Why Your Dental Practice Asking Price and Final Sale Price May Be Different
When a dentist decides to sell a practice, one of the first questions is usually:
“How much is my practice worth?”
Once a value has been established and the practice is listed for sale, another question often follows:
“Will I actually receive my asking price?”
The answer depends on several factors.
An asking price provides a starting point for discussions with prospective buyers. It reflects an assessment of the practice’s financial performance, operational characteristics, market conditions, and other considerations.
But an asking price isn’t a guarantee of what the practice will ultimately sell for.
Some dental practices sell at their asking price. Others sell for less, and occasionally a practice may attract offers above the asking price.
Understanding why these differences occur can help sellers establish realistic expectations and evaluate offers more effectively.
How Is a Dental Practice Asking Price Established?
A dental practice’s asking price should be based on more than a percentage of annual collections.
While collections are an important measure of practice activity, they don’t tell the entire story.
Two practices collecting $1 million annually may have very different values.
For example, one practice might have strong profitability, an established hygiene program, modern equipment, and a stable patient base.
Another practice with identical collections might have significantly higher overhead, declining patient activity, or substantial equipment replacement needs.
A thorough valuation considers factors such as:
- Historical collections and production
- Practice profitability and normalized earnings
- Overhead and operating expenses
- Patient demographics and activity
- Hygiene production
- Staffing and provider arrangements
- Equipment, technology, and office condition
- Location and market characteristics
- Recent financial and operational trends
The objective is to establish an asking price that reflects the practice’s economic characteristics while remaining realistic in the marketplace.
1. Buyer Demand Can Influence the Final Price
Just as in other types of business transactions, the level of buyer interest can influence the outcome.
A practice located in a desirable area with strong profitability and favorable operating characteristics may attract multiple qualified buyers.
When several buyers are interested, a seller may have greater negotiating leverage.
On the other hand, a practice with limited buyer interest may require more flexibility.
This doesn’t necessarily mean the practice was priced incorrectly.
Certain characteristics can narrow the pool of potential purchasers, including:
- Geographic location
- Specialty or procedure mix
- Practice size
- Required clinical schedule
- Facility limitations
- Significant operational changes needed after acquisition
A practice may be attractive to the right buyer but not appeal to everyone.
The final sale price is influenced not only by what the practice is worth financially, but also by how many qualified buyers are interested in owning it.
2. Buyers Evaluate the Practice Differently
A seller and buyer may view the same practice from different perspectives.
The seller may place significant value on the reputation, patient relationships, and goodwill developed over many years.
The buyer, while recognizing those strengths, must also consider whether the practice can support the financial obligations associated with the purchase.
For example, a buyer may evaluate:
- Expected personal compensation
- Acquisition loan payments
- Existing overhead
- Potential staffing changes
- Necessary equipment investments
- Future growth opportunities
A practice may have substantial goodwill, but the buyer still needs to determine whether the financial performance supports the proposed purchase price.
Different buyers may also have different clinical skills, financial resources, and operating plans.
A buyer who can comfortably perform procedures the seller currently refers out may see additional opportunity.
Another buyer may need to hire an associate or make significant equipment investments.
These differences can influence how much each buyer is willing to pay.
3. Due Diligence May Reveal New Information
Once a buyer and seller agree on the basic terms, the buyer generally conducts due diligence.
This process involves reviewing financial, operational, and other information to verify the assumptions underlying the proposed purchase.
Sometimes the information confirms what the buyer already understood.
Other times, due diligence identifies an issue that affects the transaction.
Examples might include:
- Collections declining more than expected
- Unusual or recurring expenses
- Lower active patient numbers than anticipated
- Equipment requiring significant replacement
- Staffing or provider arrangements that may not continue
- Discrepancies between reported production and financial statements
When material information comes to light, the parties may need to discuss whether the original price remains appropriate.
However, due diligence shouldn’t automatically become an opportunity for a buyer to renegotiate an otherwise reasonable agreement.
A price adjustment should have a legitimate basis, particularly when the underlying information was already available before the offer was made.
4. Financing Can Affect the Transaction
Most dental practice buyers rely on acquisition financing.
A lender evaluates both the buyer’s qualifications and the financial characteristics of the practice.
Even if a buyer is willing to pay the asking price, the lender must be comfortable with the proposed transaction.
A lender may review the practice’s historical cash flow, the buyer’s projected compensation, debt service requirements, and other financial considerations.
If the lender determines that the practice doesn’t support the proposed financing, the buyer may need to contribute additional funds, seek alternative financing, or revisit the transaction terms.
This is one reason why working with lenders experienced in dental practice acquisitions can be valuable.
A buyer’s willingness to pay a certain price and a lender’s willingness to finance that price are two separate considerations.
5. The Terms of the Sale Matter, Too
Purchase price is important, but it isn’t the only factor that determines whether an offer is attractive.
Consider two offers:
Offer A: $800,000 purchase price, with conventional financing, a qualified buyer, and a relatively straightforward closing process.
Offer B: $825,000 purchase price, but with substantial seller financing, additional contingencies, and a longer closing timeline.
Although Offer B has a higher stated purchase price, it may involve greater risk or delay for the seller.
Other terms that can influence the overall transaction include:
- Seller financing
- Allocation of the purchase price
- Treatment of accounts receivable
- Transition compensation
- Real estate or lease arrangements
- Closing contingencies
- Deposit provisions
- Timing of payment
Sellers should evaluate the complete offer rather than focusing exclusively on the headline number.
In some situations, a slightly lower purchase price with stronger terms may be preferable.
6. Changes in Practice Performance Can Affect Value
A dental practice is an operating business, and its financial performance can change during the marketing process.
If a practice was valued using historical collections of $900,000 but subsequently experiences a substantial decline, prospective buyers may question whether the original asking price remains appropriate.
The reason for the decline matters.
A temporary staffing issue or an intentional reduction in the seller’s clinical schedule may be viewed differently from a sustained loss of patients.
Conversely, a practice that demonstrates meaningful and sustainable improvement may become more attractive to buyers.
This is why maintaining accurate financial records and providing updated information during the sale process is important.
Should Sellers Always Accept an Offer Below Asking Price?
Not necessarily.
An offer below asking price isn’t automatically unreasonable, but it also doesn’t mean the seller should accept it.
The decision should depend on several considerations:
- How does the offer compare with the practice’s established value?
- Is the buyer financially qualified?
- Are the proposed terms reasonable?
- How much buyer interest has the practice generated?
- Are there legitimate issues affecting the practice’s marketability?
- What are the seller’s personal and professional transition goals?
A seller who is ready to retire may evaluate an offer differently from someone who is comfortable continuing to practice for several more years.
The important thing is to make an informed decision rather than reacting solely to the difference between the asking price and the offer.
Why Setting a Realistic Asking Price Matters
Some sellers believe it’s best to start with an unusually high asking price because buyers will negotiate downward anyway.
That strategy can backfire.
An asking price that is difficult to justify may discourage otherwise qualified buyers from pursuing the opportunity.
It may also create problems when the buyer seeks financing.
On the other hand, pricing a practice too low can leave the seller at a disadvantage.
The objective should be to establish a price supported by the practice’s financial and operational characteristics, while allowing the marketplace to determine the ultimate outcome.
A realistic asking price helps attract serious buyers and creates a stronger foundation for negotiations.
The Bottom Line
The asking price and final sale price of a dental practice are related, but they aren’t necessarily identical.
The asking price reflects an assessment of value at the time the practice is marketed.
The final sale price reflects the agreement reached between a buyer and seller after considering the practice’s financial performance, buyer demand, financing, due diligence, and transaction terms.
For sellers, the goal shouldn’t simply be to achieve the highest possible number.
It should be to complete a transaction that provides fair value, reasonable terms, and a successful transition.
Understanding the difference between asking price and sale price is an important part of reaching that goal.
Thinking About Selling Your Dental Practice?
Establishing a realistic asking price is one of the most important steps in preparing a dental practice for sale.
Since 1985, American Practice Consultants has helped dentists throughout New Jersey and Eastern Pennsylvania evaluate their practices and navigate the sale process.
We work exclusively on behalf of the seller when representing a dental practice for sale, helping practice owners understand their options, evaluate offers, and negotiate transaction terms.
Contact American Practice Consultants for a confidential conversation about your practice’s value and your transition goals.