Key Takeaways
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Overpricing, anchoring on emotional numbers, and relying on free or broker-supplied valuations are common valuation mistakes that can trigger re-trading and lost value.
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Signing exclusive agreements without reviewing terms, allowing conflicted dual representation, and overlooking lease or non-compete issues can lock sellers into unfavorable outcomes long after closing.
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Accepting the first offer, skipping financial preparation, and allowing post-LOI quality-of-earnings adjustments are operational errors that weaken seller leverage and reduce final proceeds.
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CPA-led EBITDA analysis with documented add-backs, sell-side-only advocacy, and structured competitive bidding can reduce the information advantage that sophisticated buyers often hold.
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McLerran & Associates is a sell-side-only, dental-only advisor designed to help sellers avoid each of these costly mistakes.
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Why These Mistakes Cost So Much And Why They Cluster Now
The information gap between a dental practice seller and a sophisticated buyer can be profound. A practice owner may sell once in a career. A DSO (Dental Service Organization) or private equity-backed buyer negotiates deals every week. That asymmetry can be one of the main drivers of the mistakes in this guide.
The post-COVID influx of private equity capital into dental consolidation widened that gap further. Stronger buyers entered the market, and so did weaker ones. Careful vetting of both the buyer and the broker matters more today than it did a decade ago.
Every mistake below connects to a single theme. The seller gives up control of valuation and process to someone whose incentives are only partially aligned with theirs. McLerran & Associates is structured to keep both valuation and process in the seller’s hands.
A percentage-of-collections rule of thumb can help with quick, general decisions but should never determine a practice’s final value. A shortcut number set by the buyer, or by a broker focused on closing, becomes the anchor that quietly determines what the owner ultimately receives.
The 12 Dental Practice Broker Mistakes To Avoid
The 12 mistakes below are grouped into 3 categories. Each mistake is summarized here and then explained in detail in the sections that follow.
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Valuation And Pricing: Overpricing and anchoring on an emotional number
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Valuation And Pricing: Accepting a free or broker-supplied valuation
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Valuation And Pricing: Not understanding CPA-led EBITDA and add-backs
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Deal Structure And Legal: Exclusive brokerage agreement traps
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Deal Structure And Legal: Broker conflicts of interest and dual representation
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Deal Structure And Legal: Non-compete assignment clause mistakes
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Deal Structure And Legal: Dental practice lease assumption mistakes
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Deal Structure And Legal: Fee-splitting and wait-and-see structures
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Operational And Preparation: Accepting the first offer instead of creating competition
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Operational And Preparation: Failing to prepare financials and diligence materials
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Operational And Preparation: Confidentiality lapses
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Operational And Preparation: Not understanding post-LOI re-trading and quality-of-earnings defense
Valuation And Pricing Mistakes
Mistake 1 — Overpricing And Anchoring. An aspirational or emotionally driven number quickly becomes the anchor for every negotiation that follows. An overpriced practice tends to sit on the market, signal desperation to buyers, and eventually attract lower offers than a correctly priced practice might have received. The practical fix is a diligence-grade valuation built from the practice’s own management-software data. Every add-back should be documented and defensible. McLerran & Associates builds a CPA-led EBITDA analysis that can control the profitability story from the first buyer conversation.
Mistake 2 — Accepting A Free Or Broker-Supplied Valuation. A free valuation usually functions as a lead magnet rather than a full financial analysis. A back-of-the-napkin number gets tested in due diligence, and when it fails, the agreed value often gets re-traded downward after the seller has already granted exclusivity. Paying for valuation work up front can help the number hold when buyers scrutinize it. In one McLerran & Associates case, a free valuation pegged a practice at $2.5 million. McLerran valued it at $4.5 million, and it sold for $5.25 million after a competitive process.
Mistake 3 — Not Understanding CPA-Led EBITDA And Add-Backs. EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is the profitability measure DSO and private equity buyers use to set a purchase price. Add-backs are discretionary, personal, or non-recurring expenses added back to reported income to show the practice’s true earning power. Every $10,000 of missed add-backs is roughly $60,000 of enterprise value at a 6x multiple. Missed or unsupported add-backs are often reversed in diligence, and every dollar of EBITDA removed is multiplied by the deal multiple. McLerran’s CPA-led EBITDA analysis documents each add-back before the practice goes to market. That preparation helps the seller control the profitability narrative.
Even a well-supported valuation can lose ground through the terms a seller signs. The next group of mistakes lives in the engagement letter and the purchase agreement, where small clauses can carry large consequences.
Deal Structure And Legal Mistakes
Mistake 4 — Exclusive Brokerage Agreement Traps. The engagement letter a broker presents before any work begins can bind a seller to a fee long after the relationship ends. The commission percentage is only the starting point. Sellers also need to know when the fee is earned and payable, whether minimum fees apply, how a terminated listing is treated, and whether tail periods survive termination. A tail period, which is the window after termination when the broker still earns a fee if the practice sells to a buyer they introduced, can obligate a seller to a commission even after they have moved on. That risk is why counsel should read the engagement letter before signing and confirm the fee base, the fee trigger, and what happens if the deal does not close.
Mistake 5 — Broker Conflicts Of Interest And Dual Representation. A firm that also represents buyers, holds buy-side mandates, or receives referral fees from buyers or lenders cannot fully focus on negotiating the seller’s highest price. Undisclosed dual agency, where a broker represents both buyer and seller without written disclosure and affirmative consent, is illegal in every U.S. state and can void the commission agreement. Before sharing confidential information, sellers should obtain written disclosure of the broker’s agency status, every source of compensation, and any buyer relationships. McLerran & Associates is sell-side only and never represents the buyer.
Mistake 6 — Non-Compete Assignment Clause Mistakes. A covenant not to compete without clear assignment terms can limit future career options. In a DSO deal, the ADA’s DSO guide (updated January 2021) notes that non-compete and non-solicitation terms commonly extend to other practices the DSO services. The guide also notes that non-compete law has changed in many states. State counsel should review any covenant before signing. In Texas, for example, a non-compete relating to dentistry entered into or renewed on or after September 1, 2025 is unenforceable unless it meets specific statutory requirements. These include a buyout cap, a 1-year term limit, and a 5-mile geographic limit.
Mistake 7 — Dental Practice Lease Assumption Mistakes. A short remaining lease term or a missing assignment clause can become the buyer’s leverage at the moment the seller has the least. A buyer cannot finance a practice that may lose its location, and a lease complication can stall or collapse a deal at the final hour. Sellers can reduce this risk by confirming assignment and renewal rights and resolving landlord consent before going to market.
Mistake 8 — Fee-Splitting And Wait-And-See Structures. Post-sale payments structured as a percentage of ongoing collections or referrals can conflict with state dental board rules on fee-splitting. Compensation after the sale generally works better as a fixed work-back or employment arrangement reviewed by dental counsel. Open-ended revenue-sharing arrangements can create regulatory exposure.
Tax Implications Of Selling A Dental Practice
This section is educational only and is not tax or legal advice. Consult a dental-specific CPA and attorney before signing any letter of intent.
Most dental practice sales are structured as asset sales, meaning the buyer purchases the practice’s assets rather than its legal entity. Under IRC Section 1060, the purchase price must be allocated across 7 statutory asset classes, and both buyer and seller must report the identical allocation on IRS Form 8594.
The allocation matters because different asset classes are taxed differently:
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Goodwill (Class VII) generally produces long-term capital gain for a seller who has held the practice more than 1 year.
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Depreciated equipment is subject to IRC Section 1245 depreciation recapture, which produces ordinary income up to the depreciation previously taken, including Section 179 expensing and bonus depreciation.
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A covenant not to compete is ordinary income to the seller regardless of how the payment is labeled, because the IRS looks to economic substance.
Because both parties must file matching Form 8594 allocations, the purchase price split is negotiated as part of the purchase agreement. Two offers with identical headline numbers can produce very different after-tax proceeds depending on how the price is allocated. Sellers can work with a dental-specific CPA and attorney to model the allocation before signing the LOI. McLerran & Associates prepares multi-year, multi-structure financial forecasts that show real after-tax proceeds across deal structures so sellers compare what they actually net.
Structure and tax shape the terms of the deal. The final group of mistakes occurs in execution, where preparation and process determine whether those terms hold up with buyers.
Operational And Preparation Mistakes
Mistake 9 — Accepting The First Offer Instead Of Creating Competition. A single bidder knows it has no competition and usually prices accordingly. A direct unsolicited approach from a DSO rarely reflects its best number because there is little pressure to raise the offer. McLerran & Associates runs a structured, auction-like competitive bid process among a vetted pool of well-qualified buyers. The process typically takes 45 to 60 days and generates around 10 offers, and poorly run DSOs are blacklisted before they can bid. Clients often see around a 30% increase in valuation compared to selling alone.
Mistake 10 — Failing To Prepare Financials And Diligence Materials. Messy books, personal expenses run through the practice, and an undocumented add-back schedule can alarm lenders and give buyers grounds to re-trade the price. Roughly 30% of healthcare M&A deals fail during due diligence, often because the practice was inadequately prepared before going to market. Sellers can reduce this risk by normalizing financials and building the data room before going to market.
Mistake 11 — Confidentiality Lapses. If staff believe the practice is being sold, the best team members often start looking elsewhere, and if patients hear it, treatment plans can stall. A premature leak can reduce the value of the very asset being sold. A confidential marketing process with controlled buyer access helps protect both goodwill and momentum.
Mistake 12 — Not Understanding Post-LOI Re-Trading And Quality-Of-Earnings Defense. After the LOI (Letter of Intent) grants exclusivity, typically for 60 to 120 days, the buyer’s quality-of-earnings team tests every add-back. The central re-trade mechanism is a lower EBITDA baseline at the same headline multiple. Reducing normalized EBITDA from $600,000 to $500,000 at a 7x multiple cuts enterprise value from $4.2 million to $3.5 million. That change is a $700,000 reduction, yet the broker can still tell the seller they “held the multiple.” According to 2024 American Society of Appraisers data, the most common source of purchase price reduction between LOI and close is the buyer-driven reversal of seller add-backs that lack adequate documentation. McLerran & Associates defends the EBITDA it underwrote through diligence and reminds buyers that other vetted bidders remain in the process.
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Choosing And Managing Your Broker: The Decision That Determines All The Others
One decision sits above the 12 mistakes: who you hire and how you manage that relationship. The outcome of every category above often depends on that choice. Red flags include hiring a local generalist who knows only 1 or 2 DSOs, hiring a multi-vertical advisor without dental-only depth, hiring a free-valuation lead-generation firm, and skipping questions about transaction rates and sell-side-only alignment.
Many broker engagement agreements limit the owner’s ability to use another broker or sell independently for a period of time and may require a fee after termination if the practice later sells to a party introduced during the engagement. Counsel should assess these provisions before signing.
The conflict-of-interest question is structural rather than personal. Because a broker’s marginal fee on the top dollars of a valuation can be small relative to the seller’s loss in a re-trade, it can be mathematically irrational for a broker to risk a substantial closing fee to recover the seller’s larger loss during a quality-of-earnings negotiation. A broker paid to close differs from an advisor paid to maximize the seller’s net proceeds.
McLerran & Associates is a sell-side-only, dental-only advisor designed to prevent these conflicts. The firm has completed roughly 2,000 successful practice sales, closed approximately $2 billion in transaction volume, and evaluated more than 10,000 practices. Its transaction rate is approximately 85 to 90%, compared with an industry norm closer to 35 to 40%. The process behind that rate includes sell-side-only advocacy, a CPA-led valuation that resists re-trading, a structured competitive bid process, multi-year multi-structure financial forecasting, and quality-of-earnings defense through close.
For a deeper look at how to vet a broker before signing, see McLerran’s How To Choose A Dental Broker: A Step-By-Step Vetting Guide. For a breakdown of fee structures and what to watch for, see Dental Brokerage Fees: What Every Seller Should Know.
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Pre-Signing Checklist: What To Confirm Before You Sign
Before signing an engagement letter or a letter of intent, confirm each of the following. The first 3 items protect the valuation, the next 4 protect the deal structure, and the final 3 protect the process.
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Valuation is CPA-led and diligence-grade, rather than a simple percentage of collections.
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Engagement letter states the fee base, fee trigger, tail period, and termination rights in plain language.
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Agency status and every source of broker compensation are disclosed in writing before confidential information is exchanged.
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Broker is confirmed as sell-side only, with no dual representation.
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Lease assignment rights and landlord consent are confirmed before going to market.
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Non-compete assignment terms are reviewed by state counsel.
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Every add-back is documented with a paper trail a buyer’s accountant can verify.
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Purchase-price allocation has been modeled with a dental-specific CPA and attorney.
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A competitive process with multiple vetted bidders is planned instead of a single-buyer introduction.
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Quality-of-earnings defense is planned for the post-LOI exclusivity window.
Frequently Asked Questions
Who Does The Broker Actually Represent?
The broker represents the party who signed the engagement letter and pays the commission, which is typically the seller. Some firms also practice dual representation, meaning they represent buyers or maintain buy-side relationships. This structure can still work, but it must be disclosed in writing before any confidential information is exchanged. A seller can ask directly whether the firm has any buy-side mandates, referral relationships, or compensation arrangements with likely buyers and then require written confirmation of the broker’s agency status before proceeding. A firm that stays vague about whose side it is on is a red flag regardless of its marketing language.
Can A Broker’s Valuation Get Re-Traded After The LOI?
Yes. Re-trading happens in the majority of lower-middle-market transactions. Post-LOI quality-of-earnings review is where agreed value most often falls, usually by lowering the EBITDA baseline rather than the headline multiple. The buyer’s forensic team tests every add-back, and any that lack documentation are reversed. Because the seller has already granted exclusivity and invested months in the process, leverage to push back can be limited. The main defenses are a documented, CPA-led valuation prepared before going to market and a competitive bidder pool that the seller’s advisor can credibly reference during re-trade negotiations.
How Are Sale Proceeds Taxed, Capital Gains Or Ordinary Income?
This is educational information only. Consult a dental-specific CPA and attorney before signing any letter of intent. In a typical asset sale, the proceeds are allocated across asset classes, and each class is taxed differently. Goodwill generally produces long-term capital gain for a seller who has held the practice more than 1 year. Depreciated equipment produces ordinary income up to the amount of depreciation previously taken, including Section 179 expensing and bonus depreciation. A covenant not to compete is ordinary income to the seller regardless of how the payment is labeled. Both buyer and seller must report the allocation on IRS Form 8594, and the reported amounts must match. Two offers with identical headline numbers can lead to very different after-tax proceeds depending on how the price is allocated, so modeling the allocation before signing the LOI can be essential.
What Are The Red Flags In A Dental Practice Broker Engagement Agreement?
Common red flags include a valuation that is not supported by documented financials and a CPA-led analysis, pressure to sign the engagement letter immediately without time for counsel review, and vague descriptions of which buyers the broker actually knows. Other concerns include unclear fee language that does not specify when the fee is earned, what the fee base is, or what happens if the deal does not close. A tail period that survives termination and could bind the seller to a commission long after the relationship ends is another risk. Undisclosed buyer relationships or referral compensation arrangements and a long exclusivity period without clear termination rights also warrant attention. Left unaddressed, any of these terms can quietly transfer value from the seller to the broker or the buyer.
Conclusion: Keep Control Of Valuation And Process
The 12 mistakes above share a common root cause. The seller gives up control of valuation and process to someone whose incentives are only partly aligned with theirs. A broker paid primarily to close, a dual agent with buyer relationships, a free valuation that anchors the deal at the wrong number, or an LOI signed without understanding quality-of-earnings risk can each shift control and cost real money.
McLerran & Associates is a sell-side-only, dental-only advisor designed to help prevent these mistakes. As the track record above shows, the firm’s transaction rate and deal volume reflect a process built around CPA-led valuation that holds under scrutiny, a structured competitive process that creates real bidding tension, and quality-of-earnings defense that helps keep the agreed value intact through close.
If you are still deciding whether selling is right for you, you can join the McLerran M&A Summit (October 29–30, 2026, Austin) to learn more before you choose a path.
Call (512) 900-7989 or email info@dentaltransitions.com to find out what your practice may be worth today.
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