Dental and Medical Counsel Blog

5 Things to Consider When Selling a Dental Practice to a DSO

March 18, 2020

A dental support organization (DSO) can be a big help in taking some of the stress out of your day-to-day practice. These organizations will purchase your practice and then handle all of the non-clinical aspects of running the business for you. As you can imagine, selling to a DSO involves giving up a large amount of control. In this post, we'll take a look at what you will be getting and what you will be giving up should you choose to sell your practice to a DSO.

1. Due diligence into the DSO is important

You know that you shouldn't enter a business agreement with someone that you don't know anything about, but you may not know what you should be looking for when evaluating a DSO that is interested in purchasing your practice. Here is a list of major things that you should consider.

Do they have reliable capital?

One of the biggest advantages of selling to a DSO is that it frees you from the managerial and financial work of running a business. You should ask for financial background information to verify that the company can afford to take on and run your business effectively.

Do they have a good reputation?

You can't run a dental practice without money, but you also can't run one without experience. Talk with other practices that have worked with the DSO and examine how their practices are currently run. Both the input from the sellers and the reviews of their patients post-sale can give you some insight into how the DSO will run your practice.

How is the company culture?

The new company will have a different way of operating than yours. They may have different payment terms for your patients or different restrictions on your employees. It is important that you take a look at how the company operates and evaluate how these differences will affect your staff and your patients.

2. Be aware of the pros and cons of selling to a DSO

Whether it is an existing business or an emerging one, selling to a DSO comes with a list of pros and cons. You should carefully weigh the upsides and the downsides of a sale before agreeing to one.

Pros

  • More free time - A good work-life balance is important to living a happy and fulfilled life. It can be hard to find that balance when you are busy seeing patients and running the business. A DSO can take the latter part of the workload off of your hands.
  • Help with compliance - There are many rules and regulations you must follow as a business owner. From the laws that OSHA sets forth to the rules that insurance companies place on you, complying with it all can be a hassle. A DSO will have a system in place to handle that for you.
  • Better technology - The right technology can do wonders for the success of a practice and for the ease of treating patients. With the resources of a DSO, you'll be able to provide better outcomes for your patients with more profitability.
  • Practice growth - Technology isn't the only way that a DSO will help your practice grow. With a DSO, you'll have access to more capital and to a large peer network of other dentists for collaboration.
  • Staff benefits - A large DSO may be able to provide your staff with better a better benefits package.

Cons

  • You lose autonomy - For many people, this is a big con. If you sell to a DSO, you will no longer be making any of the decisions about how the practice is run. If you like to have control, this lack of autonomy is something to consider.
  • You are no longer the boss - Losing autonomy doesn't just affect you. Pay close attention to the section about company culture and support in item 1. Your staff and patients will also be bound by a new set of rules. Your existing staff may even be replaced. Know how these things will impact your practice.
  • You lose your equity - The equity that you have built up in your practice is part of your worth. When you sell the practice, all of that equity is gone. Be sure that the compensation amount matches what you will be giving up, both now and in the future.

3. Consider your post-sale role

A DSO will typically want you to stay on as a dentist for at least 1-3 years in order to smooth out the transition process. In fact, you might receive a delayed payment which is also called an earn-out. In addition to whether or not you are willing to stay on, there are some other questions you may want to ask yourself about your post-sale role.

  • Do you want to work fewer hours than you do now? Will the DSO allow for that?
  • How much money do you hope to make? Will the sale price and your new salary give you the future that you want?
  • Are you okay long-term with being an employee instead of being the boss?

You should also be certain that there are no non-compete clauses that may prevent you from practicing somewhere else should you choose to. If the clauses exist, how long do they last? Are you willing to make that sacrifice?

4. Plan for your potential exitExit Strategy

There's more to consider about your potential exit from the practice than just your earn-out period. If you find yourself extraordinarily unhappy after the sale, what are the penalties for leaving before the earn-out period? Will they allow you to stay on after the earn-out period? You want to be clear with the DSO about your future plans and ensure that you are on the same page.

When you do decide to leave, will the DSO help you to find your replacement? Your patients have built up a lot of trust in you. When you leave, you'll likely want to make sure that they are in good hands. Being able to play a role in selecting the replacement will go a long way towards honoring the trust of your patients.

If you decide that you no longer want to be a dentist for the practice, what will you do next? Will the DSO allow you to find another career path within their network? This could mean becoming a dentist at another one of their locations or working as a consultant for the company. Know your future options.

5. Think about the sacrifices

This is a repeat of many of the points that have already been brought up, but some of them bear repeating. Selling to a DSO is absolutely the right decision for many people, but you want to make sure that you are one of those people before you pull the trigger on the sale. Take a look at the list of things that you will be giving up and be certain that each of them is worth it.

  • Control of the practice.
  • Management of the staff.
  • Company policies.
  • Patient care decisions.
  • Equity in the business.
  • Any potential non-compete agreements.

If you need help deciding whether or not a DSO is the best option for your practice, or if you need help navigating the legal process involved in selling a dental practice to a DSO or to a private practice, contact the legal experts at Dental & Medical Counsel today.

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