May 16, 2023

More Reasons to Sell Your Dental Practice to a DSO

dentist working on a patient

Now more than ever, dental entrepreneurs are learning that dental service organizations (DSOs) wrongfully got a bad reputation. But thanks to the industry-wide consolidation trend, working with a DSO can be mutually beneficial. Depending on your transition goals, now is a good time to join a DSO with more than 350 DSOs currently from which to choose. Here are even more reasons to sell your dental practice to a DSO.

Invest in equity arbitrage

Even if you’ve heard the term before, you may not know that equity arbitrage is a financial concept that was rarely utilized by dentists before private equity started investing in the space. In short, it all has to do with how valuable the equity is in your practice currently and how much your equity ends up being worth after the sale of your dental practice.

With DSOs, a much higher financial result is accomplished, and the dentist can be a beneficiary of that arbitrage with less risk to the provider. This happens because dental practices have a steady cash flow and returning clientele, making them appealing to private equity investors and can be very profitable. The best way to know the true value of your dental practice is to have it appraised to learn its enterprise value, which calculates earnings before interest, taxes, depreciation, and amortization (EBITDA), along with how many multiples of this value groups will consider offering.

Equity arbitrage is yet another reason to consider selling before you’re ready to retire, so you don’t leave money on the table with opportunities left for recapitalization events and ultimately why younger dental entrepreneurs are electing to sell to DSOs.

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options beyond selling 100% of the practice to a traditional DSO:

In the joint venture model, the dentist and DSO both invest capital in the form of money, equipment and other assets into the joint venture, sharing proportionally in the growth of the practice, while the dentist retains day-to-day clinical control of the practice.
When transitioning as a sub-DSO, the practice owner will exit the transaction debt-free with a large upfront payment and typically hold 40% ownership and profit share in the sub-DSO portfolio. Returns are made on various levels, including equity, profit sharing and exit upon a parent DSO recapitalization.
With a group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. The amount of ownership in the operating company varies per deal. This direct investment can be a buy-out with controlling interest transferring to the investor, or it can be a minority growth investment.
In a roll-up, multiple dental practices are combined under one entity in a group to maximize the economies of scale. A well-laid roll-up plan will then receive a higher valuation when the practice is purchased. This is especially relevant with inflation top of mind.

Receive higher valuation

It’s no secret fewer dental practices are selling to individuals than ever before. With an increase in DSOs comes more competition available to dentists looking to sell. And since DSOs typically do not have to rely on bank financing because they are funded by private equity groups, they can pay more for practices than the standard individual thanks to private equity money, economies of scale, cost structure optimization and the amount banks are willing to lend. In the end, not only will you receive a higher valuation for your dental practice, but you’ll also get a higher price point than if you were to sell to a single practitioner.

Promote better health care

It’s no secret the connection between oral health and overall health has become stronger over recent years. But the connection between DSOs and better medical and dental integration may not be as obvious. After all, DSOs are better equipped to handle “whole person” treatment and have the ability to partner with other medical professionals to play a part in treatment and prevention. These days, DSOs are leading the charge, which is why transitioning to one of the DSO models might be the right move for your dental practice.

Explore partnership options

When co-owners of a dental practice choose to part ways, there’s a lot that can be done ahead of time to make the transition easier for all those involved. This often happens when one dentist is looking to retire and the other wants to stay on to practice. Even in a partnership, everyone has different paths they want to explore, and joining a DSO helps to navigate the situation and ensure a smooth transition.

Release managerial responsibilities

DSOs fit the dentist who craves a work-life balance and don’t want the added stress of the managerial responsibilities that come along with owning a business. Working 32 clinical hours instead of six days a week with early mornings is appealing to both the younger and older generation, perhaps leading up to retirement, and avoid burnout. For those looking to ease into retirement, working for a DSO can offer an abbreviated schedule rather than the added stress of a transition to another dentist. What’s more, you have the chance to expand and move toward a one-stop-shop model, all while increasing the value of your dental practice.

Retain clinical autonomy

Gone are the days of having to hit quotas and report how many procedures have been performed. These days, dental entrepreneurs are looking for a true business partner rather than just someone to buy their practice. Modern DSOs are much more hands-off than they used to be, and with more than 375 DSOs in operation today, sellers are able to find one that is aligned with their clinical and cultural philosophies for a smoother transition for both patients and staff.

What’s next?

It’s easy to get wrapped up in the conundrum that still exists in the world of DSOs if you try to take the sale of your dental practice into your own hands. Contact the experts at Professional Transition Strategies to learn why not all DSOs are created equal.

February 28, 2023

What It’s Like to Work With a Dental Practice Broker

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options beyond selling 100% of the practice to a traditional DSO:

In the joint venture model, the dentist and DSO both invest capital in the form of money, equipment and other assets into the joint venture, sharing proportionally in the growth of the practice, while the dentist retains day-to-day clinical control of the practice.
When transitioning as a sub-DSO, the practice owner will exit the transaction debt-free with a large upfront payment and typically hold 40% ownership and profit share in the sub-DSO portfolio. Returns are made on various levels, including equity, profit sharing and exit upon a parent DSO recapitalization.
With a group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. The amount of ownership in the operating company varies per deal. This direct investment can be a buy-out with controlling interest transferring to the investor, or it can be a minority growth investment.
In a roll-up, multiple dental practices are combined under one entity in a group to maximize the economies of scale. A well-laid roll-up plan will then receive a higher valuation when the practice is purchased. This is especially relevant with inflation top of mind.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

May 26, 2022

What to Consider Before Selling Your Dental Practice

Deciding to sell your dental practice can arguably be the most challenging step in the transition process. With the right team of advisors in place, it can be a financially and emotionally fulfilling experience. But where do you start, and how is the value of your dental practice determined? Whether you’re ready to begin planning your transition strategy or you want to learn more about your options, it’s important to understand what impacts the sale of your dental practice. Here are the top five considerations before selling your dental practice.

Know the facts

It’s easy to talk in hypotheticals when thinking of selling your dental practice, but there are a lot of considerations to get on your radar sooner rather than later. You’ll want all the information available to make the best decision for your dental practice.

Before entertaining offers, you’ll need to have a prospectus in place for both an individual buyer and a group to assess the fair market value of your dental practice as this can vary based on a range of factors. A prospectus includes practice and patient demographics, practice location, staff, insurance, facility, equipment, production summary by category, financial analysis, practice valuation and return on investment.

This will help determine if your practice is healthy enough to bring on a partner, whether you should consider affiliating with a dental service organization (DSO), or if you need to make some drastic changes so your practice is more appealing to potential buyers. The most common transitions include:

Buy-out: Purchasers buy a practice within a relatively short time period. On average, this takes about three to six months and is the quickest transition route.
Buy-in: A specific buyer purchases a defined portion of the dental practice. This is a longer-term approach that can expand the value of your practice over time.
Affiliation: You sell a percentage of your business to another entity, typically a DSO, with the intent to slowly transition out of the practice and give up clinical control to the group. This is an excellent way to maximize the practice’s value.
Associate to buy-in: A group of associates will court a potential buyer to purchase over a period of time. This process ensures compatibility and a smooth transition to map out the future of the practice. Division of power is the biggest decision that needs to be made with this method. While this is the longest approach — taking at least five years — it’s also the most flexible.
Associateship: Yes, you can sell to associates while maintaining full control, but in this method, not everything is agreed upon upfront, leading to a mere 20% success rate.
Merger: Two existing dental practices combine into one entity, and owners often stay on as equal partners after merging. Mergers offer great benefits, like the net income remaining constant or even increasing because there is no loss of business.
Roll-up: You purchase multiple dental practices and combine them under one entity to maximize economies of scale. This can boost the value of your practice when it’s time to sell. A roll-up transition is the most lucrative if you have the time and capital to dedicate to this plan.

Make a plan

No matter the reason for your transition, starting the process as early as five years out will give you ample time to identify and make changes to your dental practice to improve the valuation. A good broker will make suggestions on how to amplify your marketing efforts, increase production, and streamline costs and efficiency, including dental supplies, lab costs and even payroll in an effort to increase profitability.

Starting the transition process early also gives you the flexibility to be more discerning with the offers you receive. If you’re in a pinch to sell your practice, you may be forced to take one of the first offers and leave money on the table. Being in the driver’s seat of the sale affords you the time to evaluate offers and choose the best one for you, your staff, and your practice, as well as making your practice more attractive to DSOs looking for an affiliation.

Stay the course

Maintaining your production is one of the best things you can do to obtain the highest valuation possible for your practice because the financials from the most recent years will weigh the heaviest when determining the practice’s value. Slowing down your production can have a massive impact on the price you can get for the practice.

The same holds true for your practice’s specialty. Gearing up for a transition is not the time to focus on a new niche specialty or even make the move toward a multispecialty practice. By opening the practice up to a new specialty — like going from a general practice to a periodontics practice — you decrease the potential buyer pool, which can negatively impact your sale options.

Keep an open mind

Thirty years ago, one of the only transition options was taking on an associate who would hopefully buy your dental practice one day, but today, there are so many more possibilities. Working with a qualified broker will only open your eyes to a dental practice transition you might not have otherwise considered.

Your options are really only limited by your imagination. Do you want to start the process early so you can affiliate with a DSO before you retire? Or are you ready to get out of the business with a buy-out option so you can move into the next phase of your life? Asking yourself these questions and more will help you narrow down your choices so you can better prepare for the next steps.

What’s next?

Contact the experts at Professional Transition Strategies to get the ball rolling on the sale of your dental practice.

January 28, 2021

5 Steps to Selling a Dental Practice

dentist office

Are you thinking of selling a dental practice? If so, you’re likely wondering how long it will take. You have put a lot of time, sweat and tears into building a successful practice. The fact that you are considering selling it can take a mental and physical toll. To prepare for your upcoming transition, here are five things you should know.

Start planning your dental practice transition early

One of the best pieces of advice is to start planning early. Planning early allows you more options than if you wait until the year you are ready to move on. These options are not only the type of transition you go with, but also which offers you consider. If you wait until the last minute to transition out of your practice, you may be stuck taking the first offer you receive. By starting early, you can be more discerning about offers that come in and move forward with the one with which you feel most comfortable.

Starting early gives you time to consider different transition styles. If your practice is large enough, you can sell half of your practice to a partner and continue to work for a few more years. When you determine the time is right, you can then sell the other half to either your current partner or someone else.

Getting a head start also allows you to consider affiliating with a dental service organization (DSO), which you most likely wouldn’t be able to if you needed to get out immediately. The reason for this is that DSOs tend to request the current doctor stay on for about two years.

By starting early, you can determine if you are happy with the value of the practice or if you need to get more out of it to clear any debts. This knowledge can help guide you when determining if you need a few more years to build up the value of your practice before taking that next step.

A transition period is a period between two transition periods. – George Stigler

Know the facts

Instead of living in the hypothetical, know your reality. Too many times, one can plan for a transition without knowing the facts. “Ignoring facts does not make them go away,” as businessman and Hall of Fame quarterback Fran Tarkenton once said. (1) It’s important to have a prospectus in place when determining the right transition type for you and your practice. By understanding the fair market value of your practice, you will know if your practice is healthy enough to bring on a partner, whether you should consider affiliating with a DSO or if you need to make some drastic changes so your practice is more appealing to a potential buyer.

To take this deep dive into your practice, look to a professional to create a prospectus. The knowledgeable experts at Professional Transition Strategies (PTS) will create a prospectus for you at no cost or obligation to work with us. We do this because we believe it is important to practice what we preach: Know the facts before you make any decisions.

The prospectus includes but is not limited to:

Practice demographics
Practice location
Patient demographics
Staff
Insurance
Facility
Equipment
Production summary by category
Financial analysis
Practice valuation
Return on investment

Don’t let the value of your dental practice drop

A common mistake made by dentists and dental specialists throughout the country is to let the value of their practice drop leading up to a transition. This honest mistake happens when doctors decide they are ready to scale back but they aren’t ready to “hang up their hat” just yet. By cutting back their schedules, only taking certain cases, reducing their hygienists’ hours, etc., they inevitably see their production and collections decrease.

Considering a practice’s value heavily depends on the average of the last three years. With the most recent year receiving the most weight, this reduction will result in a significant drop in value. As investor Warren Buffett once said, “Price is what you pay. Value is what you get.” (2) As much as one would like the practice’s value to be based on the “potential,” the truth is that a bank won’t lend on the hypothetical. Therefore, it is imperative to consider your plans before cutting back, because “cutting back” can dramatically cut the value of your practice.

Know your transition options

Without knowing all your options, how can you possibly choose the right one? One size does not fit all when you’re selling a dental practice. You cannot know you made the right decision without knowing the available options. Once upon a time, a dentist’s only options when transitioning a practice was to either sell to another doctor or close the doors. Times have changed. A dentist or dental specialist now has several options.

The most common transition types include:

Speak with a dental transition expert to determine the best plan for you and your practice.

How long will it take to sell my dental practice?

The most common question leading up to a transition is, “How long will it take to sell my dental practice?” Many factors can help gauge how long your practice will be on the market. One that will play a major role is the location of your practice. Is your practice in a metropolitan area? Is it in a rural community? Is your practice in a desirable area of the city? While it can’t be said for all practices, the offices positioned in “hot spots” of the country — such as Austin, San Diego or Denver — will move faster than those based in a smaller, more rural area. Sales can be as short as 22 days from the day your practice goes on the market to the day it closes or as long as two to five years.

Another variable that will play a part in how long it takes to sell your practice is your practice size. Practices valued between $750,000 and $1.2 million tend to be a sweet spot for most buyers. Practices collecting less tend to sit on the market longer. The reason is that smaller practices mean less revenue for the incoming doctor. This is especially true if the buyer is still paying off student debt.

What is a dental practice broker?

A dental practice broker has undergone training that makes them an expert in taking you through a dental practice transition. A factor in how long a practice takes to sell is the experience and knowledge of your broker. To ensure you are in the best hands, you should hire a broker who is familiar with practices like yours. This does not mean practices in your city, town or even state. It is more important that your broker has worked with practices of your size and in the transition capacity you are looking for — affiliating with a DSO, partnerships, straight buy-outs or even partnering with a private equity firm.

It’s also important to make sure your broker “pounds the pavement” on your behalf and be active when it comes to finding the right buyer. All too often, practice transition brokers post a marketing description on a few websites, sit back and wait for calls to come in. Work with someone like PTS that takes a proactive approach to finding the right fit for your practice.

What’s next?

If you are considering the possibility of selling a dental practice, contact the team at PTS. We will answer any questions and help prepare you in this exciting new stage of your life.

Resources

February 14, 2019

How to Start a Dental Practice Roll-Up

When it comes to dental practice transitions, the end game should always be the most lucrative option your timeframe allows. In a roll-up, multiple dental practices are combined under one entity in a group to maximize the economies of scale. A well-laid roll-up plan will then receive a higher valuation when the practice is purchased. Here’s how to start a dental practice roll-up plan.

Determine size

Dental practices can be combined by a central group taking over all the business processes while the practices have a management service contract back in the case of a dental service organization (DSO). But smaller roll-ups can also occur by taking underperforming practices, purchasing them at a lower price and putting in best practices. Those practices may then remain in their current location or move to a central location, depending on the owner’s strategy.

Take your time

With a roll-up, it typically takes more than five years for the transition period to occur, including time to centralize services, move practices to a central location, and/or optimize the operations of the practice, as well as find enough practices that fit the roll-up. With enough time and capital, the owner can optimize nearly every expense line item that a dental practice spends money on.

Grow accordingly

As the practice grows, it’s important to keep tabs on growth from all aspects. Can the practice operate in the original space if large enough, will additional offices need to remain in place or will all practices move to a larger space? What’s more, will the combined practice require additional staff? If so, all can either be fulfilled by normal hiring practices or from the acquired practices, such as associates, partners and/or hygienists.

Consider investments

The most in-vogue way of starting a roll-up is to set up a DSO that will allow for outside investments beyond what a bank can provide. However, a roll-up can be accomplished without a DSO and just be a group practice. This will just limit growth potential, so it’s worth considering both options before starting the dental practice transition process.

What’s next?

Read more about the roll-up dental practice transition process in the e-book “Strategies for Transition,” then contact the experts at Professional Transition Strategies to put your steps in place.

April 6, 2018

7 Types of Dental Practice Transitions

By now, you’ve probably already decided that selling your practice is the best option, whether it’s for retirement or managerial purposes. But maybe you don’t know or haven’t started exploring all your options yet. Here, we break down the types of dental practice transitions in an effort to help you figure out which is best for you and your business.

Buy-out

A buy-out is exactly what it sounds like: when a purchaser buys your practice for a negotiated price. A relatively short transition period that typically only lasts three months is ideal for a prospective retiree. The seller may agree to stay on part-time to help ease the transition for the buyer, employees and patients.

Buy-in

A buy-in is the opposite of a buy-out in which a specific buyer purchases a defined portion of the practice for a negotiated amount determined at the outset. In this case, a professional dental practice broker will also perform a personality profile to ensure compatibility, in addition to a practice analysis.

Associate to buy-in

Here, a potential buyer is courted by a group of associates to buy-in over a defined period of time, road-mapping the ease of transition. Rather than making decisions about the future of the practice upfront, this allows time to assess compatibility; however, the division of power is the biggest consideration to make.

Associateship

A good idea in theory because associates are easy to find, and this route allows you to maintain full control over the transition; however, associateships are typically only 20% effective due to not everything being agreed upon from the outset and different expectations not being met by both parties.

Merger

Combining two dental practices to become one entity with equal partnership remains a tried-and-true method as long as compatibility is established upfront and responsibilities and income are equally divided and agreed upon.

Roll-up

This option is one that pays off in the future under the economies-of-scale principle: Multiple dental practices are purchased over a period of time to combine into one entity, which will then sell for a higher value at a later date.

Affiliation

The slowest of the transition options, this option hands over the majority of the practice to a larger entity, typically a dental service organization (DSO) or a group, with the purpose of slowly transitioning out of your practice to and giving up clinical control to the buyer.

What’s next?

Read more about your options in our e-book “Strategies for Transition,” then reach out to the experts at Professional Transition Strategies to figure out which makes the most sense for you and the future of your practice.

July 10, 2017

Should I Sell My Dental Practice?

“Should I sell my dental practice?” This is a question most practice owners come across at some point in their careers. Considering selling your practice can be stressful, especially if you don’t have all of the information you need. At Professional Transition Strategies (PTS), we are here to provide you with that information and guide you through your transition. Here are some common questions asked and answered. Continue reading “Should I Sell My Dental Practice?”

June 20, 2017

7 Types of Dental Practice Transitions

If you’ve decided you are ready for the next step of your life and dental practice, it may be time to consider retirement. There are many different kinds of transitions, so regardless of whether you are ready to completely stop working, we can help you find a transition that works best for you and your dental practice. Here are a few different transition options.
Continue reading “7 Types of Dental Practice Transitions”

June 20, 2017

What You Need to Know About Dental Practice Transitions

Transitioning a dental practice is an intricate process and can seem overwhelming if you are approaching or going through the process. Not only does transitioning a dental practice include financial challenges, but emotional and relational ones, as well. We at Professional Transition Strategies (PTS) can help you navigate this process because we have been through it before. We realize every situation is unique, but we also recognize there are many steps to go through to successfully transition a practice. Here’s an outline to get you started. Continue reading “What You Need to Know About Dental Practice Transitions”