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Should I Sell My Practice to a Corporate Group or an Individual Dentist?
You’ve made the decision to sell your dental practice and you are now considering the type of buyer who would be best suited to purchase your practice. In today’s market, you have two primary choices: sell to another dentist or sell to a corporate group (Dental Service Organization or DSO). Depending on your own personal situation and expectations, either choice could be appropriate. However, there are pros and cons associated with both types of buyers, which is why it is important to understand the differences. When considering the ideal buyer and transition strategy for your practice, start by considering the following questions:
Following the sale, do I want to retire immediately from practicing dentistry?
If your preference is to continue practicing for a few years, selling to a DSO may be a good option. This option is best for practice owners who are more hands-off and allow the staff to run the office or for those who are burned out from managing the practice but still enjoy practicing dentistry. If there is sufficient production in the practice to allow for both the buyer and seller to work, and if the schedule and facility permit both parties to work simultaneously, selling to another dentist with the stipulation of working for the buyer after the closing, can also be feasible.
Typically, DSOs require the seller to work back for a minimum of two years after closing. When selling to another dentist, the work back arrangement can be as short as a few weeks or could last for years.
Will I enjoy working for someone else during an extended transition period?
As you consider working for the buyer after closing, you should understand that you are no longer the boss. If your management style has been very hands-on and you are very particular about running the office, you should understand that there could be drastic changes. Additionally, the buyer’s treatment philosophy may conflict with your own. Any differences between you and the buyer can cause tension and make working in the practice unenjoyable.
Your compensation will also change as you work back. A DSO will generally pay associate dentists in the range of 25% to 30% of collections, while individual doctors who purchase a practice typically pay the seller 30% to 35% of collections.
Do I want to be paid the full sales price for my practice at closing?
Many DSOs will include a ‘hold-back’ in their offer to purchase a dental practice. This hold-back is typically 20% of the sales price that is usually tied to a contingency based on the seller’s performance as well as a pre-determined collection threshold the practice must meet post-closing. For example, a DSO may stipulate that the seller will receive the hold-back amount only if the practice collections remain the same or higher two preceding years after closing. In contrast, individual buyers typically pay the full sales price amount at closing and cash out the seller with no hold backs or contingencies.
Is preserving the legacy of my practice philosophy and business model important to me?
In selecting a buyer, some practice owners prefer to sell to a dentist with similar practice philosophies in the hopes of grooming that dentist to run the practice in a similar way. Individual buyers typically do not anticipate making substantive changes in the practice, at least not immediately. They typically buy practices that align with their practice philosophies while understanding the importance of maintaining the essence of the practice for existing patients. DSOs, however, incorporate their own business model into the practice that may or may not align with the seller’s model and philosophy.
If your preference is to retire shortly after the sale, limit your work back commitment to less than two years, and have a greater chance of preserving the legacy of your practice, the ideal buyer would typically be an individual dentist. If you prefer to continue working for at least two years and you are flexible with regard to the buyer, a DSO may be a good option that allows you to escape the daily burden of managing a practice.
Identifying your goals and expectations for a practice sale transition are critical when determining how to plan for a successful transition. As you consider these questions, discuss your options with an experienced transition advisor.