A Guide for Dentists Considering DSOs

Karl Frye
Aug 18
4 min read

Deciding whether to sell your dental practice is one of the most important decisions of your career. If you’ve been approached by a Dental Service Organization (DSO) or corporate group with an enticing offer, you may be wondering if this is the right path for you. Understanding both the benefits and challenges of selling to a DSO will help you make an informed decision that’s in line with your goals and vision for your practice.

What Are DSOs Looking For in a Practice?

Before considering selling to a DSO, it’s important to understand what they typically look for in a practice. While most dentists receive offers, DSOs have specific requirements to ensure the practices they acquire fit their model.

Key DSO criteria include:

Fee-for-Service (FFS) or PPO-Based Practices: Limited or no HMO or Medicaid participation.
Revenue Thresholds: Practices producing $700,000 or more in annual gross collections.
Adequate Facilities: A minimum of five operatories, ideally with room for expansion.
Prime Location: Retail locations with high visibility and superior signage for patient attraction.
Seller Commitment: A willingness for the seller to stay on as an associate dentist for 2–3 years or longer, after the sale.

If your practice meets these requirements, a DSO may be interested in making you an offer.

The Benefits of Selling to a DSO

Selling to a DSO comes with some significant advantages, depending on your circumstances. The greatest benefits include financial potential, scalability, and a streamlined sales process.

Competitive Valuations

DSOs often appraise practices differently from traditional buyers. They use an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) model to assess the profitability of a practice. High-performing practices that meet DSO purchasing criteria (e.g., multiple locations, high revenue) might sell for 4–7x EBITDA, compared to traditional private buyers who may only pay

3–5x EBITDA. Some sellers have even received offers of up to 120% of last year’s gross collections.

Financial Predictability with Structured Payments

DSOs provide structured buyout agreements, which may include upfront payments along with additional payouts over time. This can enhance financial security and provide funds for personal or professional investment.

Simplified Operations

One significant appeal of selling to a DSO is delegating the administrative burden of running a business. You can focus solely on dentistry while the DSO handles tasks such as HR, marketing, and purchasing supplies.

The Challenges of Selling to a DSO

While DSOs offer benefits, the decision to sell must be weighed against potential drawbacks. These challenges could impact your financial outcomes and practice autonomy.

Payment Structures with Contingencies

Even if a DSO offers a high valuation, you’re unlikely to receive the full payment upfront. Often, 20% or more of the sale price is withheld until you meet specific benchmarks during the “work-back” period, which can range from two to five years. These contingencies on production and profitability benchmarks may affect your total earnings.

Reduced Compensation Post-Sale

As part of most DSO agreements, sellers must stay on as employees post-sale. During this period, you’ll typically receive 25–30% of your collected production instead of the 35–40% of revenue you may have earned as an owner. While ownership profits now go to the DSO, this shift in earning potential could mean the “premium” sale price isn’t as lucrative as it initially seems.

Loss of Control

Selling to a DSO means you give up decision-making power. You’ll no longer have the final say in decisions like hiring and firing staff, selecting labs or supplies, setting branding and marketing strategies, or deciding your work schedule. For some dentists, this loss of autonomy outweighs the financial benefits of selling.

Long-Term Financial Outcomes

A private sale in two to five years might bring comparable (or better) financial results without the strings attached to DSO agreements. It’s crucial to carefully analyze the long-term implications of selling to a DSO versus other buyers.

Key Considerations Before Selling

When evaluating whether to sell to a DSO, ask yourself these essential questions:

What are my personal and professional goals? Are you looking to retire, reduce administrative responsibilities, or grow your practice with structured support?
What does the financial math say? Consider your post-sale compensation, overall financial yield, and any obligations during the work-back period.
Am I comfortable relinquishing autonomy? If you value control over your practice, working under a DSO might feel restrictive.

Why Work with a Dental Practice Broker?

Navigating the complexities of selling your practice—whether to a private buyer or a DSO—can be challenging. Partnering with a dental practice broker brings valuable expertise and ensures your best interests are prioritized.

A broker can help you:

Conduct Proper Valuations: Accurately assess your practice’s worth using detailed insights, avoiding over- or undervaluation.
Optimize Financial Returns: Negotiate favorable terms while minimizing taxes and fees.
Guide the Entire Process: From finding the right buyer to closing the deal, brokers ensure a seamless transaction.

While DSO representatives prioritize their organization’s interests, a broker looks out for yours, empowering you to make informed decisions that align with your goals.

Final Thoughts

Selling to a DSO can be a viable option for some dentists and less ideal for others. It is not a one-size-fits-all decision. The key is to evaluate your practice’s unique position, financial priorities, and personal goals before committing.

If you’re unsure whether selling to a DSO is right for you, reach out for expert guidance. Whether you choose a private buyer or a corporate group, working with a trusted dental practice broker will help you maximize the value of your practice and ensure a smooth transition.