Valuing a Dental Practice in a Separation

A dental practice can generate a good income for its owner without all of that income representing a return on the business itself. Some pays for clinical work, some may reflect management duties, and the remaining earnings depend on the practice’s costs and patient relationships. A valuation needs to explain those components before either spouse relies on the result in settlement discussions.

The analysis also reaches beyond the financial statements. The hygiene program, premises and working arrangements can influence how much of the practice’s earnings would continue under a successor.

Identify the interest and valuation date

Start with the ownership structure. The assignment may concern a sole proprietorship, shares in a dental corporation or an interest in a group practice. A separate company may own the building, while shareholder loans and investments require their own treatment.

Manitoba’s dental corporation rules restrict share ownership. The Manitoba Dental Association distinguishes eligible holders of voting shares from permitted holders of non-voting shares, which can include specified family members. The share classes, their rights and any proposed transfer therefore need examination with counsel; the value of a spouse’s interest cannot be inferred from the practice’s total value alone. [1]

Counsel should also confirm the valuation date under section 16 of Manitoba’s Family Property Act and whether an earlier valuation is required. A report prepared for a recent purchase or financing may contain useful evidence but address a different date or ownership interest. Its instructions and assumptions need review before it is used in the family property file. [2]

Understand the earnings after allowing for the work

Production reports, collections and financial statements should be reconciled. Billings are not necessarily cash received, and older receivables may require assessment for collectibility. Payments received for treatment still to be completed also need to be understood alongside the obligations they represent.

Owner compensation needs particular care. If an earnings measure is intended to show the return to ownership after paying for clinical services, it should allow reasonable compensation for those services. Management duties also require attention, including work performed by either spouse or other family members.

Different market benchmarks may use different earnings definitions. A measure that includes the purchaser’s own clinical remuneration cannot be compared mechanically with earnings after a replacement dentist has been paid. The report should explain its earnings measure and keep any comparable transaction multiples consistent with it.

Changes in collections should be traced to their cause. More clinical hours, higher fees and a different treatment mix have different implications for future earnings. If recent growth depends on procedures only the owner currently performs, the forecast needs a reason to assume that capacity would continue.

Examine what would remain under a successor

The Canadian Dental Association identifies active patients, new patient flow and the hygiene program among the matters relevant to evaluating a practice. Financial performance and staffing also need review. These factors help test whether historical results provide a reasonable indication of future performance. [3]

An active patient count needs a definition. A database containing every person ever treated gives a different picture from a report of patients attending during a specified recent period. Appointment frequency and retention patterns help interpret the figure without assigning an automatic price to each patient file.

Goodwill requires the same attention to evidence. A practice may benefit from its location, established team and recall systems, while some patients attend primarily for a particular dentist’s skill or reputation. The valuation should examine how those relationships could affect earnings through a transition.

Owner involvement does not establish that all goodwill disappears, and an established patient base does not guarantee retention. Any assumption about the departing dentist’s transition assistance should be stated. The financial assessment of transferability and the legal treatment of goodwill in the family property accounting require distinct consideration.

Associate and employment agreements deserve review alongside the production reports. A practice relying heavily on one associate needs an assessment of that person’s expected continuation and the financial effect of departure. Retention assumptions should also consider the staff needed to maintain the hygiene schedule.

Read the lease and assess capital requirements

An attractive practice can face uncertainty if its lease is nearing expiry or restricts assignment. Renewal rights and future occupancy costs need examination, particularly where moving would interrupt operations. CDA guidance specifically identifies these lease matters in practice due diligence. [3]

Equipment condition also matters to the cash flow a purchaser could retain. Treatment chairs and imaging systems may remain useful despite low accounting values, or may require substantial expenditure soon after the valuation date. The American Dental Association’s valuation guidance identifies equipment condition, premises and expected patient retention as relevant considerations. [5]

Equipment and leasehold improvements should be reconciled with the chosen valuation method. Adding their full appraised value to an earnings valuation that already reflects their use can duplicate value. Similarly, related-party rent should be examined consistently with any separate valuation of the building.

Test market evidence against the actual practice

A reported sale price needs context. Determine whether it concerns assets or shares and whether it includes receivables, working capital or real estate. A price conditional on the seller remaining clinically involved for several years may not be directly comparable with an immediate departure.

The 2026 CBV Practice Standard 120 requires an understanding of the relevant industry, consideration of appropriate valuation approaches and support for significant assumptions. Those requirements apply at the Calculation level as well. A familiar revenue multiple needs evidence connecting it to the practice and the circumstances at the valuation date. [4]

An existing broker’s appraisal can contribute useful market information. Its coverage, valuation date and earnings assumptions should be reconciled with the current assignment. Where conclusions differ, identifying the reason is more useful than averaging the figures.

Give both spouses a clear financial conclusion

The final report should identify whether it values practice assets or a particular shareholding. Debt, excess cash and shareholder loans need consistent treatment, with any estimated taxes and selling costs explained separately. A practice value does not by itself establish the final equalization payment or the income available for support.

Information requests should respect patient confidentiality. Start with financial records and aggregate practice reports, and arrange any further access with counsel and the practice’s privacy officer. The Manitoba Dental Association’s privacy guidance explains the responsibility to protect patients’ personal and health information. [6]

When approaching Acadia Hill, provide the ownership records, financial statements and any existing practice appraisal, together with counsel’s instructions. That allows the assignment to focus on the interest at issue and the assumptions that matter to both spouses.

Peter Fast, CBV, Acadia Hill

This article provides general information and is not legal, tax or accounting advice. The appropriate scope depends on the purpose, intended users, available evidence and specific circumstances of the engagement. Family law counsel should advise on how the law applies to your situation.