EBITDA Analysis

Where Are You Leaving Money on the Table?

Aligned Dental Partners is offering a FREE EBITDA analysis.

Understanding EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is critically important to understanding the value of your practice. Do you know how much your practice is truly worth? Do you believe that the value of your practice is something of which you should be aware? Aligned Dental Partners believes that every owner dentist should have complete awareness of not only their EBITDA, but what goes into calculating this number and how to improve it! This number is used in many practice circumstances such as valuing the business, securing bank loans (perhaps to purchase another practice), mergers, partnership, or selling your practice(s) to another dentist or DSO organization. Having a healthy EBITDA means having a healthy business. This is your value! The target for an investment-grade practice is at minimum 20% EBITDA. How do you measure up?

Monitoring and increasing net profit, or EBITDA, in your dental practice is key to improving owner doctor income and is often the difference between receiving a premium valuation for your practice or settling for less than you deserve. So, why is it that so many practice owners are not intimately familiar with this number? The short answer is it is hard to be a practicing dentist and a business owner. Typically, doctors are so entrenched in the day-to-day clinical side of the practice and not trained to think like investors or investment bankers so they may not fully appreciate and understand their practice metrics, and even when they do, they struggle to create a plan that will move the needle in the right direction. There are two approaches to growing net profit: Cost Reduction and Increasing Revenue. Simply put, value can be created by proper accounting and properly classify expenses and revenue. Sometimes this is easier said than done! Aligned Dental Partners focuses on key areas to provide the most value to its clients.

Aligned Dental Partners are industry experts, and we work with entrepreneurial dentists to value their business, but beyond that we will show you where you are leaving money on the table. We can illustrate for you where your costs are high and ways to control fixed and variable expenses so more revenue falls to the bottom line while also properly accounting for it all. This could mean you have more income to take home, more money to put into the business, and ultimately more value which will dictate a higher sales price or transition value.

Aligned Dental Partners supports our clients in their cost reduction initiative to bring their P&L in line with industry standards.

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Overhead Targets for Group Practices as a Percentage of Overall Practice Revenue:

Doctor Compensation: 20%
Staff Compensation: 22%
Dental Supplies: 5%
Lab Costs: 7%
Marketing: 2-4%
General & Administrative: 7%
Facilities: 8%
Corporate: 7%

Aligned Dental Partners has the tools and resources to help your practice build its net worth.

Materials to gather to Complete the Analysis:

Non-Disclosure Agreement (we will provide this for you)
2019 and 2020 Profit and Loss
2019 and 2020 revenue by provider
Current balance sheet
Owner salary, distributions, benefits, insurance, perks etc.

Aligned Dental Partners Case Study:

A current client has as successful practice that generates $5.1 Million in revenue, but Aligned Dental Partners calculated their EBITDA to be on 13%. A practice of this size should have 24% clinical EBITDA. The client felt that they had maximized their current spend with their vendors and their overhead was a slim as it could be. ADP analyzed their lab and supplies invoices and determined that they are running at 16% of revenue combined. We worked together and created a new procurement process and utilized preferred vendor relationships to realize a savings of 18% off their cost of goods sold. This yielded an additional $146,000 of net free cash flow. Additionally, the doctor opened a second location and replicated the savings in a multi-location business. This added increased the value of the company significantly. For each dollar this client saved, it equaled $6.5 in multiples of EBITDA in value in a recent company valuation.