Which Path Is Better: Selling to a Dental Owner or to a DSO? | PMA Which Path Is Better: Selling to a Dental Owner or to a DSO? | PMA
Which Path To Take | PMA Dental Brokers

You have been saying for the past several years, 3 to 5 more years and then you are going to retire.

One option is you could sell your practice to another dentist and help him or her with the transition period but do you know what your practice is worth or how long the transition process takes and lastly, can the new dentist get financing? 

Another option is you could sell your practice to a DSO “Corporate Group”.  Does your practice meet their requirements (location, number of operatories, production, technology, insurance mix and staff to name just a few), are you willing to continue to work for them as an employee for 5 years?

Let’s look at the numbers in this example, you are having one of your best years:

  • Annual Collections:  $850,000
  • Compensation: $380,000
  • EBITDA: $177,000
  • Production: 70% Dentist / 30% Hygiene
  • 6 Operatories
  • 2 Hygienist
  • Fully Digital
  • Great location – not in a rural area
  • 50% Fee for Service: 50% PPO – No State Insurance (Medicaid, etc.)

If you sell to a dentist and walk away, you might get somewhere between $600,000 and $700,000 for your dental practice. If you sell to a DSO you might get somewhere between $700,000 and $1,000,000, and you will have to work for another 5 years.

DSO sounds like a better deal for you financially, right? Let’s dig deeper into that.

Let’s assume the DSO gives you a letter of intent (LOI) for $850,000 – 100% of your current collections.  70% ($595,000) is paid the day of closing, the remaining 30% is paid typically over the next 5 years of employment with production and profitability requirements. Your 5-year employment agreement requires you to produce $595,000 or greater in collections per year for the next five years. 

DSOs typically pay anywhere from 25% – 33% of your collections ($595,000) which is $148,750 – $196,350.  Typically the employer covers lab expenses, paid vacation, healthcare, stock options and profit sharing. You are no longer paid for hygiene or any other services that provided revenue to the practice. 

Let’s assume you meet your collections goal for the 5 years totaling $2,975,000 and you are paid 33% or $981,750 in total wages. 

Total practice production for 5 years ($850,000 per year)                                                         $4,250,000

Total compensation as an employee       $981,750
Total sales price              $850,000

What if you kept your practice for five more years and then sold it to a private dentist?

Production / Compensation ($850,000 per year)$1,900,000
Private practice sale       $552,500

If you sell your practice to a private dentist you will net roughly the same amount over five years in compensation plus you’ll have the proceeds from the sale of your practice and you are free to walk away.

If you sell to a DSO you are no longer controlling the dental practice.  You will be an employee, and most likely not be compensated for anything other than your own production.  What if you can’t produce at the same level or they require you to increase your production?  What if you want to take time off?  What about your employees?

There is no easy answer, so it will be important to think through your best option.

Before you even talk with a potential buyer, whether that is DSO or a private buyer, you should talk with a dental broker so that you understand all of your options. A dental broker is considering every angle and what will work best for the outcomes you desire. Our team of expert dental transitions specialists are able to walk you through the process and help you decide the appropriate path.

Matt Scherer | PMA Practice Transitions | Ohio | Pennsylvania Published by Matthew Scherer on November 29, 2022