Valuing Dental Goodwill: EBITDA Multiples vs Percentage of Turnover

When a dentist first asks what their practice is worth, the honest answer is that it depends on how you measure it. The two methods used across UK dentistry, an earnings multiple built on EBITDA and a percentage applied to turnover, are both legitimate, and both are in daily use by specialist valuers. They routinely produce different figures for the same practice, sometimes by a wide margin. Understanding why is the difference between negotiating from a defensible position and accepting whatever number lands on the table first.

What goodwill actually is

Goodwill is the part of a practice sale price that sits above the value of the tangible assets. The chairs, the imaging kit, the fit-out and the stock have a book value and a market value you can point to. Goodwill is everything else: the patient base, the recurring NHS contract or private plan income, the reputation, the location, the trained team who stay after completion. It is the reason a functioning practice sells for far more than the sum of its equipment, and it is the number that both valuation methods are really trying to pin down.

Because goodwill is intangible, it cannot be measured directly. Both methods are proxies. One infers it from sustainable profit, the other from revenue. Neither is the truth; each is an estimate, and the quality of the estimate depends entirely on the quality of the numbers fed in.

The EBITDA-multiple method

EBITDA is earnings before interest, tax, depreciation and amortisation. For a dental practice the headline figure from the accounts is rarely the number a buyer will pay a multiple on, because owner-run practices carry costs and benefits that a new owner would not inherit. The valuer adjusts the reported profit to arrive at what is often called adjusted or normalised EBITDA, and it is this figure the multiple is applied to.

The adjustments that move the number most are:

• A market-rate salary for the principal. If the owner works four clinical days and pays themselves nothing through PAYE, taking a dividend instead, the accounts overstate profit. A buyer will deduct the cost of a replacement associate or principal doing that clinical work before valuing what is left.
• Non-recurring and personal costs. One-off legal fees, a family car run through the practice, or a refurbishment charged to the year all get added back or stripped out so the profit reflects normal trading.
• Related-party rent and charges. If the premises are owned by the principal and rented to the practice at a soft rate, the valuer restates rent to open-market level, which reduces profit.
• Associate pay rates. If associates are paid below market and would need re-contracting, the future cost is built in.

Only once EBITDA is normalised does the multiple go on. Multiples vary widely by practice type: an NHS-dominant suburban practice sits at the lower end, a mixed practice in a commuter-belt location higher, and a strong private or specialist practice higher still. A percentage point of margin found through clean adjustment, or lost through sloppy ones, is worth several times its face value once the multiple is applied. That is why the groundwork matters more than the multiple itself.

The percentage-of-turnover method

The older method values goodwill as a percentage of the practice turnover, most commonly the last completed year. It is quicker, it needs less adjustment, and it is still widely quoted, particularly for smaller NHS practices where profit can be volatile year to year and an earnings multiple would swing wildly.

The bands differ sharply by practice type. NHS goodwill is valued as a fraction of contract value; mixed practices attract a higher percentage of total turnover; and established private practices, where fees are set by the practice rather than a national contract, can command the highest percentages of all. The method is blunt because it ignores profitability entirely. Two practices with identical turnover but very different cost bases are treated the same, which is exactly why it works as a sanity check but rarely as the sole basis for a serious deal.

Why the two methods disagree

The turnover method rewards revenue; the EBITDA method rewards profit. A high-turnover, low-margin practice, common where a large NHS contract is delivered inefficiently, will look strong on turnover and weak on EBITDA. A lean, high-margin private practice will look the opposite. A buyer funding the purchase with debt cares about profit, because profit services the loan, so specialist dental lenders lean on the EBITDA figure. That is one reason the earnings method has become the primary tool and the turnover method the cross-check, rather than the other way round.

The revenue side of this is not abstract. A valuer earns their fee by testing whether the income the multiple rests on is real and durable, and that means reading the practice records rather than the summary accounts. Clean books make that job faster and the number more defensible; muddled ones invite the valuer to price in risk. The everyday accounting habits that build a defensible income picture, such as reconciling NHS Compass data properly, matter here as much as they do month to month. A practice that has kept its books tidy, reconciling the NHS Compass statement to the accounting ledger each month and recording patient refunds and credit notes accurately rather than netting them off, presents a revenue line a valuer can trust without discounting.

Where tax enters the valuation

Goodwill is a chargeable asset, so the sale of it is a capital gain for the seller. For a retiring principal the relief that usually matters is Business Asset Disposal Relief. Where a disposal qualifies, gains up to a lifetime limit of one million pounds are taxed at a reduced rate of capital gains tax rather than the standard rate, and the rules and rate are set out on the GOV.UK guidance on Business Asset Disposal Relief. The rate for qualifying disposals is 14 per cent for disposals made in the 2025/26 tax year and rises to 18 per cent for disposals made on or after 6 April 2026. Gains above the lifetime limit, and any gain that does not qualify for the relief, are taxed at the main capital gains rates of 18 or 24 per cent depending on the seller's income.

The point for a seller is that the headline valuation is not the money in your pocket. Two offers with the same face value can leave very different amounts after tax depending on how the deal is structured, whether the relief conditions are met, and the timing of completion around the rate change. A principal contemplating a sale should model the after-tax outcome years ahead, not weeks, because several of the conditions for the relief depend on how the practice has been owned and run in the run-up to the sale.

How to make the number defensible

Whichever method leads, the value stands or falls on the evidence behind it. Three years of clean statutory accounts, management figures brought up to the current month, a clear split between NHS and private income, and an honest schedule of add-backs will support a higher, more defensible figure than a practice that hands a buyer a shoebox and asks them to take the goodwill on trust. Specialist dental valuers such as those recognised by the profession will expect this evidence, and the British Dental Association guidance on selling a practice sets out the wider process a seller should be ready for.

This is the first stage of a much longer transaction, and the valuation feeds every decision after it, from the financing a buyer can raise to the tax structure at exit. The full picture, including due diligence, lender expectations, CQC transfers and the choice between an asset and a share purchase, runs through our guide to dental practice valuation and acquisition, and the modelling behind a specific number is what our dental practice valuation service is built to handle. Getting the goodwill figure right, and being able to defend it line by line, is where a good outcome starts.