Don’t get hung up on deciding whether to sell your practice to a DSO or independent practitioner. Let your individual goals, not the type of buyer, guide you.
DURING MY CAREER as a doctor and practice owner, I bought and sold several offices, on one occasion merging with a dental
service organization. Today, as a practice consultant, I help my clients navigate the circuitious process of buying and selling, which is more complicated than it has ever been. Gone are the days when older dentists who were nearing retirement simply sold to younger ones.
A lot of people—some of whom have a vested interest in the outcome—will tell you that you’re
better off selling to a DSO because the money is better, or that IDPs are a smarter choice because the terms are generally more flexible. I wish it were that simple, but it’s not. Until you know for sure what you want out of a sale, you need to keep an open mind.
Is money your main driver? That’s perfectly understandable, especially given the fact that many doctors will sell only one practice in their lifetime. DSO offers are usually lucrative: 100 percent (or more) of one year’s collections is common. Stock options are often part of the deal, and if you sell to a growing DSO that gets bought out, your stock value can increase substantially. (Be sure, however, that there’s a clear method and formula for monetizing the stock; owning stock that can’t easily be sold or monetized will be frustrating.) Another potential benefit: If you own your real estate and persuade the DSO to sign a long-term lease, the cap rate of your property will increase after the sale and potentially become a target for investors.
A DSO’s offer is naturally dependent not only on Ebitda and location, but also how much time you’re willing to stay on as an employee after the sale. Are you prepared to put in another two to five years in the office, which DSOs often require? If so, consider this as well: The instant you sell, you become an employee. Some doctors find it hard to accept, for example, someone else dictating which materials or labs they can use. On the other hand, if you’ve grown tired of the business side, selling to a DSO means handing off the things you like least so you can concentrate more on the clinical side.
But what if you want to retire more quickly, and simply can’t (or don’t want to) commit to the DSO’s mandated service time? Or what if you can’t wrap your head around the idea of becoming an employee and sacrificing the control you’ve become accustomed to as a practice owner? Selling to an IDP means you’ll likely maintain a good measure of control, on your own terms, and work for as long or short a period as you wish. You can also guarantee continuity of care for patients, because an individual dentist will be personally responsible for them. Your sale price will probably be less than a DSO’s offer—about 65 to 80 percent of one year’s collections—but the big picture may suit you better, at a time in your life when enjoyment and personal fulfillment is paramount.
Only one scenario somewhat limits your options. If you have fewer than six operatories and less than $1 million in gross collections, DSOs won’t typically be interested in your practice. This isn’t a problem unless, for some reason, you had your heart set on selling to a DSO.
I’ve negotiated plenty of sales for small practices, and the best ones field multiple offers from motivated buyers. There’s a lot of opportunity out there for practices of all strengths and sizes.
The bottom line: Don’t listen to anyone who tells you there’s only one correct way to sell your practice. Only you can decide what’s right for you. Need help thinking it through? Reach out to me and we can narrow down the pros and cons together. You don’t have to make an important decision like this alone.
JAMES M. CLARK, DMD has filled many roles in clinical dentistry for more than 30 years. Now the head of Practice Transitions at Benco Dental, he can be reached at email@example.com.