What is EBITDA and why is it important for dentists?

Written by on March 23, 2017 in Best practice, Financial, Leadership, Personal Goals - No comments

You may have been referred to ‘EBITDA’ or to give it its full name ‘Earnings Before Interest Taxation Depreciation and Amortisation’.

A bit of a mouthful, but the point to note is it is an adjusted net profit figure that dental business valuers use to assess the value of the goodwill element of your dental business.

Your practice goodwill is the non tangible element of your practice. It includes everything bar your physical fixtures and fittings which are valued separately. So your goodwill includes how well you retain and grow your patient base and your reputation in the local community.

To value your goodwill, valuers extract certain elements from your net profit figure such as the interest you pay on the loans you have and any depreciation applied to your long term assets. This is because these factors are specific to you and do not necessarily apply to an incoming business owner.

A multiple of this adjusted net profit figure, or EBITDA, is then used to value your business. At the moment we are seeing dental businesses change hands for 3.5 times to 6 times EBITDA.

You may not wish to sell your dental business in the short or even medium term. But a proactive accountant will calculate your EBITDA for you on a regular basis and support you in improving it over time, in order to improve the value of your business when you do come to sell.

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