The dental industry is undergoing a transformative shift, with private equity-backed Dental Service Organizations (DSOs) driving consolidation and innovation. For dental practice owners, this presents a critical question: Is it better to sell to a private equity-backed DSO or grow the practice independently and potentially form your own DSO? Both paths offer unique advantages and challenges, and the right choice depends on your goals, risk tolerance, and vision for the future.
Option 1: Selling to a Private Equity-Backed DSO
The Appeal of Selling
Immediate Financial Reward Selling to a private equity-backed DSO often results in a substantial upfront payout. This can be particularly appealing for dentists nearing retirement or looking to reduce the operational burdens of running a practice.
Operational Support DSOs provide administrative support, including HR, marketing, billing, and compliance. By outsourcing these tasks, dentists can focus on clinical work rather than business management.
Risk Mitigation Partnering with a well-established DSO can offer stability in an uncertain market. DSOs have the resources to weather economic downturns and invest in technology, keeping the practice competitive.
Opportunities for Growth Some DSOs offer equity opportunities, allowing sellers to retain a stake in the larger organization. If the DSO grows, this equity can yield additional financial rewards.
The Downsides of Selling
Loss of Autonomy Joining a DSO often comes with standardized protocols and reduced decision-making authority. Dentists may have less control over the day-to-day operations and long-term direction of the practice.
Cultural Fit Concerns A mismatch between the DSO’s operational style and the practice’s existing culture can lead to dissatisfaction among staff and patients.
Financial Trade-Offs While the upfront payout is attractive, the long-term financial upside may be capped compared to what a dentist could achieve by retaining full ownership and growing independently.
Option 2: Growing Your Practice and Forming Your Own DSO
The Case for Building Your Own DSO
Maximized Long-Term Value By growing independently, practice owners can retain full control over profits and equity. Forming your own DSO allows you to benefit from economies of scale while building a legacy brand.
Control and Flexibility As the owner of your own DSO, you retain autonomy over operations, culture, and patient care standards. This ensures that the practice reflects your vision and values.
Scalability and Brand Power Creating a multi-location DSO under your management can position you as a regional or national player, opening doors to new markets and higher valuations.
Entrepreneurial Fulfillment Building and scaling a business is rewarding for those with a strong entrepreneurial drive. You get to lead and innovate rather than adapt to someone else’s framework.
Challenges of Growing Independently
Capital Requirements Expanding a practice and forming a DSO requires significant investment in infrastructure, technology, and personnel. Without private equity backing, dentists must rely on personal savings, loans, or organic growth.
Operational Complexity Managing multiple locations introduces challenges in standardizing care, hiring and retaining staff, and maintaining consistent profitability.
Time and Energy Demands Building a DSO is a long-term commitment. For dentists who want to focus on clinical work or achieve work-life balance, the added responsibilities can be overwhelming.
Market Competition Competing against established DSOs can be daunting. Private equity-backed organizations have substantial resources for marketing, technology adoption, and acquisitions.
Factors to Consider
Your Career Goals Are you looking to exit the profession within a few years, or do you see yourself leading and growing a business for the next decade or more? If retirement or reduced stress is a priority, selling may be the better option. If you're energized by the idea of scaling your practice, building your own DSO could be the way forward.
Financial Objectives Consider the immediate financial gain of selling versus the potential long-term value of owning and growing a DSO. A financial advisor can help you model both scenarios based on your unique circumstances.
Risk Tolerance Selling to a DSO reduces financial and operational risk, while building your own requires a willingness to take on greater uncertainty.
Market Dynamics Assess the competitive landscape in your region. In some markets, forming your own DSO might be highly feasible, while in others, competing with established players could prove challenging.
The Hybrid Approach
Some dentists adopt a middle-ground strategy. For example, you might grow your practice to a certain scale independently before partnering with private equity. This allows you to build value and retain leverage when negotiating a deal. Alternatively, you could sell a portion of your practice while remaining involved as a minority owner and clinical leader.
Conclusion
The decision to sell to a private equity-backed DSO or grow your own practice is deeply personal and strategic. Selling offers financial security and operational relief but comes with trade-offs in autonomy and long-term upside. Growing independently provides greater control and entrepreneurial fulfillment but demands significant time, energy, and resources.
Carefully evaluate your goals, risk tolerance, and the resources available to you. Speak with financial advisors, legal experts, and industry consultants to map out the best path forward. Ultimately, the right choice is the one that aligns with your vision for the future of your career and your practice.
From your New Jersey and New York Dental CPA and Medical CPA, also serving clients Nationally.
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