Prefer to listen? This article is based on Episode 12 of our Portfolio Talks podcast. Listen to the full episode here.
Buying your first dental practice (or your fifth) is likely the biggest financial decision of your career. Done well, it becomes the engine that funds your income for the next 20 years, builds a real business asset and eventually funds a comfortable retirement. Done poorly, it turns into a slow drain: patient counts decline, staff turnover eats profitability and your evenings and weekends get consumed by problems you inherited from the previous owner.
The difference between the two outcomes usually comes down to a handful of decisions made before you sign anything. Not a 45-page checklist. Not a legal treatise. Just a clear framework for how to look at the numbers, the structure of the deal, the financing and the agreements you sign along the way.
Here is that framework. If you are a dentist looking to buy your first clinic or add another to your portfolio, this is what you actually need to think about.
Start With EBITDA, Not Revenue
The most common mistake we see with new buyers is falling in love with a big top line revenue number. A clinic doing $2 million a year sounds impressive until you realize the owner is spending $1.9 million to earn it. Revenue is easy to grow if you are willing to spend money. Profit is the harder question.
That is where EBITDA comes in. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. In plain language, it is the true profit of the business once you strip out the accounting noise. When you are evaluating a practice, EBITDA tells you what the clinic actually generates as owner earnings, independent of how the previous owner chose to finance it or how their accountant handled depreciation.
Some industries value businesses on multiples of revenue. Dentistry is not one of them. Dental practices are valued on multiples of EBITDA, which means understanding this number is not optional. Ask for it early in your due diligence. If the seller cannot or will not provide clean EBITDA figures, that is a signal.
Two other things worth knowing about EBITDA. First, lower EBITDA is not always bad. Sometimes it points to a distressed asset you can buy at a discount and improve, especially if you have experience solving whatever is holding it back. Second, revenue-heavy clinics with thin margins are often harder to turn around than they look. Fixing top-line revenue is easy. Fixing structural profitability problems is much harder.
Not All Comparables Are Comparable
Once you know the EBITDA, the next question is: what multiple should you pay?
This is where a lot of first-time buyers get misled. If a seller tells you the going multiple is 6.5x or 7.5x EBITDA because that is what Dental Corp is paying, that comparison does not hold. Dental Corp (which was recently taken private by a private equity buyer) was running a franchise-style consolidation model with roughly 600 locations, real economies of scale and a proven playbook for keeping the seller on for a smooth handover. They could afford to pay premium multiples because their operating model made those multiples work.
You are not Dental Corp. You are one dentist buying one clinic in a one-to-one transaction. Your multiple needs to reflect that reality. Real comparable sales in your specific area, adjusted for the specialty mix, patient demographics, urban versus rural setting and specifics of what makes the practice you are looking at unique. Your lawyer, your accountant and a good broker can help pull real comps, and your local dental association may have some data too.
The point is that valuation multiples from institutional buyers are almost always higher than what makes sense for an individual dentist buying a single clinic. Do not anchor on those numbers.
Asset Sale vs Share Sale: What You Are Actually Buying
Once you have agreed on a rough number, the next question is the structure of the deal. There are two ways to buy a business: an asset sale or a share sale. They usually end up producing similar net outcomes for both sides, but the mechanics and the tax treatment are very different.
Asset sale. As the buyer, you purchase the individual assets of the business: the dental chairs, delivery units, imaging equipment, sterilization tools, patient list (goodwill) and any leaseholds. You are not buying the corporation itself, which means you are not inheriting the seller’s tax history, potential liabilities or skeletons in the closet. This is why buyers usually prefer an asset sale. It is clean.
The tax challenge with an asset sale sits on the seller’s side. When they sell assets that have been depreciated over years using Capital Cost Allowance (CCA), the CRA can trigger CCA recapture. That means part of the sale proceeds gets added back to the seller’s taxable income at their marginal rate, because the CRA has effectively been giving them a tax deduction on those assets that turned out to be too generous.
Share sale. As the buyer, you purchase the shares of the corporation itself, which owns all the assets. You inherit the business as an operating unit. The advantage for the seller is that they may be able to use the Lifetime Capital Gains Exemption (LCGE), which allows them to shelter a substantial portion of the sale proceeds (over $1.25 million per shareholder as of 2025, with indexation resuming in 2026) from tax. That is a meaningful benefit and is why sellers usually prefer a share sale.
The trade-off for the buyer is inherited risk. If the corporation has pending litigation, tax exposure or contingent liabilities, those come with the shares. This is why heavy due diligence and a good lawyer are non-negotiable in a share sale.
What actually happens in practice. Most transactions we see are structured as share sales because the seller is exiting and using the LCGE. Good buyers do not walk away from a share sale because of the risk. They mitigate it through due diligence, warranties and indemnities in the purchase agreement. In competitive deals, the seller will often present two offers side by side: one for an asset sale and one for a share sale, priced differently but designed to leave both parties in roughly the same net position after tax.
The Tax Traps to Know: CCA, LCGE, AMT and CDA
If you are ever going to sell your own practice, everything above matters even more, but from the other side of the table. Three specific tax mechanisms come up over and over.
CCA recapture on the asset sale side, as discussed above. This can be partially offset by having Capital Dividend Account (CDA) room built up in your corporation. Every time you realize a capital gain inside the corporation, the non-taxable half flows into your CDA and creates room to distribute money to yourself tax free. If you know you will eventually sell, deliberately realizing gains in the years leading up to the sale can build meaningful CDA room to soften the recapture blow.
Alternative Minimum Tax (AMT) on the share sale side. AMT is a parallel tax calculation that runs quietly in the background every year. In most years, your regular tax bill is higher than the AMT calculation, so AMT never applies. In years when you use the Lifetime Capital Gains Exemption to shelter a large amount of income, however, your regular tax bill drops so low that the AMT calculation becomes the higher one, and you actually owe AMT for that year. The good news is AMT paid in one year creates a credit that can be used to offset regular tax in future years (up to seven years). But if you are not aware of it going in, it can catch you off guard with a real cash flow hit in the year of sale.
Timeline matters. Both the CDA planning and the LCGE qualification require planning years in advance, not months. If you are contemplating selling in five to seven years, that is the moment to start the conversation with your accountant and planning team. If your first thought about tax planning is when a buyer’s offer is already on the table, most of the good tax tools are no longer available to you.
Financing: Banks Love Dentists
If there is one part of buying a dental practice that is easy, it is the financing. Dentists are one of the most sought-after borrower profiles for the major banks in this country. In practice, that usually means 100% loan-to-value financing is available with minimal underwriting friction, along with lines of credit for operating capital, working capital renovations and equipment.
Scotiabank and CIBC in particular have been very active in the dental practice acquisition space, but the smart move is to talk to at least three lenders before choosing one. Rates, prepayment terms, interest-only options and cross-selling relationships (private banking, credit cards, wealth management) vary meaningfully. Banks lock you into a relationship because it is very hard to change once you are operating, so choose carefully.
The bigger question is how much you should borrow. Just because you can get 100% loan-to-value does not always mean you should take it. This depends entirely on your strategy.
If the practice is highly profitable, established and stable, 100% financing is often the right call. It preserves your personal capital for other uses (down payment on a second clinic, personal investing, tax planning). If the practice needs work (older patient base, deferred maintenance, thin margins), putting some money down reduces your interest burden while you work to grow the business and gives you room to breathe if profitability takes a year or two to improve.
Ultimately the loan-to-value question ties back to what you plan to do next. Are you buying this clinic to grow into a multi-location owner? Then keep your capital available. Are you buying it as your one and only for the next 25 years, planning to pay it down and use the cash flow to fund your retirement? Then paying down principal faster may be the right move. There is no universal answer.
Watch the Broker Structure
One of the underappreciated conflicts of interest in buying a dental practice is the one-stop-shop broker model. Some brokers offer to handle valuation, marketing, legal, accounting and financing all under one roof. It is convenient. It is also structurally aligned with getting the deal closed, not necessarily with getting you the best deal.
Splitting these functions across independent providers (broker for the deal, an outside lawyer, your own accountant, your own bank) removes the alignment problem. It also gives you multiple sets of eyes on the deal, each one accountable to you rather than to the transaction. It costs a bit more in fees. It is almost always worth it.
Patient Retention: The Numbers That Actually Matter
Patient retention is the single biggest predictor of whether the value you are paying for actually shows up in the years after the transaction. Two numbers matter most.
Active patient count. The industry-standard definition is a patient who has visited the clinic within a trailing 18-month window. This is a much more useful number than “total patients on file,” which can be inflated by decades of records that no longer represent real revenue. Ask for the active patient count. Ask how the seller calculates it. Then look at the trend over the past three years. Growing, flat or declining active patients tells you a great deal about the health of the practice.
Provider concentration risk. If one associate dentist is responsible for 40% of the billings and they are not part of the sale, that is a serious risk. What happens if they leave three months after you take over? A well-structured deal addresses this either through associate retention agreements (with clear terms, sometimes with a signing bonus for staying through the transition), an earnout structure that adjusts the purchase price based on retention or both. If the seller resists both, that is worth taking seriously.
Agreements: Where the Real Money Is Won or Lost
Once you find the clinic, agree on a price and secure financing, the legal work is what determines whether the deal actually protects you. There are several agreements that matter, but four stand out.
Shareholders’ agreement. Only relevant if you are buying with a partner, but if you are, this is the single most important document you will sign. What happens if one partner gets sick, dies or wants to leave? What is the agreed valuation methodology in that event? What if a private equity buyer approaches your combined practice five years from now and one partner wants to sell while the other wants to keep working? A good shareholders’ agreement answers these questions before they become disputes.
Associate agreements. Existing associate dentists at the clinic have their own patient books and their own reasons for staying or leaving. Review each of these agreements before you close. Are there non-solicits? Are there commitments to stay through the transition? Can the associate walk away in 30 days and take their patients with them? If the answers are unfavorable to you as the incoming owner, negotiate renewals as part of the deal or price the risk into your offer.
Lease agreements. Especially in dense urban markets, lease agreements come with landmines. Two clauses in particular deserve attention. The assignment clause governs how easily the lease transfers to you as the incoming tenant. A restrictive assignment clause can hold up the entire transaction and give the landlord leverage they should not have. The demolition clause allows the landlord to terminate the lease if they decide to redevelop the property. In markets where landlords are selling to development companies (Vancouver, Toronto and other major cities), this is a real and growing risk. If you sign a lease with a demolition clause and the property gets sold a year later, you can find yourself with six months to relocate your entire practice.
Purchase agreement. The document that ties everything together. Warranties and representations from the seller, indemnities for known and unknown liabilities, working capital adjustments, non-competes and earnout terms all live here. This is not the place to save money on legal fees.
The Bigger Point: Buying Is Easier Than Building
If there is one message we would leave you with, it is this. As complex as this all sounds, buying an existing dental practice is almost always easier than building one from scratch. A cold start requires you to find a location, negotiate a lease, build out the space, buy all the equipment, hire staff, market to zero patients and generate revenue from nothing. All while carrying the debt to fund it.
Buying an existing practice, even one that needs work, gives you a running start. You inherit a patient base, established staff, existing equipment and (usually) positive cash flow from day one. If you are younger than the average dentist in your area, you also have a real advantage in modernizing older practices with technology, social media, patient communication tools and marketing that many long-tenured owners never invested in. Combine that with the operational structure the previous owner already built, and you have a strong foundation for growth.
Buy the framework right and you buy time. Buy the wrong framework and you buy someone else’s problems for the next decade.
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This article is based on Episode 12 of Portfolio Talks, where we walk through EBITDA, valuation multiples, asset vs share sales, financing strategies, patient retention metrics and the agreements every dentist should know before signing. Listen to the full episode here and subscribe so you do not miss future episodes built specifically for dentists and other healthcare professionals.
Sources
- Lifetime Capital Gains Exemption (LCGE) – Canada.ca – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-25400-capital-gains-deduction.html
- Line 41700 Minimum Tax (Alternative Minimum Tax) – Canada.ca – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/deductions-credits-expenses/line-41700-minimum-tax.html
- Capital Cost Allowance (CCA) classes and rates – Canada.ca – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html
- Income Tax Folio S3-F2-C1, Capital Dividends (CDA) – Canada.ca – https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends.html
This content is provided for general informational purposes only. It is not intended to provide investment, tax or legal advice, and should not be relied upon as such.