How To Know If Selling to a DSO Is Right for You

The number of dentists selling their practices to dental service organizations has increased annually since 2018, and while the pace of sales has slowed recently, numbers remain higher than five years ago. Today, roughly 20–25% of dental practices have been consolidated into DSOs.

As more practices have been sold to DSOs, other dentists have benefited from watching their colleagues’ transitions play out. This means there’s more familiarity with both the positives and negatives now than a few years ago, when the historical DSO failures were all that were remembered.

At the same time, many DSOs are trending toward operating more invisibly. Having figured out that buying a practice, changing the name on the building, and making significant operational and cultural adjustments is bad for business, they’re keeping each practice’s unique ecosphere intact. This shift has made selling to a DSO a more attractive idea to many.

Personal and practice considerations

With the DSO market maturing, is selling to a DSO the right choice for your practice? There are many factors to consider, and they’re just as personal as financial.

Your age and timeline 

This is one of the most significant factors in determining whether selling to a DSO is right for you. Is your target transition date in two, five, or 10 years? DSOs typically require a minimum of five years of work-back after the sale, so selling to one isn’t a likely option for dentists looking to sell and walk away in the next year or two.

Your personal and professional goals 

Doctors often aren’t intentional enough about defining what they want from a personal, financial, and professional perspective. Transition planning starts with looking inward to determine what you want from the sale of your practice. Ask yourself: What am I trying to solve for? A better work-life balance? A second career? A large nest egg? Peace of mind? There are no wrong answers here, but being honest with yourself — and then being clear with your CPA or financial team about your goals — is key to starting the process. 

Clinical autonomy preferences 

How much control do you want to retain over clinical decision-making? While some DSOs may modify their doctors’ decisions, many more established and smart DSOs offer clinical autonomy and leave patient care to the doctors. Evaluate a DSO's approach to patient care to ensure their practice culture aligns with yours. In the best case, your patients wouldn’t notice any differences after the practice sale closes.

Practice size and location 

There’s no one-size-fits-all rule here, but in general, DSOs prefer practices with five or more operatories and more than $1 million in annual collections, or EBITDA greater than $500,000. Urban or suburban markets are generally preferred, but there are certainly DSOs with a strategy for rural locations. The key is maximizing your profitability — which leads to the next point.

Practice health 

DSO buyers are sophisticated groups: They tend to be more impressed when they see a business that’s operating efficiently and an owner who knows every nuance of their practice. Paying attention to profitability, trimming expenses, increasing reimbursement rates, keeping technology current, being properly staffed, and fully utilizing each staff member are all checkboxes on a DSO buyer’s scorecard, even if that means understanding where your weaknesses are.

Practice specialty

While general practitioners were the first to be targeted by DSOs, other specialties have cycled in popularity, too. Each DSO group has its preference: pediatrics, orthodontics, OMS trifecta, or even surgery specialties. DSOs that have traditionally targeted orthodontics are now also interested in pediatrics because pediatric practices own the patient journey. Pediatric groups are looking to expand into orthodontics. And all of them are looking to figure out how to bring oral surgery into the mix so they can all funnel into each other. Bottom line: There’s a DSO group for any specialty.

Practice trajectory 

Practices in a growth curve should carefully consider the timing of a transition. It may be wise to let the practice catch up to the growth for a few years before initiating the sale, which allows collections to catch up with production, show more profitability, and maximize value.

At the same time, it’s not always sustainable for one doctor to keep the pace at a practice in growth mode, so deciding whether to add an associate or sell to a DSO really comes down to noting where the practice is on the growth cycle. If you want to explore a DSO sale while you’re in growth mode, pay attention to deal structure to capture the full value of your growth.

Education is the key

If you think selling to a DSO is the right choice for you, or wonder if a private doctor-to-doctor sale is a better option, being fully informed about the pros and cons is essential.

Researching on your own is a great first step, but it’s vital that you surround yourself with a team that has experience helping doctors navigate the nuances of both DSO and private transitions.

Christy Ratcliff, a certified public accountant and valuation analyst, is a partner at NDP and co-founded its affiliate company 7 Pillars, which helps dental professionals navigate the transaction process in the DSO space.