real estate.” This approach tends to leave out the value of the patient base and the name of the practice unless the appraiser adds it. That unmeasured value is called [goodwill](https://joncopeland.multisites.ai/glossary/goodwill). A valuator may handle it inside the income or market approach instead. ## Why does the purpose of the valuation matter? A valuation can serve different purposes, such as a sale, a buy-in or a loan, and each purpose may call for a different standard and report. Tell the valuator the purpose before work begins. Ask what standard of value they use, what date the value applies to, and what documents they rely on. The [practice valuation](https://joncopeland.multisites.ai/glossary/practice-valuation) and [practice appraisal](https://joncopeland.multisites.ai/glossary/practice-appraisal) entries explain the terms. ## Who should perform the valuation? The ADA says to “assemble a team of competent professionals” for a sale, including “a dental practice valuator to assist in developing an independent and objective assessment regarding the actual worth of the practice.” It adds: “You may want to consider hiring a valuator who specializes in dental practices.” The same page lists an attorney experienced in dental practice sales, a certified accountant and a financial advisor. A [practice broker](https://joncopeland.multisites.ai/glossary/practice-broker) may also help with listing and marketing. A broker’s estimate is not the same as an independent valuation, so ask each person what their role is and how they are paid. ## What should an owner prepare? 1. The financial statements and balance sheets the ADA lists for due diligence. 2. A list of equipment, with ownership or lease status. 3. Patient and production data, such as new patients per month and referral sources. 4. The lease and any staff contracts. 5. A list of one-time or owner-related expenses to discuss with the CPA. The [owner compensation](https://joncopeland.multisites.ai/glossary/owner-compensation) entry explains why this matters. ## Next step For the full process around value, price and terms, read the [valuing a dental practice guide](https://joncopeland.multisites.ai/guides/valuing-a-dental-practice). Then bring your numbers to a qualified valuator, an attorney and a CPA. To discuss practice transitions with Dr. Jon Copeland, DDS, a general dentist in Wildwood, Missouri, [contact Dr. Copeland about consulting](https://joncopeland.multisites.ai/contact?topic=consulting). ## Frequently asked questions ### What are the three valuation approaches? The IRS Internal Revenue Manual names the asset-based approach, the market approach and the income approach as the three generally accepted valuation approaches. The SBA describes them in plain words for small business owners. ### Is there a rule of thumb for what a dental practice is worth? This post does not give one. Rules of thumb vary and no standard sets them. Hire a qualified valuator and review the result with an attorney and a CPA. ### Who should value a dental practice? The ADA suggests a dental practice valuator who can give an independent and objective assessment of the practice, the patient population, equipment and, if relevant, real estate. Consider one who specializes in dental practices. ## Terms on this page - [American Dental Association](https://joncopeland.multisites.ai/glossary/american-dental-association) - [Owner compensation](https://joncopeland.multisites.ai/glossary/owner-compensation) - [Practice appraisal](https://joncopeland.multisites.ai/glossary/practice-appraisal) - [Practice valuation](https://joncopeland.multisites.ai/glossary/practice-valuation) - [Adjusted EBITDA](https://joncopeland.multisites.ai/glossary/adjusted-ebitda) - [Income approach](https://joncopeland.multisites.ai/glossary/income-approach) - [Market approach](https://joncopeland.multisites.ai/glossary/market-approach) - [Practice broker](https://joncopeland.multisites.ai/glossary/practice-broker) - [Cost approach](https://joncopeland.multisites.ai/glossary/cost-approach) - [Due diligence](https://joncopeland.multisites.ai/glossary/due-diligence) ## Sources 1. [IRS: Internal Revenue Manual 4.48.4, Business Valuation Guidelines](https://www.irs.gov/irm/part4/irm_04-048-004) 2. [U.S. Small Business Administration: Close or sell your business](https://legacy.sba.gov/business-guide/manage-your-business/close-or-sell-your-business) 3. [ADA: What to Do When Selling a Practice](https://www.ada.org/resources/practice/practice-management/what-to-do-when-selling-a-practice) Written by Copeland Consulting Services and checked against the sources above on October 26, 2026. Rules, data and guidance change, so check the linked page before you act on it. ## Keep reading - [Valuing a dental practice: methods, inputs and questions to askA dental practice is valued with a method, not a rule. The SBA lists five: capitalized earning, excess earning, cash flow, tangible assets, and specific intangible assets. Each needs records such as financial statements and tax returns. The result depends on the inputs and the person doing the work. Use an independent valuator.](https://joncopeland.multisites.ai/guides/valuing-a-dental-practice) - [What is EBITDA in a dental practice sale? A plain guideEBITDA means earnings before interest, taxes, depreciation and amortization. Buyers and valuators use it to compare earnings, but it is not a standard accounting measure and its limits are well known. Adjusted EBITDA adds back selected items. Have a CPA and valuator review how it is figured.](https://joncopeland.multisites.ai/blog/ebitda-dental-practice-sale) - [Dental practice ownership: buying, starting, valuing, selling, associates and DSOsDentists reach ownership by starting a practice, buying one, buying in as a partner, or working as an associate or for a DSO first. ADA data show 73 percent of dentists owned a practice in 2023, down from 85 percent in 2005. Each path needs an attorney, a CPA and often a lender or broker.](https://joncopeland.multisites.ai/guides/dental-practice-ownership) - [Buying a dental practice: steps, financing and due diligenceBuying a dental practice usually runs in six stages: define your goals, get financing, value the practice, sign a letter of intent, complete due diligence, and close. Lenders, attorneys and accountants each own part of the work. This guide explains the steps and lists questions to ask. It is not legal, tax or financial advice.](https://joncopeland.multisites.ai/guides/buying-a-dental-practice) - [Dental practice compliance checklist: OSHA, HIPAA and infection controlA dental compliance checklist covers three federal areas: OSHA workplace safety, HIPAA privacy and security, and CDC infection control. OSHA has no dentistry-specific standard but applies general industry standards such as bloodborne pathogens. HIPAA covers patient information. Use the checklist to organize questions, then confirm requirements with your own advisers.](https://joncopeland.multisites.ai/guides/dental-compliance-checklist) - [Dental practice consulting: what consultants do and how to choose oneA dental practice consultant is an outside professional who reviews how a practice runs and helps the owner fix specific problems, such as scheduling, finances, team systems, insurance or a transition. Choose by matching the consultant's focus to your problem, then check references, scope, and how results are measured.](https://joncopeland.multisites.ai/guides/dental-practice-consulting) ## Talk with Dr. Copeland [Contact Dr. Copeland](https://joncopeland.multisites.ai/contact)[Email](mailto:drcopeland@joncopelanddds.com)