June 6, 2022
How to Affiliate with a DSO when You’re Not Ready to Retire
So you want to sell your dental practice but are not ready to retire. Some dentists love practicing but don’t necessarily like the managerial aspect of owning a business. Enter: dental service organizations. As long as clear lines are drawn, you can sell to a DSO and still practice at your original location. Here’s how to ride the consolidation wave.
When to sell your dental practice
The best time to sell any dental practice, regardless of intention, is at its peak value. While affiliating with a DSO isn’t an option for everyone since each DSO has its own practice profile or requirements (including collections, number of ops, location and type of dentistry), you’ll get a higher valuation and be able to completely retire when the time comes. Specifically, DSOs can pay more than a single practitioner because they are funded by private equity groups, there is more variety of DSOs available from which to choose, and DSOs have the financial ability to compete in the bidding wars without set limits.
Why affiliate with a DSO
Simply put, affiliating with a DSO will give you more flexibility by releasing the office management and human resources of your practice. Most dentists open their own practices to focus on the clinical side and patient care, which is why, in fact, a DSO might be a good fit. You get to focus on your patients and the clinical side of your practice with a professional office management to handle the billing, staffing and all the other aspects that come along with owning a business. DSOs provide non-clinical functions on a continuum. Some do a little, such as financial backing or accounting services; some do a lot, such as supply and lab formularies. So, depending on the burdens of the practice you are willing to let go of, there’s a DSO that will pick up those tasks.
Because a well-laid plan can take up to five years, you don’t need to (and shouldn’t!) wait until you’re ready to sell to conduct a comprehensive practice appraisal to determine ways to make your practice more valuable and profitable. Valuating your dental practice before retirement is on the horizon will give you an idea of how much it’s worth and what you need to increase (production, collections or otherwise) in order to pay off your loan, if you have one. The factors that will impact the value of your dental practice include its location, growth potential, reason for the sale, and long-term trends of the practice’s revenue and profit margin.
Current state of DSOs
It’s no secret that fewer dental practices are selling to individuals than ever before. That’s not to discourage new or transitioning dentists but rather give some encouragement to think outside the traditional transition box. With an increase in DSOs comes more options available to dentists looking to sell. In turn, DSOs are coming equipped with the experience to run a successful practice.
Unsurprisingly, DSOs have greater purchasing power and corporate structures, allowing them to pool and allocate key resources, such as staff, cash and personal protective equipment. Typically, a DSO’s valuation of a practice comes out higher than an individual’s. Not only will your practice value for more if selling to a DSO, but you also have the option to stay on and earn a salary for that inevitable retirement, unlike with a straight buy-out.
Contact the experts at Professional Transition Strategies to help find the work-life balance that comes with selling to a DSO.