Collections: the starting point, not the whole story
Annual collections (gross revenue) is almost always the first number in a listing. It tells you the practice's scale — but by itself, it tells you nothing about profitability. Two practices with $900K in collections can have wildly different net incomes depending on staff ratios, overhead, payor mix, and owner compensation strategy.
Use collections to get to the right ballpark; use cash flow (SDE — Seller's Discretionary Earnings) to evaluate what you're actually buying. If a listing doesn't show SDE or a proxy for it, ask the broker.
Asking price relative to collections: a first filter, not a verdict
Most listings show asking price and annual collections. Their ratio gives you a rough first-look at whether the pricing is aggressive or conservative for the category — but this ratio is not a valuation method and should not be used as one. Cash flow, trend, payor mix, and lease quality are what actually justify or undercut the price.
Treat the ratio as a directional filter when you're browsing a large number of listings. A practice priced well above peers in its specialty and geography deserves a closer look at what justifies it (growing collections? real estate included? dominant market position?). A practice priced well below peers also deserves scrutiny — the number may not include real estate, or there may be collections concentration risk or lease exposure.
Operatory count and production capacity
Number of operatories tells you the physical production capacity of the practice. A high-collections practice in three operatories is running very efficiently and probably near the ceiling of what it can produce in that space — growth would require adding space or extended hours. A practice with six operatories doing the same collections has idle capacity, which could be an opportunity or a sign of declining demand.
Also note the equipment age if it's disclosed. Near-end-of-life chairs or imaging equipment will be a capital expense shortly after close — budget for it rather than assume it's not coming.
Specialty
Specialty matters both for your credentials and for what you're buying into. A general dentistry practice is a different business than an orthodontic or oral surgery practice — different payor mix, different production model, different referral dynamics.
Multi-specialty practices can be attractive but add transition complexity; if production depends on a referring network the seller built personally, ask hard questions about how transferable that network is to a new owner.
Lease terms (if disclosed)
Many listings will indicate whether a lease is in place, its length, and sometimes the monthly rent. Remaining term and renewal options are material — a practice with two years left on a lease in a desirable location and no options is fundamentally different from one with a decade plus two five-year renewal options.
Whether the lease is assignable — and whether renewals transfer with assignment — is frequently not disclosed in the listing itself. This is an early question to ask the broker, not something to discover at the end of due diligence.
What listings don't tell you — the questions to ask before you sign the NDA
Collections trend: is the practice growing, flat, or declining? The trailing-12-months number in a listing is a snapshot; the trend is what matters for underwriting and for your confidence as a buyer.
Payor mix: fee-for-service vs. PPO vs. HMO/Medicaid. A practice with strong fee-for-service or in-network-PPO revenue has better margins and more pricing control than one heavily dependent on managed care.
Owner-dependence: how much of production is tied to the selling doctor personally? A practice where the owner does 80% of the production needs a clear transition plan to retain that revenue under a new owner.
New patient flow: how many new patients per month? This is the best leading indicator of whether the practice is growing its patient base or slowly running down an aging one.
Real estate: included or leasehold?
Whether the building is included in the sale is a significant variable that changes both the price and the financing structure. When real estate is included, the practice and the building are typically financed separately — the practice on a 10-year acquisition loan, the real estate on a longer commercial mortgage.
Leasehold practices (where you're a tenant) are more common; the quality of the lease becomes even more important because you're fully dependent on the landlord's cooperation for the life of your ownership.