Guide

Understanding dental practice earnouts: the four mechanics that decide whether you get paid

Earnouts look like a small piece of the deal on a term sheet. They are often the piece that determines whether you actually clear the price you negotiated.

By Blane Jackson, DDS/MBA · Former owner of 8 practices · Updated April 2026

Earnouts are the part of a DSO deal that gets glossed over in the LOI and stress-tested in the lawyer's office. A 10 to 30 percent earnout, tied to performance over 12 to 36 months, is standard. What is not standard is how often sellers end up collecting less than they expected.

Four mechanical decisions inside the APA determine whether an earnout is worth the number on the page.

1. EBITDA versus revenue

Revenue-based earnouts are measurable and hard to game. If your practice collected $2.1M in year 12 post-close, that number is visible in the accounting and not subject to management discretion.

EBITDA earnouts are different. EBITDA is an accounting construct — revenue minus operating expenses, with certain items added back. Every line in the calculation is subject to interpretation. The DSO's CFO controls the interpretation.

A rule of thumb: revenue-based earnouts are worth 80 to 90 percent of their face value. EBITDA-based earnouts are worth 50 to 70 percent of face value once you account for probable accounting adjustments. That is not cynicism, it is the math of who controls the measurement.

2. Measurement period length

The longer the earnout period, the more the risk shifts to you. 12 months is short enough that operational changes from the buyer have limited time to affect the numbers. 36 months is long enough that almost any post-close operational decision will be reflected in the measurement.

If the buyer wants a 36-month earnout, they are telling you something about how long they think operational transition risk exists. That is useful information. It should also reduce your willingness to accept a large earnout percentage.

3. Add-back rules

Every APA includes an add-back schedule — items that will not be counted as operating expenses in the earnout measurement. Typical add-backs include one-time legal fees, extraordinary repairs, owner compensation in excess of market comparable.

The list you negotiate into the APA is the list you can use to protect yourself. The list you do not negotiate is the list the buyer can use. Review the add-back schedule line by line and push for symmetry: if centralized marketing costs are not added back, neither are centralized IT costs, neither are new software implementations, neither are inter-company management fees.

4. Acceleration triggers

Standard in most APAs: if the DSO sells, IPOs, or significantly changes its operating model during your earnout period, your earnout accelerates at target. Non-standard but negotiable: acceleration on change of control at the regional or sub-LLC level, acceleration on departure of the CEO or COO who signed the deal, acceleration on material change to staffing levels at your practice.

Acceleration triggers are the clauses that protect you from events outside your control. Every one you do not negotiate is an event that could reset your earnout to zero without recourse.

The bottom line

Earnouts are worth taking when (a) the measurement is revenue-based or EBITDA with tight add-back rules, (b) the period is 24 months or less, (c) there is an independent accounting review mechanism, and (d) there are meaningful acceleration triggers. Earnouts are not worth taking when all four of those are weak, regardless of the headline percentage.

If you cannot get to yes on the mechanics, take less cash up front and walk away from the earnout entirely. A smaller deal that closes is worth more than a larger deal you might not collect.