Maximising Your Dental Practice Earn-Out
An earn-out is not a passive arrangement. The deferred consideration you were promised at heads of terms is not guaranteed — it is calculated against EBITDA you must still generate, in a business you no longer wholly control, over a measurement period that may run for up to three years. Sellers who treat the earn-out as something that will take care of itself routinely underperform. Those who approach it with the same commercial discipline as the sale itself routinely deliver it in full.
This guide sets out the practical steps that determine earn-out outcomes: understanding what is actually being measured, staying active, protecting your team, monitoring performance, and defending your position against unjustified deductions.
1. Understand Exactly What the Earn-Out Measures Before the Period Starts
The earn-out is calculated against the EBITDA definition in the earn-out schedule of your sale and purchase agreement — not against turnover, not against the management accounts figure, and not against what was described verbally during negotiations. The schedule definition governs.
Before the measurement period begins, you should know three things precisely:
The EBITDA definition. Which costs are deducted? Which are excluded? Are group management charges carved out? What happens to one-off costs? The definition in the schedule is the only operative one — if it diverges from what was agreed at heads of terms, that divergence must be resolved in your solicitor’s negotiations before the SPA is executed, not after.
The earn-out target. The SPA will state the EBITDA level you must achieve to earn the full deferred consideration. Most deals include a tiered structure — a threshold below which no earn-out is earned, and a maximum above which no additional uplift is paid. Know the numbers exactly.
The measurement date and process. When does the earn-out period end? Who prepares the earn-out accounts? What is the challenge window? Sellers who are not clear on the measurement date and the post-period accounting process are routinely caught out when earn-out accounts are presented with insufficient time to review them properly.
Read the earn-out schedule in full before completion and again at the start of the measurement period. Brief your accountant on the definition and confirm they have the capacity to track performance against it monthly throughout the earn-out.
2. Stay Clinically Active
The most consistent predictor of earn-out underperformance is a reduction in the principal dentist’s clinical sessions during the measurement period.
In a private or mixed practice, a significant portion of EBITDA is generated by the principal. Private patients choose a dentist — they do not choose a practice. Where the principal reduces their sessions, patients either wait or migrate. Recall rates fall. Private income declines before associate activity can replace it, and in most earn-out structures, that decline flows directly to the EBITDA calculation.
In an NHS practice, the principal’s UDA delivery underpins contract compliance. Associate replacement takes time to arrange and cannot always be sourced at equivalent cost. A reduction in principal clinical sessions during the earn-out period that reduces UDA delivery against target will reduce EBITDA through both reduced NHS income and potential clawback exposure.
Sellers who planned to step back from clinical work immediately after completion should recalibrate. If the earn-out is genuine — if it represents meaningful deferred consideration — the cost of reducing clinical activity during the measurement period is the forgone earn-out, which in most dental practice transactions is material.
Where reduction in clinical sessions is unavoidable, plan the transition actively. Begin building relationships between your patients and specific associates well before the handover. Accompany patients to their first associate appointment where possible. Document patient migration to associates as a contemporaneous clinical record, not as an afterthought when the earn-out results are contested.
3. Protect the Associate Team
Associate retention is the second most common driver of earn-out shortfall.
When an associate leaves during the earn-out period, the direct EBITDA impact is immediate: UDA sessions are unmet until a replacement is in post and productive, and private treatment capacity is reduced in parallel. In a practice with two or three associates, a single departure mid-earn-out can cause a measurable EBITDA reduction.
Associate departures during earn-out periods are not uncommon. Completion creates uncertainty: the practice has changed hands, integration is underway, and associates may be approached by competing practices or DSOs. The principal — now an employee — is the single most important factor in associate stability during this period.
Maintain a positive and stable working environment. Communicate actively with the associate team about what the transition means for them. Where the buyer is integrating the practice into a group structure, manage the introduction of new protocols, branding, and administration processes in a way that does not create avoidable friction. Support the buyer’s integration process while buffering the associate team from the disruption that integration inevitably brings.
Monitor associate satisfaction actively. A departure that can be anticipated and addressed — through a conversation, through a retention discussion with the buyer, through prompt replacement recruitment — costs far less than one that materialises without warning at a critical point in the earn-out period.
4. Monitor EBITDA Monthly Against the SPA Definition
Do not wait for the buyer to produce the earn-out accounts. Build your own monthly EBITDA tracking from the first day of the measurement period.
The tracking should use the SPA schedule definition — not the management accounts format, not the accounting software default output. Map each line item in your monthly accounts to the earn-out definition. Identify which costs are deducted in the SPA definition and which are excluded. Confirm with your accountant that the format you are tracking matches the format against which earn-out will be calculated.
Monthly tracking serves three purposes. First, it allows you to identify performance risk early enough to address it — a declining trend in private income in month four is recoverable; the same trend identified in month ten is not. Second, it allows you to spot unjustified deductions as they appear in management accounts the buyer provides, rather than discovering them when the final earn-out accounts land. Third, it creates a contemporaneous record that supports your position in any post-period dispute.
5. Watch for Buyer EBITDA Deductions
Buyer-side EBITDA deductions are the most common source of earn-out disputes in dental practice transactions. Three categories warrant particular attention.
Group overhead allocations. Once the practice is part of a group, buyers may allocate a share of central overhead — group management costs, shared services, IT infrastructure — to the practice’s accounts. Unless the SPA earn-out definition explicitly excludes group overhead allocations, the buyer will argue these are legitimate deductions. Most sellers do not anticipate this. The time to exclude group overheads from the earn-out EBITDA definition is during SPA negotiation, before completion.
Integration costs. Rebranding, system migration, training, and regulatory harmonisation costs associated with the buyer’s integration programme are buyer costs — they are not costs of running the practice. If these are charged to the practice’s accounts during the earn-out period, challenge them immediately and in writing. Post-completion integration costs should not reduce the EBITDA against which the seller’s earn-out is measured.
Increased associate costs post-completion. Where the buyer renegotiates associate fee structures upward after completion — or where retention payments are made to associates as part of the buyer’s integration programme — those increased costs will reduce EBITDA. Whether those cost increases are properly deductible under the SPA definition depends on the definition’s drafting. Review the definition with your solicitor before accepting any significant increase in the practice’s associate cost base.
6. Comply With Non-Interference Obligations
The SPA will include obligations on the seller during the earn-out period. These typically require the seller to run the practice consistently with its pre-completion operations, not to take actions that would damage the business, and not to interfere with the buyer’s management of the practice.
Non-interference obligations cut both ways. They restrict the seller from taking actions that would deflate EBITDA artificially — deferring income, accelerating costs, deliberately underperforming to depress the earn-out measurement. But they also impose a floor: the buyer cannot direct the seller to take actions that suppress EBITDA and then rely on the suppressed EBITDA to deny the earn-out.
Read and comply with the non-interference provisions. Where the buyer’s management decisions are having a material adverse effect on EBITDA during the earn-out period, document them and raise them with your solicitor promptly — not after the measurement period has closed.
7. Document Everything, in Writing, at the Time
Earn-out disputes are resolved by reference to contemporaneous documentation, not recollection.
If you challenge an unjustified deduction, challenge it in writing at the time it appears — not when the earn-out accounts are presented. If you raise a concern about the buyer’s operational decisions affecting EBITDA, raise it in writing. If you track EBITDA monthly, keep the working papers.
Documentation created after the earn-out accounts are presented carries significantly less weight than documentation created during the measurement period. Buyers and their advisers know this. The seller who can point to a written challenge raised in month seven — before the measurement period closed — is in a materially stronger position than one who raises the same point when the accounts arrive.
8. Dispute Resolution: Know the Challenge Window
The earn-out schedule will contain a dispute resolution mechanism. After the buyer delivers the earn-out accounts, the SPA will allow the seller a defined period to challenge them — typically 20 to 30 business days. If the seller does not issue a formal challenge within that window, the earn-out accounts become binding. The right to dispute is lost.
Engage your accountant and solicitor immediately upon receipt of the earn-out accounts. Do not wait for a meeting — do not defer review. Twenty business days is not long, and a proper review of earn-out accounts against the SPA definition requires technical accounting and legal input.
Where challenges are not resolved between the parties within the SPA’s prescribed period, the mechanism typically provides for expert determination — appointment of an independent accountant to resolve the disputed items. Expert determination is binding; the expert’s costs are usually shared or allocated based on the outcome.
Understanding the dispute resolution mechanism before it arises — and engaging promptly when earn-out accounts are delivered — is the final critical step in an earn-out that most sellers either defer until too late or miss entirely.
For a full overview of the sales process and what to expect at each stage, see how to sell your dental practice. For guidance on evaluating and understanding the offer you received, including how earn-out structures are priced, see understanding your dental practice offer.
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Frequently Asked Questions
How is the earn-out calculated in a dental practice sale?
The earn-out is calculated against the EBITDA definition set out in the earn-out schedule of your sale and purchase agreement. The schedule definition — not the heads of terms description or the management accounts format — is the operative one. It typically covers a measurement period of 12 to 36 months and compares actual EBITDA against an agreed target, with deferred consideration paid based on performance against that target.
What is the most common reason sellers underperform on their dental practice earn-out?
Reducing clinical sessions during the measurement period is the most consistent driver of earn-out shortfall. In private and mixed practices, private EBITDA is significantly tied to the principal’s own clinical activity. Where the principal reduces sessions, private income declines before associate-led replacement income recovers, and the shortfall flows directly into the earn-out calculation.
Can the buyer charge group overheads to the practice during the earn-out?
Whether group overhead allocations are deductible in the earn-out EBITDA calculation depends entirely on the SPA earn-out schedule definition. If the definition does not explicitly exclude group overhead allocations, buyers will argue they are legitimate deductions. Sellers should ensure the SPA earn-out definition excludes group overheads, integration costs, and post-completion buyer-side costs before execution — not after.
What should I do if I disagree with the earn-out accounts the buyer produces?
Issue a formal written challenge within the challenge window set out in the SPA — typically 20 to 30 business days from receipt of the earn-out accounts. Missing this window forfeits the right to dispute, and the accounts become binding. Engage your accountant and solicitor immediately on receipt; do not defer review.
How important is associate retention during a dental practice earn-out?
Very. An associate departure during the earn-out period creates an immediate EBITDA impact through lost UDA delivery and reduced private treatment capacity. A single departure mid-period can cause a material shortfall in a small or medium practice. Active communication with associates, stable working conditions, and early monitoring of team morale are the principal levers the seller controls.