How the Operational QoE works, in four short pieces

Four short pieces published on the DRAI company page, on how the Operational QoE works and what separates it from the document every deal already runs.

Two documents, two questions

A typical Financial Quality of Earnings and DRAI's Operational Quality of Earnings answer two different questions. The deals that go wrong are the ones where someone assumed the former addresses the latter.

The financial QoE is the established standard. It normalizes the EBITDA, reconciles collections to deposits, tests the add-backs, and tells the buyer what the practice actually earned. Every deal should be underwritten on it.

But what it does not do, because it was never built to, is look underneath the earnings at the operations that produced them. It counts the patients who came back, not the ones who lapsed and were never called. It counts the cases that closed, not the treatment that was diagnosed, accepted, and never booked. It records what each provider produced, not why two providers on the same schedule produced very different numbers. It measures what was captured. It has no line for what was recoverable and left behind.

That second layer is the Operational QoE. It sits beside the financial QoE in the same data room, on the same period, built from the practice management data the financial team was never scoped to examine. One document tells you what the practice earned. The other tells you what it was capable of earning, by category, with the reason behind each number.

Use both and you are underwriting the whole practice. Read only the first and you are pricing half of it, and finding the other half in year one.

One report, both sides of the deal

The Operational QoE works on both sides of a dental deal. What changes is the job it does for whoever is reading it.

For a buyer, it runs after the LOI and before close. It shows the recoverable upside and the operational risk inside the target before the capital is committed, handing the new owner a plan to start capturing that value from day one. The result is a stronger IRR and value created earlier in the hold.

For a seller, it runs pre-listing before going to market. It surfaces the recoverable revenue still sitting in the practice, the revenue that can be captured into EBITDA before the business is priced, and documents it so the upside survives a buyer's diligence instead of being quietly discounted. The result is a higher EBITDA going to market and a stronger valuation to defend.

One report. The buyer uses it to buy better and own better. The seller uses it to list higher and hold the price.

What unscheduled treatment looks like in the data

A dental practice can show clean, growing collections every year and still be sitting on a six-figure hole the financial diligence never sees. Take one of the five categories we quantify: unscheduled treatment.

A patient comes in, the dentist diagnoses work that is needed, presents it, and the patient agrees. Then it never gets booked. The crown, the perio, the implant sits in the treatment ledger as accepted and unscheduled, sometimes for years. The practice already did the hard part, the diagnosis and the patient's yes. It just never put the work in a chair.

None of it touches the financials. A financial QoE measures production and collections, which by definition is the treatment that got done. Treatment that was accepted and never scheduled produced no charge, so it shows up in nothing a buyer reads, even though it is demand the practice already created and is owed.

On a six-location group it is common to find thirty to forty percent of diagnosed treatment unscheduled in the system. Convert even part of it and most of that drops to margin, because the patients are already in the database and the diagnosis already exists. At a normal multiple, the enterprise value tied to closing that gap is often the difference between the number the seller expected and the number they got.

The trailing financials show what the practice collected. The treatment ledger shows what it was already owed and never booked. One of those is in the deal. The other should be.

Every number traces back to the practice's own data

Every recoverable-revenue figure is tied to the raw practice management data it came from, laid out in the appendix.

A buyer's analyst can rebuild any figure from the data behind it. A seller's advisor can pressure-test every line before it reaches a buyer. Nothing rests on our word, and nothing needs to.

A number in a deal room is only worth what it can be verified against. Ours are built to be verified line by line. We would rather hand you the data and the math than ask you to take either on faith.