The percentage-of-collections rule of thumb
The quickest estimate values a general practice at about 60–85% of trailing-twelve-month collections. A practice collecting $900,000 would land somewhere around $540,000–$765,000 by this method.
It's a starting point, not an answer — two practices with identical collections can be worth very different amounts depending on profitability and trend.
The cash-flow method: SDE and multiples
The more rigorous approach values the practice on its earnings. SDE (Seller's Discretionary Earnings) = net income + owner's salary + owner's perks + one-time and non-operating expenses (the 'add-backs'). Practices commonly trade at roughly 1.5x–3x SDE depending on size, growth, and risk.
Because SDE normalizes for how each owner runs the books, it lets buyers and lenders compare practices apples-to-apples.
Add-backs: where value is found (and lost)
An add-back schedule restores discretionary and non-recurring costs to earnings: owner compensation above an associate's wage, auto and travel, family on payroll, one-time legal or equipment expenses, and personal items run through the practice.
Legitimate, documentable add-backs raise SDE and therefore value. Aggressive or unsupported add-backs get stripped out in due diligence, so they must be defensible.
Factors that move the multiple
Value goes up with: growing collections, a strong hygiene program, fee-for-service payor mix, low owner-dependence, modern equipment, a long assignable lease, and a stable team. Value goes down with: declining collections, heavy HMO/Medicaid dependence, production concentrated in the owner, deferred-maintenance equipment, or a short or unassignable lease.
Real estate and equipment
If the building is included, it is valued and financed separately from the practice (often via a 1031 exchange or its own loan). Equipment is generally already reflected in the practice value rather than added on top.