The dental industry, deeply rooted in familial traditions, often sees the passing down of practices from one generation to the next. While selling a practice to family members may seem like a natural progression, the evolving landscape of dentistry prompts dentists to consider alternative paths for securing both financial stability and a lasting legacy. This blog explores the complexities of family succession and introduces an alternative approach gaining momentum in the dental community: selling to dental service organizations (DSOs).
The Family Succession Challenge:
Despite the familial nature of dentistry, the current consolidation wave in the industry presents a unique opportunity for dentists to secure favorable deals for their practices. Industry experts anticipate this window lasting only 5-7 years before market stabilization, potentially diminishing the value of practices. Dentists considering family succession need to act promptly to avoid limiting financial gains for themselves and their children.
The Alternative: Selling to a DSO:
Rather than relying solely on family succession plans, forward-thinking dentists are exploring the option of selling their practices to DSOs. These organizations provide administrative and operational services to multiple dental practices, allowing individual dentists to benefit from economies of scale, operational efficiencies, and strategic partnerships. However, it is crucial to engage with a seasoned broker to navigate negotiations and secure a favorable deal that ensures clinical independence.
Real-Life Examples:
1. Success Story in Chicago: A practitioner in Chicago, uncertain about his daughter and son-in-law's willingness to buy the practice, opted for a joint venture (JV) style DSO. The outcome was remarkable, providing substantial financial gains and offering his daughter an option to vest into ownership or purchase the remaining amount.
2. Strategic Moves Despite Financial Constraints: Another client with a financially constrained son strategically sold 70% of the practice while retaining 10% for each partner. This allowed his son to be part of the practice despite financial constraints, showcasing how DSOs facilitate family involvement.
DSO Deal Structures:
Joint ventures and equity rolls are attractive deal structures for dentists contemplating a sale to a DSO. These options provide dentists with upfront money for immediate financial endeavors while allowing them to participate in the ongoing success and growth of the practice.
Benefits of Selling to a DSO:
1. Immediate Financial Security: Dentists can receive a lump sum upfront, providing immediate financial support for their children's education or other financial endeavors.
2. Continued Wealth Growth: Dentists can retain a stake in the practice through joint ventures or exchange equity for a financial stake in the DSO, ensuring continued wealth growth over time.
3. Diversification: Selling to a DSO allows dentists to diversify their investments, mitigating risks associated with a single-practice focus.
Bottom Line:
While passing down a dental practice to the next generation is a cherished dream, dentists are increasingly recognizing the benefits of selling to a DSO for securing their children's financial future. This forward-thinking approach ensures financial stability in an industry undergoing rapid changes, setting the stage for sustained prosperity for both the dentist and their family. Contact the experts at Professional Transition Strategies to explore the DSO deal structure that best aligns with your practice and financial goals.