Home > Articles > Should you choose DSO or private when it comes time to sell your practice?
Friday, September 10th, 2021 | by Doug Sellan
Should you choose DSO or private when it comes time to sell your practice?
As a Dental Practice Broker, I meet with dozens of private practice owners each year who feel as if they are getting closer to selling their private dental practice. The point in their career and the reasons why vary. In some cases, this may be in the next three to five years or it may be much sooner. In the initial conversation they always ask about today’s buyers along with several other questions which usually stem from an article, a post, a podcast, or something they heard at a conference. Having this face-to-face conversation, we get the opportunity to understand them better, answer their questions and educate on the various options.
The Q & A goes like this:
Is there a buyer for my office?
Yes, No or Maybe. There are so many items to consider and to properly analyze, but rarely is the answer NO. Most likely there is someone, finding him or her will take some time and effort. Currently, there are 68 dental schools in the U.S. and Canada with over 6,500 new dentists graduating each year. Today’s graduates have, on average, $300,000 in education debt.
How much can I sell my office for? What is it worth? My CPA Advisor said it is worth X%.
Again, this requires not only a deep understanding of how to properly value a dental practice but also requires someone who is very familiar with the market. Most CPAs and Advisors have limited experience in valuing and selling a dental practice. Marketing your office, while maintaining confidentiality is essential.
Can the buyer get financing? With so much student debt, I hear they can’t get financing.
Financing is available provided they meet some reasonable requirements. There are several great lending options for today’s buyers with historical low interest rates. Seller financing is rarely required but remains an option with a variety of pros and cons.
How long will this take?
It could take every bit of six to twelve months and in some cases longer. Location, price, demographics along with a dozen other components might affect the timeline. A general dentistry practice located in a rural community will most likely take much longer to find a buyer than a practice located in a metro area.
What about a corporate buyer, a DSO?
That is an option. What do you know about DSOs? Let’s take a few minutes to scratch the surface on them and see if that is a path for you.
What is a DSO?
The Dental Service Organization dates to the 1970s. Dental Service Organizations, Dental Management Organizations and Dental Support Organizations are variations of the same. They provide support with human resources, marketing, branding, recruiting, IT service, payroll, capital, financing, tax services, accounting, risk management and practice support, to name just a few.
Who do DSOs Employ?
Aside from acquiring private practices, DSOs provide employment opportunities for new graduates. They have locations and opportunities. With a limited number of associate opportunities in private practices in the location that new graduates want to be, the DSOs provide an option for some. DSOs play a big part in employing new graduates and giving them experience essential for when they decide to pursue owning their own private practice. Most lenders usually require a new graduate to have at least one year of experience before they will provide financing.
What is a DSO Appetite?
Not every private practice is a candidate. Typically, there are several factors that have to be thoroughly reviewed. The first three major questions before any due diligence is performed pertains to the seller, facility and revenue.
Is the seller willing and able to remain in the practice for a period of time? Usually a period of three or more years is required. Can he or she continue to produce at or above their current level?
Does the current space have enough operatories and the necessary technology in place? Can the facility be expanded? Does the seller own the premises? What is the cost to update?
Does the current revenue and demographics meet the standard that the DSO is seeking to add to their group? Depending on the location the revenue requirements may vary.
Private Practice Advantages
As a private practice owner, you call all the shots, and you are 100 percent responsible for everything. This often creates somewhat of a family type of environment. You tend to focus on the relationship and well-being of your staff, and it isn’t always about the numbers. Obviously, the numbers are important, and some operate very successfully this way. Patients tend to have substantial trust in their provider and remain very loyal.
Private Practice Disadvantages
As a private practice owner, you are sometimes pulled from the primary responsibility which is caring for a patient to deal with an issue like HR, payroll, IT to name just a few.
Taking time off for any reason scheduled or not usually means the office will be closed.
Covid-19 has affected all businesses and many are still dealing with staffing issues and increased operating expenses. Patients have returned to the practice, but some employees remain at home and some have jumped to your competitors.
As a part of any large organization, you might receive a comprehensive benefit package including insurance and retirement benefits. Depending on the DSO, they may have a large team of associates and assistants to support you and to provide you the ability to take time off without having to temporarily close the office.
Some DSOs invest in continuing education and skill advancement. This not only serves the dentist with essential ongoing training but may also provide the corporation the ability to expand certain services to patients that were previously referred out.
You may be required to sign a lengthy employment contract in order to receive your full purchase price. Some organizations offer investment and stock opportunities and interest earning options. Some of these payouts may be tied to the overall success and performance of the organization.
Businesses need to be profitable and to do so there is a lot of focus on the numbers. New patients are essential and production reports are constantly being analyzed.
Day to day HIPAA, OSHA, HR, maintenance, payroll and all the other non-clinical tasks and decisions may be totally out of your hands. For some, this might be an advantage but for someone who has owned and operated their own practice for many years not having any input and turning over the controls might be a challenge.
What about your staff? Going forward you may have little to no input.
What about your building? Most DSOs do not purchase buildings. You would not only be an employee but you might also be a landlord. This can be both a positive and a negative.
Lastly what is your compensation? Going forward how will you be paid? What percentage? Percentage of what; collections, production, total office, including or excluding lab? How many years do you have to stay and what happens if you leave and what happens if you don’t meet or exceed goals? What about the stability of the DSO? What if they get acquired or what if they go under?
Whatever path you think is right for you, it is essential you don’t do it alone. Having an experienced advocate makes everything better.
To help you understand the different paths you can take, contact your local ADS Dental Transition expert and schedule a time to see what options are available for you.
Doug Sellan is a Transitions Consultant with PMA Practice Transitions with over 30 years of experience in the healthcare industry.
This entry was posted on Friday, September 10th, 2021 by Doug Sellan and is filed under
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