What You’ll Learn
- Why backdoor referral fees between brokers and buyers create a direct conflict of interest
- How inflated valuations set sellers up for disappointment and blown deals
- What a quality of earnings report is and why your CPA cannot do it
- The math behind EBITDA multiples and how small changes add hundreds of thousands to your sale price
- Why most dentists start preparing to sell far too late
30 Years Building, 30 Days Preparing
Most dentists spend decades building a practice and about a month preparing to sell it. They walk into the process believing a number in their head that nobody in the room is willing to defend.
Elijah Desmond has seen this pattern destroy deals over and over. As founder of Dental Pitch, a national sell-side brokerage firm, he has built his career on exposing the conflicts and hidden fees that quietly cost sellers a fortune.
“Doctors wait too late to sell, not realizing that most people that are going to pay you the max are going to want you to stay for three to five years,” Elijah explained on a recent Byte Sized Podcast episode. “A misconception is like, I’m about to sell my practice, I’m going to put the pedal to the metal. Worst mistake you could ever make.”
The reality of selling a dental practice is far more complex than most doctors realize. And the people who benefit most from that complexity are not always the sellers.
The Backdoor Commission Problem
Most brokers won’t tell you that many of them collect referral fees from buyers.
The math works like this. A broker charges the seller somewhere between 6% and 12% of the total sale price. That fee is disclosed and expected. But behind the scenes, buyers often pay brokers an additional 1% to 5% for bringing them deals.
“If I’m a sell-side broker, I represent the seller. I will go to battle for the seller,” Elijah said. “Now, if I’m matching up with a buyer, do you think that if a buyer is paying me 5% and this other buyer is paying me 2%, which buyer do I want you to go with?”
The conflict is obvious. A broker collecting higher fees from certain buyers has a financial incentive to steer sellers toward those buyers, even if another buyer would offer better terms or a higher price.
This practice is legal. It is also rarely disclosed unless the seller specifically asks.
“It’s a gray area,” Elijah admitted. “We will never take that money. It definitely separates us. But if you’re going to work with a broker, just ask them this question: are you getting compensated or some kind of commission from the buyer in this transaction?”
Why Valuations Go Wrong
The second hidden cost comes from inflated valuations that set unrealistic expectations.
A broker performs a valuation, tells the seller their practice is worth $3 million, and everyone moves forward. Then the buyer does their own analysis. Their number comes back at $1.7 million.
The deal collapses. The seller is furious. The broker’s reputation takes a hit. Everyone loses.
“This is why a lot of times brokers catch a bad name in our industry,” Elijah explained. “They set the seller up for complete failure. The seller is very upset because they already counted their chips. They know the beach house they’re getting. They know the new car. But it’s just not real.”
The problem works in reverse too. If the broker’s valuation is low and the buyer’s analysis reveals the practice is actually worth more, the buyer simply accepts the lower number. The seller never knows they left money on the table.
| Scenario | Broker Valuation | Actual Value | Outcome |
| Overvalued | $3 million | $1.7 million | Deal collapses, seller devastated |
| Undervalued | $3 million | $4.2 million | Buyer pays $3M, seller loses $1.2M |
| Accurate | $3 million | $3 million | Fair deal for both parties |
The solution is a quality of earnings report performed by a third-party forensic accounting firm. Not your CPA.
Why Your CPA Cannot Do This
When sellers hear they need to pay $3,500 to $10,000 for a quality of earnings report, the immediate response is often to ask if their existing CPA can handle it instead.
The answer is no. Absolutely not.
“Your CPA will most likely say, ‘Yeah, I can do it, no problem.’ Absolutely not,” Elijah said. “It is going to make us look silly and destroy our reputation, and it is going to take your timeline and push it way back.”
The problem is twofold. First, your CPA has a personal interest in making you look good. They are not an objective third party. Second, CPAs typically handle tax strategy and bookkeeping. They are not trained in mergers and acquisitions forensic accounting.
A quality of earnings report examines the past three years of financials, identifies all the add-backs that increase your adjusted EBITDA, and produces a number that sophisticated buyers will actually trust.
Sophisticated buyers, the ones backed by private equity who cannot afford to be wrong, will conduct their own quality of earnings analysis anyway. If your number does not match theirs, negotiations become adversarial instead of collaborative.
The EBITDA Math That Changes Everything
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It represents your practice’s net profit, and buyers pay a multiple of that number.
A private practice dentist buying your practice might pay 3x to 4x EBITDA. Institutional buyers, DSOs and private equity groups, typically start at 5x and can go as high as 7x for the right practice.
Small operational changes create massive value.
“I just made you a million dollars from two small things,” Elijah said during the podcast, walking through two examples.
The first example involved switching clear aligner providers. If you do 20 cases per month and save $500 per case by switching vendors, that is $10,000 per month. Multiply by 12 months for $120,000 annually. At a 6x multiple, that single change adds $720,000 to your sale price.
The second example involved merchant services. A $2 million practice paying 2.5% in credit card processing fees spends roughly $50,000 annually. Pass those fees to patients as a convenience fee, which is now legal and common, and that $50,000 goes straight to your bottom line. At a 6x multiple, that adds $300,000 to your sale price.
Two operational changes. Over a million dollars in additional value.
The Earnout Reality
One of the biggest misconceptions sellers have is that they will receive the full purchase price at closing.
That almost never happens.
“There is never a time that you’re going to get the $2 million upfront,” Elijah explained. “And it’s very important to understand this.”
Instead, buyers structure deals with earnouts. They might pay 70% at closing and hold back 30%, releasing it over three years as long as the seller maintains production levels.
This is why putting your foot on the gas right before selling backfires. You need to maintain that production for years after the sale closes. If your numbers drop, buyers invoke something called a retrade, reducing the final payment.
“They’re going to say, ‘We need to sharpen our pencils a little bit,'” Elijah said. “And they’re going to offer you something low.”
The flip side is that sellers who increase production during the sale process can demand a retrade in their favor. If EBITDA is up $100,000 at closing compared to when the deal was signed, that could mean an additional $600,000 at a 6x multiple.
When to Start the Conversation
The worst time to call a broker is when you are ready to sell. The best time is two to five years before.
“We advise. We help people prepare their practice for the largest possible exit,” Elijah said. “More than likely, you’re calling too late if you’re already ready to sell right now.”
Preparation involves cleaning up financials, maximizing EBITDA through operational improvements, and understanding what buyers actually want. It also involves accepting some hard truths about who can afford to buy your practice.
Once a practice reaches $2 million or more in collections, most individual dentists cannot afford to buy it. They have student loans, mortgages, and family expenses. A $2 million practice loan is not happening.
“You work your butt off and you have this mindset of ‘I’m never going to sell to a DSO,'” Elijah said. “News flash: you’re probably not going to be able to sell your practice. There’s just not enough money.”
The Questions to Ask Your Broker
If you are considering selling your practice in the next several years, here are the questions that protect you:
Ask your broker directly whether they receive any compensation from buyers. Ask for the names of firms they recommend for quality of earnings reports. Ask how their team is compensated and whether they have volume quotas.
Get an M&A attorney, not your friend who practices family law. Spend the money on a quality of earnings report from a legitimate forensic accounting firm.
And start the conversation years before you plan to exit. The doctors who get top dollar are the ones who prepare like it matters. Because it does.
In This Episode:
Elijah Desmond, Co-Founder & Co-CEO, Dental Pitch Brokerage
Elijah Desmond is a seasoned entrepreneur with seven successful company exits under his belt. As Co-Founder and Co-CEO of Dental Pitch Brokerage, Elijah leads a sell-side firm dedicated to helping dental professionals maximize the value of their practices and secure ideal exit terms. His unmatched experience in building, scaling, and exiting businesses makes him a trusted authority in practice transitions.
Adrian Lefler, CEO and Co-founder of My Social Practice
Adrian Lefler, CEO of My Social Practice, is a seasoned expert in the dental marketing industry with 14 years of experience. He is widely recognized for his engaging and informative presentations. Based in Suncrest, Utah, Adrian shares his life with his wife, four children, and a lively mix of pets. My Social Practice is a leading dental marketing company, and Adrian is passionate about helping dental professionals succeed in this dynamic field.
Frequently Asked Questions
What is a quality of earnings report and why do I need one?
A quality of earnings report is a forensic accounting analysis that examines your past three years of financials to determine your true adjusted EBITDA. It identifies add-backs like personal expenses that increase your net profit number. Sophisticated buyers will conduct their own analysis regardless, so having one done upfront ensures your valuation matches reality and prevents deals from collapsing due to mismatched expectations.
What are backdoor referral fees and how do I know if my broker receives them?
Backdoor referral fees are payments buyers make to brokers for bringing them acquisition opportunities, typically ranging from 1% to 5% of the sale price. These fees create a conflict of interest because the broker may steer you toward buyers who pay them higher fees rather than buyers offering you better terms. Ask your broker directly whether they receive any compensation from buyers in the transaction.
Can I sell my practice to another individual dentist instead of a DSO?
For practices under approximately $2 million in collections, selling to an individual dentist remains possible. Above that threshold, most individual buyers cannot secure financing due to existing student loans, mortgages, and other obligations. Larger practices typically need institutional buyers such as DSOs or private equity groups who have access to capital for acquisitions at that scale.
