A buyer sits down across from you and says something like this: "We are looking at a multiple on adjusted EBITDA. We will run a QoE, negotiate a working capital peg, and want you to roll 20 percent. Reps and warranties will be capped at the escrow, and we will need a two-year non-compete inside 15 miles."
That was one sentence. It contained at least eight terms most practice owners have never used before. And every one of them affects your outcome by hundreds of thousands of dollars.
The gap between what buyers say and what owners understand is where most bad deals happen. Not because buyers are dishonest. Because the terminology is unfamiliar, and asking questions feels like admitting you do not know what you are doing.
Here is the plain English version. Every term a buyer will use, what it actually means, and what to watch for.
Valuation Terms
How the buyer arrives at a price.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. In practice, it means: your profit before the accountant subtracts loan interest, income taxes, and equipment depreciation. It is the number every buyer uses as the starting point.
Example: Your practice does $2.4M in collections. After paying staff, rent, supplies, lab, and yourself a market-rate salary, you have $600K left. That $600K is your EBITDA.
Adjusted EBITDA
Your EBITDA plus expenses that would not exist under a new owner. Things like your family member on payroll who does not really work, personal expenses run through the practice, a company car you use personally, or the $30K you paid your spouse for administrative work she does not actually do.
Example: Your reported EBITDA is $600K. You add back $40K (family member on payroll), $20K (personal vehicle), $15K (personal travel), and $25K (owner salary above market rate). Adjusted EBITDA is $700K.
Multiple
The number the buyer will multiply your Adjusted EBITDA by to arrive at the purchase price. Multiples vary based on practice size, location, growth, insurance mix, and buyer type. General range is 4x to 8x for most practices, higher for larger platforms.
Example: Adjusted EBITDA of $700K at a 6x multiple = $4.2M enterprise value.
Add-Backs
The specific expenses being added back to arrive at Adjusted EBITDA. Buyers scrutinize every add-back. Anything without documentation gets stripped out.
Things to verify: Have documentation ready for every add-back. Owner salary add-back should be based on what an associate would actually cost to hire in your market, not what feels right.
Quality of Earnings (QoE)
A third-party accounting firm the buyer hires to verify your financials. They will reconcile bank deposits to reported revenue, examine payroll, test add-backs, and look for anything that would make your numbers unreliable.
Example: The QoE firm sends 40 pages of requests, spends three weeks on your books, and delivers a report. Common outcome: adjusted EBITDA gets reduced by 5 to 15 percent from what you presented. Prepare for this.
Deal Structure Terms
How the purchase price gets divided and paid.
Enterprise Value vs Equity Value
Enterprise Value is the total price for the business. Equity Value is what you actually take home, after subtracting any debt and adjusting for working capital.
Example: $4.2M enterprise value. Subtract $200K of practice debt. Subtract $50K working capital shortfall. Equity value: $3.95M. That is your actual proceeds before taxes.
Working Capital Peg
The amount of cash and receivables the practice needs to keep operating normally the day after close. Set by the buyer, negotiated with the seller. Every dollar the practice has below the peg comes out of your proceeds. Every dollar above goes back to you.
Example: Working capital peg is set at $150K. At close, the practice has $120K in the bank plus receivables. Your proceeds drop by $30K.
Rollover Equity
Instead of taking all cash at close, you keep an ownership stake in the buyer's larger group. Common in DSO deals. The theory is you get a "second bite of the apple" when the DSO eventually sells or grows.
Example: Purchase price $4.2M. You roll 20 percent (($840K) into equity of the buyer's DSO. You take $3.36M in cash and own $840K of the DSO. If the DSO doubles in value in 5 years, your $840K becomes $1.68M.
Things to verify: Rollover equity is only as good as the buyer's business. Ask how they value the equity you are receiving. Ask what happens if you leave, if they sell, or if things go badly.
Earnout
Part of the purchase price paid over time, contingent on the practice hitting certain performance targets after close.
Example: $4.2M total price. $3.5M at close. $700K earnout paid over 3 years, contingent on practice EBITDA maintaining 90 percent of pre-close levels.
Things to verify: Earnouts often do not pay out fully. Once you no longer control the practice, the buyer controls the numbers. Push for as much cash at close as possible, and negotiate earnout terms that measure things you can influence.
Escrow / Holdback
A portion of your proceeds held back by the buyer for 12 to 24 months to cover potential issues that surface after close. Standard is 5 to 10 percent of the deal.
Example: $4.2M deal. $420K goes into escrow at close. Released to you 18 months later, minus any valid claims by the buyer.
Legal and Protection Terms
Documents and provisions that govern what happens if something goes wrong.
Letter of Intent (LOI)
A non-binding document that outlines the basic terms of the deal. Signing it typically starts an exclusivity period where you cannot talk to other buyers.
Things to verify: The LOI locks you out of the market. Only sign one when you are seriously ready to move forward, and negotiate the important terms (price, structure, exclusivity length) before signing, not after.
Definitive Agreement (APA or SPA)
The binding purchase document. Asset Purchase Agreement (APA) if the buyer is buying the practice's assets. Stock Purchase Agreement (SPA) if buying your entity's shares. Both are 60 to 100+ pages long.
Reps and Warranties
Statements you make in the definitive agreement about the practice. Things like "the financials are accurate," "there is no pending litigation," "all employees are properly classified," "all equipment is owned or leased legitimately."
Example: You represent that there are no undisclosed HIPAA violations. Six months after close, a former patient files a complaint about something that happened before close. Because you represented there were none, you are on the hook for the cost.
Indemnification
The framework for who pays if a rep and warranty turns out to be wrong. Typically capped at a percentage of the deal value and time-limited to 12 to 24 months.
Non-Compete / Restrictive Covenants
An agreement you sign at close that prevents you from opening a competing practice within a specified distance and time period.
Example: Two-year non-compete within 15 miles of the practice location. You cannot practice dentistry in that geography for two years, or must pay damages.
Things to verify: Radius and duration are negotiable. If you plan to keep working in the same market, negotiate carve-outs. If you plan to retire, this matters less.
Non-Solicit
Similar to a non-compete but focused on people. You cannot recruit your former staff to a new venture for a set period, typically 2 years.
Post-Close Terms
What happens after the deal closes.
Transition Period / Post-Close Services Agreement
The buyer usually wants you to keep working for 6 to 24 months after close to keep patients and staff comfortable with the transition. You are paid separately for this work, usually at a market-rate salary or per-day fee.
Management Services Organization (MSO)
The corporate entity that handles non-clinical operations for the practice after close. HR, billing, marketing, accounting, IT, procurement. The clinical practice remains a separate legal entity owned by dentists.
Management Fee
What the MSO charges the clinical practice for its services after close. Usually a percentage of collections. Typical range is 6 to 12 percent depending on services provided.
Example: Practice does $2.4M in collections. MSO management fee is 8 percent. That is $192K per year going to the MSO for support services.
Board Seat / Shareholder Governance
If you take rollover equity, you become a shareholder in the parent company. Depending on the group structure and your ownership stake, you may or may not have a formal seat at the table where decisions get made.
Things to verify: Ask how doctor shareholders are represented in governance. Is it a doctor-owned group where owners have real voting power? Or is it PE-controlled where doctors have minimal say?
Recap (Recapitalization)
What happens when the group you sold into eventually sells itself or takes on a new investor. This is where rollover equity holders "cash out" their second bite.
Example: Bluetree sells to a new PE partner in 5 years. Your rollover shares get converted to cash at the new valuation. If Bluetree grew, your shares are worth more than at close.
Where Bluetree Sits (Honestly)
I lead business development for Bluetree Dental. Same disclosure as always: I have a point of view.
The way we approach terminology has three principles. Not because we invented them. Because we have seen what happens when they get skipped.
First, we define every term in plain English before we use it. If we mention EBITDA, we walk through what our specific EBITDA calculation looks like for your practice. If we propose a rollover, we show you the math and explain what your equity is actually worth today.
Second, we explain the "why" behind each provision. Every reps and warranty, every non-compete distance, every escrow amount has a reason. If we are asking for it, we can explain what risk it is protecting against.
Third, we hand you the terms document early and ask you to bring an attorney. An owner-friendly deal is one where the terms make sense to both sides. If your attorney has questions we cannot answer clearly, that is on us to fix, not you to accept.
None of this makes us the right buyer for every practice. What it does mean is that owners who go through the process with us come out understanding what they signed, why they signed it, and what happens next.
If you are exploring what a partnership might look like for your practice and want to walk through the terminology in your specific context, reach out. No obligation to work with us after.