Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dentist Sold His Practice for 8x EBITDA Without a Broker
Transcript
- Lucas: So, Luna, a question I get all the time from owners of smaller professional practices—dentists, chiropractors, physical therapists—is 'Can I sell my business without a broker and not leave money on the table?' And the answer is yes, but only if you understand exactly where the hidden landmines are. Luna: I've heard the horror stories. A seller saves six figures on the commission but loses twice that in a bad deal structure. Lucas: Right. So let's look at a real case. Dr. Mark Chen, solo dentist in Portland, Oregon. Two-chair practice, four employees, about $1.1 million in annual revenue. He decided in early 2024 that he wanted to retire in three to five years and start the sale process early. Luna: What was his EBITDA? Lucas: About $175,000 after his own compensation. So a typical broker might have listed it at 5 to 7 times EBITDA. Dr. Chen ended up selling for 8 times—roughly $1.4 million. No broker. Luna: Eight times for a small dental practice? That's above market. How did he pull that off? Lucas: He did two things most private sellers skip. First, he got a formal third-party valuation from a firm that specializes in dental practices. That cost him about $4,000, but it gave him a credible baseline multiple and a report he could share with buyers. Luna: So he wasn't guessing at the number. That alone probably saved him from lowball offers. Lucas: Exactly. Second, he prepared a 24-month profit and loss summary with clean add-backs. Not just the standard owner's salary and perks. He documented every discretionary expense: the car lease, the continuing education trips to Hawaii, the above-market rent he was paying to a family LLC. He had a schedule showing that normalized EBITDA was actually $205,000, not $175,000. Luna: That's a 17 percent lift in the number buyers actually care about. Smart. Lucas: Then he identified the buyers. For a dental practice, the natural acquirers are dental service organizations—DSOs. He found five regionally active DSOs that were acquiring in the Pacific Northwest. He didn't blast out an email. He called each CEO or head of development directly, introduced himself, and said 'I'm planning to sell in 12 to 18 months, would you be interested in a conversation?' Luna: So he started the process early, before he was desperate. That gives you leverage. Lucas: Huge leverage. Three of the five came to visit. Two made offers. The highest was 8 times trailing EBITDA, all cash at close, with a 12-month transition consulting agreement at $15,000 a month. Luna: All cash, no earnout? That's rare for a DSO deal. Lucas: It is, and here's why he got it: he provided a patient retention analysis. He pulled three years of data showing that 94 percent of active patients returned for at least one visit per year. That's a sticky patient base. The DSO could plug that into their model and see that cash flows wouldn't drop post-acquisition. Luna: So he proved the recurring revenue aspect. For a service business, patient retention is like the churn rate for a SaaS company. Lucas: Exactly. The DSO didn't need an earnout to protect against patient loss—the data already protected them. Now, Dr. Chen did hire a transaction attorney. Cost him $12,000. That attorney reviewed the letter of intent, negotiated the representation and warranty insurance terms, and made sure the working capital adjustment was fair. The attorney saved him from one bad clause: the DSO initially wanted a 15 percent holdback for six months. The attorney got it down to 5 percent for three months. Luna: So $12,000 in legal fees saved him maybe $70,000 in holdback exposure. That's a 6-to-1 return. Lucas: Exactly. And he didn't need a broker to find that attorney. He asked the other dentists in his study club for referrals. Now, let's talk about what he gave up. A broker would have marketed his practice to more than five DSOs. Maybe he would have gotten 9 times. But a typical broker commission for a deal this size is 10 percent—$140,000. So if a broker got him 9 times instead of 8, that's an extra $175,000 in gross proceeds. Net of the $140,000 commission, he's only up $35,000. And he would have had less control over the process. Luna: So he basically decided that the time and control were worth more than the potential upside. Fair trade. Lucas: And there's another risk: a broker might have pushed for a faster deal. Dr. Chen took 14 months from first call to close. A broker might have wanted to close in 6 months to get their fee sooner. That could have pressured him into a worse transition. Luna: So the slower timeline actually worked in his favor. He got to phase his retirement. Lucas: Right. He signed a 12-month consulting agreement, but he actually only works three days a week now. The DSO brought in a younger associate. Dr. Chen is mentoring her. The practice keeps running, patients see a familiar face, and Dr. Chen gets a paycheck while his non-compete runs. Luna: That's a clean exit. But I want to push back on one thing: you said he got 8 times. Based on the $175,000 EBITDA, that's $1.4 million. But if you use the normalized $205,000, the multiple is actually 6.8 times. So the headline sounds better than the reality. Lucas: You're right to flag that. The DSO used the reported EBITDA for the multiple. They didn't fully credit the add-backs. That's common—buyers want to see sustainability, not just a one-year optimization. But Dr. Chen still netted $1.4 million. If he'd used a broker, his net might have been $1.26 million after commission. So he came out ahead. Luna: And he kept control of the process. That's worth something intangible. Lucas: It is. Now, I want to be clear: this approach doesn't work for every business. Dr. Chen had a clean operation—no dental board complaints, no major equipment loans, a stable team. And he was selling to a DSO, which is a sophisticated buyer that knows how to underwrite a practice. If he were selling to an individual dentist, the dynamic would be different. Luna: Individual buyers often need bank financing, which means more due diligence, longer timelines, and lower multiples. Lucas: Right. And if you're selling a manufacturing company or a tech firm, the buyer pool is smaller and the due diligence is deeper. But for a professional practice with recurring patients and clean books, going direct is viable. Luna: So the key documents are: a third-party valuation, 24 months of clean P&L with add-backs, a patient retention analysis, and a list of targeted buyers. Plus a good attorney. Lucas: That's the checklist. And one more thing: Dr. Chen had his staff sign non-solicitation agreements early in the process. That prevented the DSO from poaching his hygienist and front desk person post-close. That alone preserved the value of the practice. Luna: That's a detail most sellers overlook. They focus on the financials and forget the people. Lucas: Exactly. On that note, if these conversations have helped you think about your own exit strategy, we want to mention something. This show stays ad-free because of listener support. If you've gotten value from episodes like this one, you can help keep it going at buy me a coffee dot com slash fexingo. It's a small gesture that makes a big difference for us. Luna: Yeah, it's a way for listeners to say 'this is worth my time.' And we appreciate it. Lucas: So back to Dr. Chen: about six months post-close, the associate he mentored is now seeing 80 percent of the patients. The DSO is happy. Dr. Chen is golfing in Arizona. And the practice is valued at about the same as when he sold it. That's a win for everyone. Luna: But what about the tax side? He sold an asset, not stock. Did he structure it to minimize capital gains? Lucas: Good question. He sold a C corporation? No, his practice was an S corp. So the sale was structured as an asset sale, which is typical. He allocated the purchase price to goodwill, equipment, and a three-year non-compete. His attorney worked with his CPA to allocate as much as possible to goodwill—that's taxed at long-term capital gains rates, not ordinary income. Luna: So he paid about 23.8 percent on the goodwill portion, versus 37 percent if it were classified as a consulting payment. Lucas: Right. And the non-compete was spread over three years, so that income was deferred. His effective tax rate on the $1.4 million was probably around 28 percent, all in. Luna: That's reasonable. So for a dentist or doctor listening, what's the first step? Call a valuation firm? Lucas: First, get your books clean. Run a 24-month P&L with add-backs. Then get a valuation. And most importantly, don't tell your staff or patients until the deal is signed. Dr. Chen kept it completely quiet. If word gets out, patients might leave, and staff might get nervous. Luna: Mum's the word. Good advice. Lucas: And one final thought: even if you use a broker eventually, doing the prep work yourself—the add-backs, the retention data, the buyer list—will save you money and give you more control. Dr. Chen's story isn't about avoiding brokers entirely. It's about being an informed seller. Luna: Knowing your numbers better than the buyer does. That's the takeaway. Lucas: Exactly. Next time, we'll look at a case where a broker actually added significant value—a family-owned manufacturing company that sold for 11 times EBITDA. The broker earned every penny of their commission. And we'll talk about when it makes sense to hire one. Luna: Looking forward to that contrast. For now, thanks for listening.