Should You Sell Your Dental Practice to a DSO?

Many practitioners in the dental industry find themselves weighing the decision of whether to sell their practice to a Dental Support Organization (DSO), which is a company that provides administrative and business support to  practices, including the management and handling of areas like operations, billing, marketing and human resources. With the rise of DSOs offering attractive acquisition deals, dental practice owners may be enticed to sell their practice – as such, it is essential to determine if the timing is right and how to proceed. However, there are key factors to assess when deciding to sell your dental practice, as well as pros and cons of selling to a DSO. Our article outlines considerations and crucial steps to take with your financial advisor if you’re considering the DSO route for your dental practice.

Signs It May Be Time to Sell Your Dental Practice

It’s important to take an assessment of your dental practice’s current state, as well as your own unique practitioner situation, to determine if it may be the appropriate time to sell your dental practice. Consider the following signs:

1. Burnout and Desire for Work-Life Balance: Running a dental practice doesn’t just involve caring for your patients – you must also handle administrative duties, staff management and regulatory compliance. If you find the operational demands overwhelming and desire more time for personal pursuits or family, selling to a DSO could relieve you of these responsibilities while allowing you to focus solely on practicing dentistry.
2. Market Conditions Favorable for Sellers: The dental industry is currently experiencing high demand for acquisitions, driven by DSOs seeking to expand their networks. Favorable market conditions, such as strong valuations and low-interest rates, may make it favorable opportunity to sell and maximize your practice’s value.
3. Approaching Retirement: For dentists nearing retirement, selling to a DSO can provide a structured exit strategy. Many DSOs offer transitional arrangements, enabling you to gradually step back while ensuring the continuity of patient care and practice operations.
4. Access to Resources and Technology: If your practice requires significant investment in new technology, facilities or staff training, joining a DSO can offer access to these resources so you don’t have to carry the financial burden alone.
5. Difficulty Keeping Pace with Regulatory Changes: The healthcare landscape, including dentistry, is becoming increasingly complex with new regulations and compliance requirements. Selling to a DSO can transfer these responsibilities to an organization equipped to handle them effectively.

Is Your Dental Practice Ready for Sale?

Evaluating financial health is a great place to start when determining if your practice is ready for a sale. Make sure your practice’s financial records are accurate and up-to-date, with a clear picture of revenues, expenses and profitability, which is critical for valuation and negotiations. You should also analyze the size and loyalty of your patient base, since DSOs usually prioritize practices with stable and recurring revenue. Lastly, assess your practice’s growth potential alongside your financial advisor, looking for opportunities within untapped markets and services, which can demonstrate your practice’s future earning potential.

What Are the Pros and Cons of Selling to a DSO?

While selling your dental practice to a DSO may seem highly attractive, there are some significant pros and cons to such a transaction:

Pros:

1. Operational Support: DSOs take over administrative responsibilities, allowing dentists to focus entirely on patient care.
2. Financial Security: Selling to a DSO can provide immediate financial liquidity, enabling you to fund your retirement and exit strategy, invest or pursue other goals.
3. Access to Resources: DSOs often invest in cutting-edge technology, staff training and enhanced facilities, which provide benefits to both the practice and its patients.
4. Scalability and Growth: Joining a DSO network can provide opportunities for expanding services or opening new locations without personal financial risk.

Cons:

1. Loss of Autonomy: Dentists may have to conform to the DSO’s policies and operational guidelines, which can feel restrictive for those used to independent practice.
2. Cultural Adjustments: Integrating into a larger organization’s culture may be challenging and may not align with the mission, core values or philosophy of the original practice.
3. Patient Perception: Patients might negatively perceive the transition to DSO ownership, which could adversely impact patient loyalty and satisfaction.
4. Contractual Obligations: Employment agreements post-sale may include clauses that limit future opportunities or impose non-compete restrictions.

Steps to Take with Your Financial Advisor

Still thinking of selling your practice to a DSO? Take time to talk to your financial advisor about these critical action steps, which will also help you decide whether you still wish to pursue a potential deal.

1. Understand Your Practice’s Valuation: Work with your financial advisor and a practice valuation professional to determine the fair market value of your dental practice. Factors such as location, patient demographics and profitability will influence the valuation.
2. Develop a Post-Sale Financial Plan: Selling your practice is a significant financial event that requires careful planning. Your advisor can help:
   • Allocate proceeds to align with your long-term financial goals.
   • Plan for taxes associated with the sale.
   • Create an investment strategy for the post-sale phase of your life.
3. Assess Employment Agreements: If you plan to continue practicing dentistry as an associate under the DSO, review employment agreements carefully. Your financial advisor and legal counsel can help determine if the terms align with your expectations and financial needs.
4. Explore Alternative Investment Opportunities: With the sale proceeds, you may want to diversify your income streams. Your advisor can identify options such as real estate investments, retirement accounts or starting a new business venture.
5. Protect Your Financial Interests: Work with your advisor to establish safeguards, such as trusts or insurance policies, to preserve your wealth.

Windham Brannon Can Help

The decision to sell your dental practice to a DSO requires careful consideration of your personal and professional goals, as well as the support of your financial advisor. Windham Brannon routinely helps practices and their practitioners evaluate their readiness for sale, helping them make an informed decision that positions them for success. Whether you aim to reduce stress, achieve financial freedom or transition into retirement, our professionals are equipped and ready to help you with next steps. For more information, contact your Windham Brannon advisor today, or reach out to Melissa Purvis.