Many dentists are now opting to sell their practices to dental support organizations (DSO). The benefits and values the DSO business model offers makes sense to dentists and can help them to achieve their long-term goals and cut out administrative burdens. What’s more, there are no standard terms involved in these transactions, such as assuming or not assuming a dentist’s liabilities; paying all cash up front or paying out over a given term; or what information will be used to calculate a dentist’s future payroll or commission.
For those dentists who are considering taking the leap, the key is to understand each term in the contract and the responsibilities involved so that they can hold DSOs accountable as necessary. This bears both on pre-acquisition and post-acquisition decisions.
If a dentist is near the end of his or her career and looking to take some of the burden off their practice (but not yet ready to retire), selling to a DSO might be the right move. That is because a good DSO helps make the day-to-day operations easier so that dentists can focus on their clinical time. As a further advantage, DSOs can be a great resource with respect to collections, accessing supplies at reduced costs, strategic marketing, and increasing profitability.
If a dentist is approaching retirement, DSOs provide several benefits over selling to an individual buyer. Not only are DSOs willing to pay more than private buyers, but they cash out with a higher evaluation and allow dentists to work the same or reduced schedules after the sale. This expedites their transition time while removing some of the unknowns from retirement planning.
However, DSOs aren’t just beneficial for dentists on the cusp of retirement. Those between the ages of 40 and 60 who plan to practice for another 15-20+ years can sell their practice to a DSO and reap the benefits. For example, we worked with a doctor who was in his late 40s and planned to continue practicing dentistry for another 15+ years. Although he was a great clinician, he was not business-savvy. He was looking for a DSO to handle the business side of things.
It is important to note that there are also some cons attached to these types of arrangements. Not all DSOs are well-managed and operated, meaning the clinics that contract with them will not see lower costs or increased efficiency. One of the biggest disadvantages of selling to a DSO is the change in autonomy. When you sell, you are no longer the employer, you are the employee. Consistent with this, some DSOs have been known to pressure dentists to work more than necessary.
On the logistical side of things, while there are some similarities between a traditional sale and the transaction of selling a practice to a DSO, there are also important differences that dentists should be prepared for. In most cases, dentists remain with their practice after the sale and become an employee (e.g., a W2 or 1099 employee) of the DSO. This usually entails drafting an employment agreement between a dentist and the DSO, where the structure or guidelines are set for the future financial interest of the dentist. Additionally, dentists are expected to give up control of the administrative functions and many clinical responsibilities. Despite this, they are expected to produce the same returns or more than in the past.
For these reasons, it is critical for a dentist to know how the new restrictions, calculations, or budgets will affect their practice after the acquisition. (This will be discussed further in Part 3 of this series.) Understanding these and other differences in a DSO sale versus a “traditional” dental practice sale will prepare dentists to hold the DSO accountable.