Should I Consider Selling My Dental Practice to a DSO?

Why You Need a Dental Practice Transition Specialist when Considering a DSO Offer

Dental service organizations (DSOs) are a much discussed topic when it comes to selling a dental practice, as they have become an increasing presence in the operation of practices across the country. If you have a large practice (meaning $1.5 million or more in annual revenue) you may even get an unsolicited offer to buy your dental practice from a DSO. 

Whether you ultimately decide to do so is a personal decision. However, before you consider the offer, you would be well advised to consult with a dental practice transition specialist in order to make sure you are getting all that you can out of the deal. 

How DSOs Work

A DSO is a network of dental practices owned and operated by a single corporate entity. That corporation may be privately owned, but more likely, it will be a publicly-owned company. Increasingly, DSOs are using capital from institutional investors. In any instance, the goal of the DSO is, of course, to maximize profits for the owners or investors, who are most likely not dentists. 

Their advantage in the marketplace is that by having several offices, their name and brand will be more well known among potential patients than practices with only one or a few locations. They have deeper pockets than your average dental practice buyer, so they can invest more heavily in marketing and expansion (meaning they can offer you more than an individual doctor for your practice).

They also can operate with an economy of scale by buying equipment and supplies in large quantities, getting a discount for the bulk purchase. 

Whether to Sell Your Dental Practice to a DSO

As stated above, if your goal in selling your dental practice is to maximize the amount you get from the sale, a DSO may be a good option for you. They will be able to pay top dollar for your practice and may be willing to outbid other buyers. 

If your practice transition goals include more personal aspects—such as preserving the legacy of your practice, making sure your staff is taken care of, and that the level of care that is provided to your patients—then you will want to look closely at other doctor’s experiences in selling to DSOs before you make your decision.

Why You Need a Dental Practice Transition Specialist

If you are interested in selling your dental practice to a DSO, you might think that because they have deep pockets and experience with buying dental practices, you don’t need a broker to represent your interests, as they will have an established method.

This is not so. DSOs, being primarily driven by their bottom line, will look for any opportunity to pay less for your dental practice. If they are dealing with a selling doctor who is not represented by an experienced professional and advised by a dental attorney and/or accountant, it is in their best interest to take advantage of the seller’s lack of knowledge and experience for their own gain.

The dental practice transition specialists at DDSmatch Mid-Atlantic are experienced in a wide variety of dental practice transitions, including DSO transitions. Additionally, we have an extensive network of industry professionals, such as lawyers and accountants, who understand the intricacies of the sale of a dental practice and can methodically work through every aspect of the deal based on our experience.  This will help you better navigate the transition and ensure you are getting what your practice is worth.

In most cases, we end up paying for ourselves easily with the money we save and earn you through a more carefully handled process.

A dental practice transition can be a complicated process. DDSmatch has helped hundreds of doctors across the country achieve their practice transition goals by bringing their expertise to bear. To help you achieved your transition goals DDSmatch will: 

  • Efficiently manage the process and ensure you understand all the critical information you need to know to get the outcome you want.
  • Advise you on how to prepare your dental practice for a sale to maximize value and generate the most interest from potential buyers.
  • Explain current practice valuation trends such as EBITDA and multiples, covering how those are calculated and how they determine your practice’s value.
  • Suggest the most appropriate deal structure, including closing cash, earn outs, holdbacks, equity rollovers, etc.
  • Discuss the necessary legal issues involved, including post-closing employment agreements, real estate sales or leases, representations, and warranties.

When you are properly represented by an experienced broker and team of professional advisors, DSOs will expect to have to pay the true value of your dental practice. The value of what DDSmatch Mid-Atlantic can bring to the table will show you that, in this instance, knowledge definitely is power.

Find Out How We Can Help with Selling Your Dental Practice

DDSmatch only works with selling doctors. They help dentists to design and execute successful practice transitions. They also understand how to help doctors maximize practice value, identify appropriate and qualified buyers, and efficiently manage the entire transition process.

At DDSmatch Mid-Atlantic, your dental practice transition goals are our goals. An essential part of our process is working with you to learn and define those goals so we can use our expertise to best help you. We bring the experience of hundreds of successful dental practice transitions from all over the country and put it to work for you, to get you the best match for you and your practice. Contact us today and find out what we can do for you.

Some Pros and Cons of DSOs

For instance, if you are nearing retirement—just not quite there yet—the thought of being free of the business and administrative side of a dental practice can sound very appealing. If this sounds familiar, but you don’t think retirement is the next step, you probably are still interested in clinical work, just not everything that comes from running a small business. A DSO can be a good option because their goal is not to replace doctors but to take over the business and administrative side. Because of their size, they have economies of scale, which means that setting up their practice models around your clinical work can be mutually beneficial. They see the profits to be had from your practice and you don’t have to worry about the business side.

Even if you aren’t near retirement but have found that running a business is not something you are cut out for, a DSO can still be a good choice. You’ll make a good living doing what you do best—practicing dentistry—in the practice you’ve built, but without the headaches and extra hours needed to take care of the business side. Because of those economies of scale, DSOs can, under the right circumstances, do better than individual dentists with collections, strategic marketing, and reducing supply costs, all of which can increase the practice’s profitability. You may also have the option to transfer to other practices within the DSO’s network.

On the other hand, not all DSOs are created equal. Some have gotten in trouble with industry oversight organizations and regulators. Some have pressured dentists to work more than they agreed to. And if the DSO is not well managed, the lower costs won’t be realized.

Also, after years of being your own boss, you have to seriously consider how well you would do as an employee. You may lose flexibility in your scheduling or be compelled to comply with policies and procedures that you might not think are right. Before you sell a dental practice to a DSO, you need to be sure it’ll be a good fit for you and your practice.

Finally, you also have to consider your legacy and what it means to you. With any buyer, you are giving up control over your practice and how it functions in the future. But with a dental practice transition specialists, like those at DDSmatch Mid-Atlantic you can put the effort into finding the right buyer who will be the best fit for your practice, your staff, and your patients.

With a DSO, you are getting more of a one-size-fits-all approach to running a practice. The changes may have a negative impact on your reputation if they result in a lower quality of patient care, especially if you continue to work in the practice. That said, DSOs also can provide a number of features patients like, such as flexible financing, or expanded services and hours. 

What to Look For in a DSO

When you are selling a dental practice, whether to a DSO or private buyer, you need to look closely at who you are selling to. This is much more important when you are going to continue to work in the practice. You need to decide what is important to you about your practice and how to preserve that. The answer to that question will be quite personal. 

There are some practical things to consider and you’d be well advised to look and them closely as well. At DDSmatch Mid-Atlantic, we always recommend that you retain a dental practice transition specialist, and that you have an attorney and accountant with dental practice-specific experience to review your documents and advise you on your decisions. 

Remember that no matter how well you get along with the buyer and their representatives, no agreement that is not in writing is unenforceable. Be sure that everything you need to have as part of the deal is recorded in the deal papers. Not only does this protect you, your patients, and your staff, it also makes sure everyone is on the same page about how you are moving forward.

Some things you should consider include: 

  1. Terms of payment. Will you be paid for the practice up front? Or will you be paid when you separate from employment? What is the impact of your current liabilities on the payment? What accounting methods are they using to calculate the sale price or commissions? Be sure that you are clear on these details to avoid unpleasant surprises and to be able to double check anything that seems off.
  2. Employment status. Its typical for a DSO to require the seller to stay on for a minimum of two years after the sale. You should have an employment contract that explicitly lays out how you will be paid your salary, whether commissions are based on your personal production level or the practice’s overall profit, whether those calculations are based on net or gross revenue, what the exit strategy is, and whether you will have any say in your replacement.
  3. Practice model. You won’t really have much room for negotiation here, if any. The practice model is what drives the DSO’s profitability, so they aren’t going to want to tinker with it to accommodate your preferences. You just need to make sure its a model you can work within. Do they use reliable vendors? Will budget restrictions interfere with your ability to provide quality care? How much freedom to you have to make clinical decisions and discuss the available treatment options with patients?
  4. Support services. This refers to the business and administrative side. This is what the DSO is supposed to be good at but you need to make sure it’s going to be a help to you and your staff, not a hindrance. Speaking of staff, be sure to be upfront with them about the changes that are coming and make sure the DSO is hands on during the whole transition process. Good support services will make it much easier to run and grow your practice.
  5. Capital resources. Because of the nature of the business, dental practices can experience significant fluctuations in cash flow since many services are not being paid for as they are provided. A well-capitalized DSO can alleviate the pressures from fluctuating cash flow. They can also advise on streamlining operations and other ways to increase profits.
  6. How helpful and flexible will the changes be? Be sure to have as comprehensive of an understanding of the changes that are coming and when to expect them. Have regular meetings (at least monthly) with your DSO support team to review performance and address any issues that arise related to the transition. You DSO support team should be helpful and flexible, not a thorn in the side of you and your staff.
  7. Exit Strategy. If you have an idea of when you want to leave the practice, let that be known up front. Be clear on the process and, if you want, ask to be guaranteed that you will have a say in your replacement. 

As with any time someone is selling a dental practice, you should take your time and research your options. Talk to other doctors who have sold to the DSOs you are considering and find out their experiences. A good DSO is one that gives you peace of mind that the practice is growing and well run while allowing you to focus on dentistry.

Considering Selling a Dental Practice to a DSO? We Can Help!

At DDSmatch Mid-Atlantic, your dental practice transition goals are our goals. An essential part of our process is working with you to learn and define those goals so we can use our expertise to best help you. We bring the experience of hundreds of successful dental practice transitions from all over the country and put it to work for you, to get you the best match for you and your practice. Contact us today and find out what we can do for you.