
February 3, 2025
Sell to a DSO? What Dentists Need to Consider
The dental industry is rapidly evolving, with dental service organizations (DSOs) becoming an increasingly attractive option for dentists looking to sell their practices. While selling to a DSO can offer significant benefits, it’s essential to carefully weigh the pros and cons to make an informed decision. This guide provides an in-depth look at the factors dentists should consider when evaluating a DSO sale.
What Is a DSO?
A DSO is an entity that provides management and administrative support to dental practices. DSOs often handle non-clinical tasks such as billing, marketing, purchasing supplies and equipment, human resources and regulatory compliance, taking back-office burgers off dentists and allowing them to focus on patient care. In return, DSOs typically acquire partial or full ownership of the practice.
Why Sell to a DSO?
The decision to sell to a DSO can be driven by various factors, primarily including financial incentives, reduced administrative burdens, and access to professional support. Here are some key advantages:
- Financial Benefits
- Because many DSOs are private equity-backed, they offer competitive purchase prices and are willing to explore deal structures that can enable doctors to leverage their practice as an investment vehicle
- Dentists may receive cash upfront and opportunities for long-term equity at the practice or DSO level
- Reduced Administrative Work
- By offloading non-clinical responsibilities, dentists can dedicate more time to patient care and regain a better work-life balance
- Professional Support:
- DSOs provide resources and expertise in areas like marketing, staffing and compliance, enhancing operational efficiency
- DSOs also leverage economies of scale to negotiate better pricing for labs and supplies, helping make your practice more profitable
Potential Drawbacks of Selling to a DSO
We always recommend working with a seasoned dental practice broker who is well versed and experienced with DSOs because they are uniquely positioned to help doctors receive offers from qualified DSOs and help evaluate these buyers to find the one most aligned with the doctor-owner’s needs.
Without the help of an experienced broker, dental entrepreneurs might accidentally partner with a DSO that could impose any of the following drawbacks:
- Loss of Autonomy: Dentists may lose control over decision-making, including clinical and operational aspects of the practice
- Impact of Practice Identity: Joining the wrong DSO could alter the practice’s brand and reputation, potentially affecting patient trust and loyalty
- Reduced Income: In rare cases, some dentists report lower compensation after transitioning with a DSO if performance metrics are not met; however, this is not a common occurrence
- Uncertainty About the Future: DSOs may impose growth targets or operational changes that conflict with the dentist’s vision
Questions to Ask Before Selling to a DSO
To make the best decision, dentists should work with their broker and ask critical questions before committing to a DSO:
- Expansion or additional servicesWhat are the terms of the purchase agreement, including upfront payments and earn-outs?
- How will my role and responsibilities change post-sale?
- What performance metrics will impact my compensation?
- How does the DSO handle branding and patient relations?
- Are there non-compete clauses or other restrictions?
Top Mistakes Dentists Make When Selling to a DSO
Avoid these common pitfalls:
- Lack of Representation: Working without an experienced broker dentist might miss out on building a competitive environment around their practice to leverage up offers and even take an offer that doesn’t benefit them and only benefits the DSO
- Choosing the Wrong DSO: Not all DSOs are created equal. That’s why it’s essential to put your practice in a competitive environment to find one that aligns with your goals and values
- Neglecting Due Diligence: Failing to thoroughly review the DSO’s financial health and operational practices can result in future complications
Navigating the Sale Process
Selling to a DSO involves several steps:
- Valuation: Determine the fair market value of your practice based on metrics including EBITDA – not SDE or a percentage of collections –, revenue, patient base, location, and other factors
- Finding the Right DSO: Partner with a broker to identify DSOs that align with your practice’s goals and values
- Negotiation: Work with legal and financial advisors to negotiate favorable terms, including compensation, equity options and post-sale roles
- Transition Planning: Develop a plan for a seamless transition, addressing staff, patient communication and operational changes
Bottom Line
Selling to a DSO can be a transformative decision for your dental practice, offering financial rewards and operational support. However, it’s crucial to weigh the potential drawbacks, ask the right questions, and seek professional guidance to ensure a successful transition. For personalized advice on navigating the complexities of selling to a DSO, contact the experts at Professional Transition Strategies.