It’s true: Dental service organizations (DSOs) are here to stay and growing fast. Consolidation in the dental industry is expected to jump from 25%–30% to 60%–70% in the next 10 years so it’s important to leverage the equity in your businesses correctly during this all-important arbitrage event. Here’s how you can compete in a consolidating world.
The backstory
There weren’t that many options to sell your dental practice as recent as 15 years ago. You were either forced to bring on an associate (not the best option these days with only a 20% success rate) or partner with someone looking to get into the community. The dental industry has since shifted from mom-and-pop practices to the now estimated 350 DSOs in the country.
What to consider
Dentists these days are looking to relinquish their managerial responsibilities in favor of clinical care. High student loan costs, changing demographics and a high regulatory environment are all considerations for dental practice owners; however, with more at stake, this opens the door to more opportunities to run a successful practice.
Why it matters
While the only option less than two decades ago, 30% of dental practices are still sole proprietorships. So no, DSOs aren’t putting these practices out of business but are rather placing competitiveness in the marketplace that is beneficial for sellers financially. If anything, there are now more avenues to take advantage of when it comes to making the best decision for the future of your dental practice.
Where to start
What are you hoping to get out of the sale of your dental practice? As with most life decisions, you’ll want to begin with the end in mind. A professional broker who specializes in the dental industry will put together a prospectus to determine how much your practice is worth and guide you through the transition process so you make the best decision for you and your practice. That way, you can make an informed decision based on several different scenarios rather than taking the only option available.
The options
From a 100% sale of your dental practice to banding together with other dentists and specialists, the options of selling your dental practice have evolved over the years, leading to more flexibility in your schedule and better marketing opportunities when the time comes to sell. These days, more dentists are realizing they don’t love all the unseen responsibilities that come along with owning a practice so are choosing to go with an institutionally backed group that allows you to roll some equity into those platforms or participate in a joint venture that keeps a certain agreed-upon percentage in your favor.
When to act
10 years isn’t a long time for the consolidation wave to crest, so acting sooner will help dentists in the long run. As the power dynamics shift, dentists are coming out on top. In the end, even if you decide to do nothing, by having the most amount of information available to you, you will at least know what your dental practice is worth.
DSO versus single buyer
DSOs have greater purchasing power and corporate structures, allowing them to pool and allocate key resources, such as staff, cash and even personal protective equipment. Typically, a DSO’s valuation of a practice comes out higher than an individual’s. Not only will your practice value for more if selling to a DSO, but you also have the option to stay on and earn a salary for that inevitable retirement, unlike with a straight buy-out.
What to evaluate
When it comes down to it, you’ll want to focus on what you’re good at and then hire someone to do the rest. DSOs relieve dentists from the managerial aspect of running a business, from payroll to human resources. At the same time, you’ll want to understand what your burnout point is before taking your career to the next level so you don’t lose sight of what’s important to you and your business.
Bottom line
DSOs are emerging as a great choice for many dentists looking to sell their practice, but they need to ask questions along the way to ensure the transition works for you, your patients and your staff. Talking to your team of advisors early will only give you more control over the sale of your dental practice.
With so many exit strategies available these days, it’s hard to know where or when to start the process. Working with a qualified broker will only increase your chances for dental practice transition success.