Our two most recent client testimonial interviews are with doctors at very different stages in their career, who sold their practices but either aren’t retiring or will continue to see patients under limited circumstances. If the idea of selling a dental practice is appealing to you but you don’t know that you are ready to retire or stop doing clinical work, a dental service organization (DSO) can be a good fit.
Some Pros and Cons of DSOs
For instance, if you are nearing retirement—just not quite there yet—the thought of being free of the business and administrative side of a dental practice can sound very appealing. If this sounds familiar, but you don’t think retirement is the next step, you probably are still interested in clinical work, just not everything that comes from running a small business. A DSO can be a good option because their goal is not to replace doctors but to take over the business and administrative side. Because of their size, they have economies of scale, which means that setting up their practice models around your clinical work can be mutually beneficial. They see the profits to be had from your practice and you don’t have to worry about the business side.
Even if you aren’t near retirement but have found that running a business is not something you are cut out for, a DSO can still be a good choice. You’ll make a good living doing what you do best—practicing dentistry—in the practice you’ve built, but without the headaches and extra hours needed to take care of the business side. Because of those economies of scale, DSOs can, under the right circumstances, do better than individual dentists with collections, strategic marketing, and reducing supply costs, all of which can increase the practice’s profitability. You may also have the option to transfer to other practices within the DSO’s network.
On the other hand, not all DSOs are created equal. Some have gotten in trouble with industry oversight organizations and regulators. Some have pressured dentists to work more than they agreed to. And if the DSO is not well managed, the lower costs won’t be realized.
Also, after years of being your own boss, you have to seriously consider how well you would do as an employee. You may lose flexibility in your scheduling or be compelled to comply with policies and procedures that you might not think are right. Before you sell a dental practice to a DSO, you need to be sure it’ll be a good fit for you and your practice.
Finally, you also have to consider your legacy and what it means to you. With any buyer, you are giving up control over your practice and how it functions in the future. But with a dental practice transition specialists, like those at ddsmatch Southwest, you can put the effort into finding the right buyer who will be the best fit for your practice, your staff, and your patients.
With a DSO, you are getting more of a one-size-fits-all approach to running a practice. The changes may have a negative impact on your reputation if they result in a lower quality of patient care, especially if you continue to work in the practice. That said, DSOs also can provide a number of features patients like, such as flexible financing, or expanded services and hours.
What to Look For in a DSO
When you are selling a dental practice, whether to a DSO or private buyer, you need to look closely at who you are selling to. This is much more important when you are going to continue to work in the practice. You need to decide what is important to you about your practice and how to preserve that. The answer to that question will be quite personal.
There are some practical things to consider and you’d be well advised to look and them closely as well. At ddsmatch Southwest, we always recommend that you retain a dental practice transition specialist, and that you have an attorney and accountant with dental practice-specific experience to review your documents and advise you on your decisions.
Remember that no matter how well you get along with the buyer and their representatives, no agreement that is not in writing is unenforceable. Be sure that everything you need to have as part of the deal is recorded in the deal papers. Not only does this protect you, your patients, and your staff, it also makes sure everyone is on the same page about how you are moving forward.
Some things you should consider include:
- Terms of payment. Will you be paid for the practice up front? Or will you be paid when you separate from employment? What is the impact of your current liabilities on the payment? What accounting methods are they using to calculate the sale price or commissions? Be sure that you are clear on these details to avoid unpleasant surprises and to be able to double check anything that seems off.
- Employment status. Its typical for a DSO to require the seller to stay on for a minimum of two years after the sale. You should have an employment contract that explicitly lays out how you will be paid your salary, whether commissions are based on your personal production level or the practice’s overall profit, whether those calculations are based on net or gross revenue, what the exit strategy is, and whether you will have any say in your replacement.
- Practice model. You won’t really have much room for negotiation here, if any. The practice model is what drives the DSO’s profitability, so they aren’t going to want to tinker with it to accommodate your preferences. You just need to make sure its a model you can work within. Do they use reliable vendors? Will budget restrictions interfere with your ability to provide quality care? How much freedom to you have to make clinical decisions and discuss the available treatment options with patients?
- Support services. This refers to the business and administrative side. This is what the DSO is supposed to be good at but you need to make sure it’s going to be a help to you and your staff, not a hindrance. Speaking of staff, be sure to be upfront with them about the changes that are coming and make sure the DSO is hands on during the whole transition process. Good support services will make it much easier to run and grow your practice.
- Capital resources. Because of the nature of the business, dental practices can experience significant fluctuations in cash flow since many services are not being paid for as they are provided. A well-capitalized DSO can alleviate the pressures from fluctuating cash flow. They can also advise on streamlining operations and other ways to increase profits.
- How helpful and flexible will the changes be? Be sure to have as comprehensive of an understanding of the changes that are coming and when to expect them. Have regular meetings (at least monthly) with your DSO support team to review performance and address any issues that arise related to the transition. You DSO support team should be helpful and flexible, not a thorn in the side of you and your staff.
- Exit Strategy. If you have an idea of when you want to leave the practice, let that be known up front. Be clear on the process and, if you want, ask to be guaranteed that you will have a say in your replacement.
As with any time someone is selling a dental practice, you should take your time and research your options. Talk to other doctors who have sold to the DSOs you are considering and find out their experiences. A good DSO is one that gives you peace of mind that the practice is growing and well run while allowing you to focus on dentistry.
Considering Selling a Dental Practice to a DSO? We Can Help!
At ddsmatch Southwest, your dental practice transition goals are our goals. An essential part of our process is working with you to learn and define those goals so we can use our expertise to best help you. We bring the experience of hundreds of successful dental practice transitions from all over the country and put it to work for you, to get you the best match for you and your practice. Contact us today and find out what we can do for you.