Guide · Updated August 2026

Why your practice profit isn't the profit a valuer uses

A valuation isn't built on the profit at the bottom of your P&L. It's built on adjusted EBITDA — profit after one-off and owner-specific costs are stripped out, and after a market-rate wage is deducted for your own clinical work. That last step is the one owners don't expect, and it's usually the largest adjustment of all.

By Juen Phie, CA ANZ · 20+ years advising medical & dental practices

Three different "profits"

Most confusion about what a practice is worth comes from three numbers that all get called profit, and are all different.

• Net profit — the bottom line of your P&L. Struck after depreciation, interest, your own drawings, one-off costs and whatever private expenses run through the business.
• EBITDA — earnings before interest, tax, depreciation and amortisation. Removes financing and accounting effects so two practices can be compared on operations alone.
• Adjusted EBITDA — EBITDA, normalised. One-offs and owner-specific items removed, and a market-rate clinical wage deducted for the owner. This is the figure a valuer capitalises, and it's also what people mean by future maintainable earnings.

Only the third one answers the question a buyer is actually asking: if I take over this practice, what does the business earn me, over and above what I'd earn anywhere as a dentist?

Step 1 — Add back what isn't a real, ongoing business cost

The first pass removes anything that reflects your circumstances rather than the practice's operations. A buyer isn't inheriting these, so they shouldn't depress the earnings they're pricing. Typically:

• Interest on your loans — the buyer will have their own funding
• Depreciation and amortisation — accounting entries, not cash costs
• Your own wages, drawings or director's fees — replaced in step 2
• Private or part-private expenses run through the business — motor vehicle, travel, phone
• Genuine one-offs — a legal dispute, a flood repair, a failed software migration
• Related-party costs above or below market — most often rent, if you own the premises

This step almost always makes the number look better. Which is exactly why stopping here is so misleading.

Step 2 — Deduct a market-rate wage for your own clinical work

Here's the step that catches owners out, and it's the one that matters most.

You've just added your pay back in. But the dentistry you personally perform still has to be done after you leave — by the buyer, or by an associate they hire. That labour has a cost, and it doesn't disappear because you're the one currently absorbing it.

So a valuer deducts a notional wage at market rate for the clinical work you do — commonly benchmarked at around 35–45% of the fees you personally generate, in line with what an associate would be paid for the same work.

What's left after that deduction is the return on the business: the systems, the patient base, the team, the location, the goodwill. That's the part a buyer is actually purchasing, and it's the only part a multiple should be applied to.

The short version: income you earn from your own hands is a return on your labour. Income the practice earns from everything else is a return on the business. A valuation prices the second one.

A worked example

A solo owner-dentist with a hygienist. The practice bills $1,000,000 a year — $750,000 produced by the owner, $250,000 by the hygienist. Here's what comes out of the accounting software, and what a valuer does to it.

Three numbers, one practice: $249,000 reported, $526,000 before an owner wage, $226,000 adjusted. Applying a market multiple of 3–5× to the adjusted figure gives a goodwill range of roughly $680,000 to $1.13M, which the 60–90% of gross fees cross-check ($600k–$900k) broadly supports. Tangible assets are then valued and added separately.

Why the distinction is worth so much money

Take the same practice and apply a 4× multiple to the wrong line. Capitalise the $526,000 — the figure before any owner wage — and you get $2.1M. Capitalise the correct $226,000 and you get $904,000.

A $1.2 million difference, from a single missing adjustment.

That's why an asking price built on the wrong profit figure doesn't just fail to sell — it fails finance. A bank's own analysis will normalise the earnings before it lends against them.

Be careful with overseas benchmarks

A lot of the practice-valuation material online is American, and it defines profit differently. The common US approach adds the owner's pay back in and stops there — no replacement clinical wage is deducted. On that basis a 40% profit margin is presented as normal.

In our worked example, the equivalent number is $526,000 — a 52.6% margin. The Australian adjusted figure is 22.6%. Both are "correct" on their own definitions. They are not interchangeable.

Take an overseas-style profit, apply an Australian multiple to it, and you will overvalue a practice by a factor of roughly two. If you're reading an international guide, check what its profit figure actually includes before you compare it to anything here.

What this means for owners

The practical consequence is that the more of the production you personally do, the less of the profit belongs to the business. Two practices billing the same amount can be worth very different sums if one owner does most of the dentistry and the other has built a team that does it.

So if you're planning to sell:

• Reducing owner-dependence lifts value twice — it raises adjusted EBITDA and supports a higher multiple, because more of the earnings survive your departure.
• Hygiene and associate production is worth more per dollar than your own chair time, because it already carries its labour cost.
• Clean up the add-backs early. Every adjustment you have to argue for is one a buyer can discount. Adjustments that are documented and consistent survive due diligence; ones that appear for the first time in a sale memo generally don't.
• Get your labour costs right. If how you engage practitioners has understated the true cost of clinical work, normalised earnings will be lower than reported profit — see payroll tax and practice value.

Frequently asked questions

What is adjusted EBITDA for a dental practice?

Adjusted EBITDA is the practice’s sustainable profit after removing one-off and owner-specific costs, and after deducting a market-rate wage for the owner-dentist’s clinical work. It represents what a new owner could reasonably expect to earn from the business itself, and it is the figure a valuation multiple is applied to.

Why is a wage deducted for the owner-dentist?

Because a buyer has to pay someone to do that dentistry — themselves or an associate. Clinical income you earn from your own hands is a return on your labour, not on the business. Leaving it in overstates the profit and, at a 3–5× multiple, dramatically overstates the value.

Is adjusted EBITDA the same as my net profit?

Almost never. Net profit is struck after accounting-driven items like depreciation and interest, and usually after owner drawings, one-off costs and private expenses run through the business. Adjusted EBITDA strips all of that out and then applies a market-rate clinical wage, so the two figures can differ by hundreds of thousands of dollars.

Why do overseas rules of thumb give a much higher number?

Many overseas guides — American ones in particular — define practice profit by adding the owner’s pay back in, without deducting a replacement clinical wage. That produces a far larger figure that is not comparable to Australian adjusted EBITDA. Applying an Australian multiple to an overseas-style profit will substantially overvalue a practice.

Next: the full method in how to value a dental practice, or run your own numbers through the practice value calculator — it asks for adjusted EBITDA, calculated the way this page describes. For a figure that has to hold up to a buyer, a bank, a court or the ATO, a formal valuation is the right tool.

General information only — not financial, tax or valuation advice. The figures above are an illustration, not a benchmark; every practice's add-backs and market-rate clinical wage depend on its own circumstances, location and mix of work.