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20 December, 2022

What Dentists Should Consider Before Selling to a Dental Service Organization

If you are like many other dentists, you’re probably dealing with the constant challenge to deliver excellent oral health services while also turning over a profit. You also need to adeptly oversee numerous administrative functions, as well as manage equipment purchases and promote your dental business as much as possible so you can grow your practice. 

With all these duties and responsibilities comes the need to manage your operations. It can seem overwhelming to keep up with all these facets of your dental business while also directing the bulk of your time to patient care. Dentists also want to minimize their efforts to manage relationships with vendors, insurance companies, etc. 

Here is where a Dental Service Organization (DSO) comes in. A DSO can provide significant operational support, as well as deliver opportunities for leadership and continuing education. 

There is a fast-growing trend among health-care businesses of doctors/dentists looking to DSOs for support for their complex nonclinical administrative operations. A DSO can even help you grow your dental practice, as well as enable you to realize liquidity for the years of investment you have made in your practice. 

Because of the tremendous support DSOs provide, there has been a recent surge of dental businesses selling their practice to a DSO. Nearly 8 percent of practicing dentists nation-wide have affiliated with DSOs. 

As exciting an opportunity as selling to a DSO can be, there are important factors you should first consider before moving ahead with the sale. It’s a fact that not all dental businesses will be a good fit with a DSO. For example, some DSOs will replace your staff or implement changes to salaries and benefits. Other DSOs may opt for the status quo when it comes to wages and benefits and agree to leave the organizational structure mostly intact. 

Thoroughly investigating a DSO before selling your practice is essential to your best outcome. After all, there is a lot at stake when it comes to the viability of your dental business.   

Here are five questions you should answer as you consider selling your practice to a DSO.

   1)  What is Your Role? 

As you deliberate whether selling your practice to a DSO is appropriate for your dental business, you should think about whether engaging with a DSO coincides with your ownership style. For instance, you’ve been used to managing staff and guiding the practice’s operations in a certain way. Processes could potentially change after a DSO sale, even dramatically. 

The vast majority of DSOs require a dentist to stay onboard with their practice for a while to allow for a smooth transition in ownership. Typically, a DSO will want the dentist to remain in place for at least three years. You need to consider if this requirement aligns with your goals for your career after this sale. For example, would you like to work less hours every week? Do you want to put greater focus on patient care? 

Your ownership role has included setting your own salary. Salary choices may change when you affiliate with a DSO. 

You’ll want to know what the DSO sale could mean for your wage. For example, how will your new salary – post-DSO sale – affect your retirement and income goals? If you opt to continue working after the DSO sale, you’ll want to carefully read any non-compete clauses in the DSO sale terms. You don’t want to be in a situation where a non-compete clause prevents you from continuing to practice dentistry. 

   2)  Does the DSO Have Reliable Capital? 

The primary benefit of selling your practice to a DSO is removing the onerous nonclinical administrative operations from your responsibilities. But you’ll want to be sure that the DSO you’re considering selling to has sufficient capital. For example, you should request from a DSO their financial background information to confirm they can afford to accept and operate your dental practice successfully. 

   3)  Have You Done Your Due Diligence? 

There are several specific areas that you should examine for your potential DSO sale. They include: 

  • What is the reputation of this DSO within the dental community? 
  • Will the DSO sale alter the process for your health-care delivery system? 
  • Will the DSO change the way performance reviews are conducted? 

   4)  Do You Know the Pros & Cons of a DSO Sale? 

Like with making any other major business decision, there are pros and cons to carefully evaluate when it comes to a DSO sale. One pro example is selling to a DSO may free up more of your time to care for patients. In contrast, you’ll be relinquishing your sole boss role to the DSO. 

Here are some other potential cons of a DSO sale: 

CONS 

You lose autonomy — Depending on your ownership style, losing autonomy could prove to be a significant drawback. It will feel dramatically different to no longer have autonomy over how your dental practice is run. 

You’re no longer the boss — Here is where you will want to be clued into the DSO culture and the extent of the support they can deliver. Keep in mind, you and your staff will have to adhere to a new set of rules. Your employees might even be let go. 

No more equity — All the equity you’ve accumulated in your dental business is included in your worth. Once you sell your practice to a DSO, all this equity is gone. You’ll want to make sure the compensation amount is the same as what you will be relinquishing – now and in the years to come. 

Here are some potential pros to having an affiliation with a DSO. 

PROS 

Taking over the navigation of compliance rules — Dentists must contend with numerous rules and regulations as the owner of their business. You’ve got rules issued by insurance companies and OSHA laws you must follow. It can pose a real burden for dental business owners to ensure they keep up with regulatory mandates. But now your DSO will handle all these regulatory and compliance issues for your practice. 

Superior technology — The right technologies can boost the success of your dental practice. It can also make treating patients easier. By utilizing a DSO, you’ll be able to leverage cutting edge technology enabling you to deliver exceptional outcomes for patients and, possibly, enhance your profit margin. 

Grow your dental practice — Being affiliated with a DSO gives your practice access to more capital and a huge peer network of other dentists for collaboration. 

   5)  Are You Comfortable with the Sacrifices? 

Although some of these points have been previously mentioned, it should be emphasized that you will be giving up some important aspects of your practice. 

Here are a few examples: 

  • Patient care assistance 
  • Management of the staff 
  • Control of the practice 

Final Thoughts 

Before you move forward with a DSO sale, consider how well the DSO will fit in with your dental practice culture and if they share your values. Ideally, the DSO you affiliate with will be aligned with your practice’s vision and goals.

Drilldown Solution Can Help Your Dental Business Optimize Profits 

At Drilldown Solution, we are all about helping small businesses, including dental practices, to be profitable. Our fractional CFOs are highly skilled and able to assist you in establishing a robust financial system while providing you with keen insights, strategic guidance, and fiscal leadership to support your growth and ascendance in the marketplace. 

Drilldown Solution offers a full suite of financial services including, bookkeeping, accounting, and tax preparation. We have the expert team to help any small business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this growth with a three-part system of patient-experience excellence, financial focused operations, and accountability. 

Our goal at Drilldown Solution is to put your dental business in the best financial position possible, utilizing proactive processes and personal care!

 

Adam

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