Dental practice add-backs: what buyers accept or cross out

What I've seen

All sellers have questions regarding add-backs. An owner shouldn't think of these as cheating, or gaming the system. The truth of the matter is, when it comes to valuing a business, the goal is to do it with strictly the necessary components that make the business run. So I put the same question to every add-back below: does the business need this to run?

For example, the next owner may not choose to offer their lead dentists a company car, because that doctor probably isn't going to be hauling cases or materials back and forth, or going to drum up referral business. Another is that the new owner may choose to pay for continuing education, but only local classes instead of traveling to one out of state. Ultimately, when it comes to add-backs, contention does arise but is easily dealt with, with clear and objective policy.

A common one that is rejected is the salary for a family member working in the office. A lot of times, smaller businesses have family members working to help out the business, although they are often paid higher than average salaries. This can often be $50,000 to $100,000, and it gets struck because even if the figure may be lower, the new owners would still have to hire people to complete the responsibilities of the old employee.

Add-backs are not absolute. They are one piece of the negotiation, and because of the multiplier effect, they benefit sellers more than buyers.

What counts as a dental practice add-back

An add-back is an expense on your books that the next owner won't carry. Dental & Medical Counsel, a law firm for dentists, describes add-backs as expenses "that will not apply to your business after it is sold." You add them back to profit because a buyer is pricing what the practice will earn without them.

The profit a buyer starts from is EBITDA: "earnings before interest, taxes, depreciation and amortization." In the SEC staff guidance Deloitte quotes there, earnings "means net income as presented in the statement of operations …." Net income is the bottom line of your P&L, and EBITDA is that figure before interest, taxes, depreciation and amortization.

Adjusted EBITDA, as Dental Practice Connect (DPC) measures it, is EBITDA after the add-backs, and after paying a dentist to do the clinical work you do now. Someone still has to do it once you leave.

Two separate questions decide each add-back.

• Proof: did the money really go where the add-back says it went? Records settle that. Jaffe Law, a law firm that handles dental practice sales, writes that the valuation disputes it sees most often "arise from aggressive EBITDA addbacks that don't survive buyer diligence." Diligence is the buyer's check of your records before committing to the purchase.
• Necessity: will the next owner need to spend it? That is the test above, and that part gets argued and negotiated.

The table sorts the common items. The last column is the record that answers the proof question.

Why each add-back is worth three to four times its dollars

A multiple is the number a buyer multiplies adjusted EBITDA by to reach a price. For an individual dentist buying a single office, DPC's table of what dental practices sold for in 2025 runs 3.0×–4.25× EBITDA, with a median of 3.5×. Other kinds of buyers pay other multiples, and that page has them too.

So in the price, an add-back is worth its dollars times the multiple.

The multiple cuts both ways. A buyer could pay $35,000 more at the median if a $10,000 add-back holds up. If the buyer crosses it out, the same $35,000 comes off the price you were expecting. A struck family salary in the $50,000 to $100,000 range above is $175,000 to $350,000 of expected price at 3.5×.

The multiplier effect is the multiple applied to every add-back dollar. It is why add-backs benefit sellers more than buyers, and why the argument over them matters. Being strict and one-sided in this part of the negotiation will sometimes stall or kill a deal before it gets started in earnest.

Overreaching on one line can also cost more than that line. Jaffe Law warns, about marketing add-backs, that when a buyer disagrees with one, "you lose credibility on all your other add backs."

A worked example: a general office collecting $1.2 million

This office is representative, not a real practice. It collects $1.2 million a year; collections means money actually collected. The P&L below shows separately the five lines a buyer will add back. Everything else costs $744,000, or 62% of collections, the typical overhead on DPC's multiples page. That $744,000 includes a family member's salary and the staff gifts and meals.

Step 1 is the P&L, down to net income.

Step 2 is the buyer's adjusted EBITDA. The example has no income-tax line, so there is no tax to add back.

The 17% is DPC's default for that dentist's cost, as a share of collections. The multiples page publishes it as the associate allowance. Net of it, your $220,000 of pay is a $16,000 add-back. The $252,000 is 21% of collections, which matches the margin that page gives for a typical practice at 62% overhead and a 17% allowance.

Step 3 is the price. A buyer could pay $882,000 if the price landed at the 3.5× median: $252,000 × 3.5. Across 3.0×–4.25×, the range is $756,000 to $1,071,000. As a check, DPC's table also prices the same buyer and office on collections, at 60% to 95%, with a median of 75%. At the median that is $900,000, which is $18,000 from the EBITDA figure.

Step 4 adds the two lines a seller often argues for: the family member's $70,000 and the $5,000 of staff gifts and meals. That makes $327,000 of adjusted EBITDA. A buyer could pay $1,144,500 at 3.5× if both held up.

The gap is $1,144,500 − $882,000 = $262,500. Almost all of it is one line. Is the office manager's job one the next owner would still have to fill?

DPC's free estimate takes an adjusted EBITDA directly, such as the buyer's $252,000 above, under its "I know my EBITDA" option. When it starts from an overhead percentage instead, it subtracts the same 17%.

Where this breaks

All add-backs can be argued both ways, in favor of the seller or buyer. One that's often argued by the seller is money spent for staff appreciation via birthday gifts, meals, etc. The argument on one side is that you don't have to pay for staff treats from the business accounts and it is not necessary to run the business. The other side states that these perks improve employee mood, loyalty, and ultimately efficiency. Besides, if the perks are taken away after a transition happens, the new owner may have to deal with employee churn. These are always case by case and require discussion between the buyer and seller to close them out.

The family-member line has a second view. Jaffe Law would add back the part of the salary above what the work is worth: "If your spouse is paid $80,000 but performs $30,000 worth of work, you may add back $50,000." Both views start from the same fact: the job still has to be done. They differ only on the excess.

The 17% is a default, not a measurement of your practice. Group buyers use their own figure. Deal Prospectors, a business-for-sale marketplace, writes that a group counts profit after paying someone to do your dentistry, "usually 25% to 30% of what you produce." That is a share of production, not collections, so the two numbers don't compare directly. In the example, every point the allowance moves, as a share of collections, changes adjusted EBITDA by $12,000 and the price by $42,000 at 3.5×.

A car used for both work and home is two expenses. The IRS already requires the split: "If you use your car for both business and personal purposes, you must divide your expenses between business and personal use." The personal share is a personal cost. The business share is a necessity question. Will the next owner still need someone hauling cases or materials? The example assumes not.

What to do this month

If a dentist friend selling in two years asked me what to clean up first, and what not to do, I would tell them the first and last of these four steps.

1. Take a look at billings and receivables (what patients and insurers still owe the practice) and make sure they match the books. Keep a close eye on the transactions actually taking place. High receivables draw questions on their own: Dental & Medical Counsel notes that "a potential buyer will ask questions as it may imply a problem with collections."
2. Pull three years of financial statements and tax returns. In a guide for buyers, Laura Zach, CPA, of the accounting firm SVA lists this first among the typical requests a buyer makes of a seller: "Practice financial statements and tax returns for at least three years."
3. Write your add-back list. Give each item one line: the amount, why the next owner won't need it, the record that shows it, and its price at 3.0×, 3.5× and 4.25×. If a family member works in the office, price that line both ways: kept and crossed out.
4. Don't disrupt the business. Focus on growth instead. Business value is based on stability and growth.