You’ve probably seen this topic out on TikTok or LinkedIn videos. It’s a popular concept — the power of 1% better every day, and how just 1% over time is where you see exponential growth.
From our seat, sitting in the finance seat, the power of 1% from a numerical standpoint has a ton of value in your practice. Increasing 1% in certain areas changes things drastically.
Here’s what that actually looks like in a dental practice.
Start With Collections
Start with collection percentage, because it’s the easiest place to see what a single point is actually worth.
Caleb Gussner puts it bluntly: “It’s a moral outrage in dentistry to produce $1.5 million and collect 92% of it.”
The damage doesn’t land in one place. A gap that size hurts your valuation, your overhead percentage, your cash flow, and what’s left at the end of the year as free cash available to you as an owner. One problem, four separate wounds.
Collections is also the only lever on this list that doesn’t ask anyone to do more dentistry. The work is finished, the chair time is spent, and your team has already been paid to produce it. Every point you recover drops straight to the bottom line with no cost attached, which is what makes it the first place to look every time, and why a lever this small is worth this much attention.
For the mechanics of tightening collections, including the reconciliation check most practices skip, see the seven numbers every practice owner should track.
Now Run the Overhead Math
This is the example we walk clients through constantly.
Take a million-dollar practice with overhead running at 65%, owned by someone planning an exit in the next three years.
Bring that overhead down five points.
On a million-dollar practice, five points is $50,000 a year. That’s annual cash flow, money in the owner’s pocket, and most conversations about overhead stop right there.
This doctor is planning an exit, though, which means the same $50,000 does something else as well. It raises net operating income by $50,000, and NOI is what EBITDA (EBITDA is earnings before interest, taxes, depreciation, and amortization. It’s the figure a buyer applies a multiple to, and it approximates what the practice would earn for someone who isn’t you.) is built from, so EBITDA rises by $50,000 too. Then the multiple does the rest.
At 5x or 6x, give or take, that $50,000 of additional EBITDA is worth $250,000 to $300,000 on the back end.
Same five points, paid twice.
“I’m Only Five or Six Points High”
This is the most common response we get, and it’s usually offered as though it closes the conversation.
A doctor looks at the numbers and says: “Well, Jared, you looked at my financial statements and I’m only five or six points high.”
The honest answer is that yes, you are, and that’s good news, because there’s real work we can do here.
On a million-dollar practice, five or six points is $50,000 to $60,000 a year. That’s a meaningful amount of money for a change that requires no new hires, no new operatory, and no new debt. So let’s chisel it down. The points matter for cash flow, and they matter just as much for valuation.
Preparing to Sell: Start Cleaning the Car Now
If you’re planning an exit in the next three years, think about it the way you’d think about selling a car. Start cleaning it now, and we guarantee there are French fries in the cup holder.
There’s one important difference, though. Detailing a car is cosmetic. Preparing a dental practice for sale is not, and it cannot be. A buyer’s due diligence will work through your financials line by line, so the only changes that survive scrutiny are real ones: overhead genuinely reduced, collections genuinely tightened, results that hold up consistently across two and three years of statements.
That’s exactly why the timing matters. Improvements made in the years before a listing are visible in the historical financials a buyer evaluates, and they get credited in the valuation. Improvements made in the month before look like a seller dressing up a practice, and buyers discount them accordingly.
Which raises the question worth settling before any of that work begins: what is the practice worth right now? That’s what a dental practice valuation is for.
What Moves the Multiple
Multiples aren’t fixed. Two factors are worth understanding, because owners can influence both.
Scale. Larger practices generally attract higher multiples, so improvements that raise earnings can also move you into a better bracket. The gains stack rather than simply add.
Owner dependency. A practice where the owner personally produces most of the revenue is a riskier asset, because if the owner leaves, the production leaves with them. Practices with associate production and documented systems are worth more. This one is slow to change, which is why it has to start years ahead.
For how these transactions are structured, see our guide to DSOs and selling to one.
Valuation vs. Due Diligence
These are two different events, and conflating them is expensive.
The valuation estimates what the practice is worth. It’s built from your financials and comparable sales, and it’s the number you negotiate around.
Due diligence is the buyer confirming that estimate was accurate. It happens after a letter of intent, and it’s where the buyer’s team works through your books, tax returns, payroll, contracts, lease, and equipment, checking everything the valuation assumed.
The distance between those two events is where deals get repriced, and the renegotiation only ever moves in one direction. That’s another argument for starting early: improvements made two and three years out are visible in the historical financials and hold up under scrutiny.
Don’t Let the Tax Bill Eat the Gain
Deal structure changes what you actually keep. Asset sale versus stock sale, how the purchase price is allocated, whether proceeds land in one year or across several: each of these moves the net figure, and two deals at an identical headline price can leave you with very different amounts.
That structuring happens during negotiation rather than after closing. See our guide to the tax implications of selling a dental practice.
Frequently Asked Questions
How do I make my dental practice more profitable?
Work the percentage points. Collections is the first place to look, because a practice producing $1.5 million and collecting 92% of it is losing money it has already earned, and that single gap hurts cash flow, overhead percentage, year-end free cash, and valuation all at once. Overhead is second. On a million-dollar practice running 65%, bringing overhead down five points is $50,000 a year.
How much does reducing overhead by a few points actually matter?
Five points of overhead on a million-dollar practice is $50,000 a year. That $50,000 increases net operating income, which increases EBITDA, and at a 5x to 6x multiple it adds roughly $250,000 to $300,000 on the back end when you exit. The reason one percent is worth chasing isn’t that it’s large. It’s that it pays you annually while you own the practice, and again, multiplied, when you sell.
What is a good collections percentage for a dental practice?
98%. A practice producing $1.5 million and collecting 92% is well short of that, and the shortfall shows up in four places at once: valuation, overhead percentage, cash flow, and the free cash available to the owner at year end.
What is the difference between a practice valuation and due diligence?
A valuation estimates what the practice is worth and sets the number you negotiate around. Due diligence is the buyer’s verification after a letter of intent, examining books, tax returns, payroll, contracts, the lease, and equipment to confirm the valuation’s assumptions held. Valuations open the negotiation. Due diligence is where the price gets revised if the records don’t support what was represented.
How far in advance should I start preparing to sell my dental practice?
Think in terms of a three-year runway. Buyers evaluate historical financials, so improvements need time to appear in the record before they’re credited. Overhead reduced and collections tightened two or three years out show up as an established trend. The same changes made the month you list read as cosmetic, and buyers discount them accordingly.
Go Do the Math Right Now
If you don’t know what 1% percent is in your practice, and most owners don’t until they sit down and work it out, do the math right now.
A million, two million, three million, wherever you are. Maybe you’re a $15 million group practice. One percent is a lot of money. Work out what it does to your overhead and to your valuation.
We guarantee you’ll look at the details a little more closely once you see what that money looks like.
Take the Dental Practice Quiz to see where your practice stands, or learn more about our M&A advisory services.
Disclaimer: Duckett Ladd, LLP does not provide tax, legal, or accounting advice. This content has been prepared for informational purposes only and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Also, tax law is ever-changing, and every effort should be made to seek out the most current information. Make sure to check the date of published content to ensure the most current information.
