Tag: dental practice management

Elevating Your Practice: The Sub-DSO Strategy Dentists Are Using to Build Wealth

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Matt Zolfo

By Matt Zolfo, merger and acquisition consultant, Professional Transition Strategies.

Doctors with an entrepreneurial mindset are always looking for opportunities to grow their practice. Some will go the traditional route, using bank financing to open new locations or acquire practices, perhaps with a goal of building their own dental service organization (DSO). Others will seek a strategic partnership with an established DSO instead.

Your best path forward depends on your goals, but it’s important to understand that the industry’s current status on the consolidation curve gives you a unique opportunity — one that won’t last forever. Here’s a closer look at how the dental industry’s equity arbitrage market is evolving and what it means for you.

Understand Dental Industry Consolidation

Looking at how equity arbitrage transformed medical marketplaces in the past is instructive: Harvard Business Review analyses show that about 60% of providers participate while 40% do not. The participation rate is consistent across fields.

Industry consolidations are a one-time opportunity, so it’s critical to understand the consolidation curve so you can leverage it to drive growth. Any doctor who will be practicing over the next three to five years, regardless of age, has an opportunity right now to participate in an equity arbitrage consolidation market.

About 40% of dentists won’t participate — they’ll open a dental office, serve their communities and eventually sell their practice for 60% to 80% of collections, which is what most dentists did 10 years ago. Others plan to grow solo practices on their own and eventually sell the organization they’ve built to a DSO.

But if you own multiple practices or are planning on growing with new locations, you can participate in equity arbitrage events via a sub-DSO strategy now, leveraging the growth of your practice footprint as an investment vehicle. It’s a smart move because the growth trajectory of a solo practice will never outpace the growth of equity value in a group of practices.

Use a Sub-DSO as a Wealth-Building Tool

A sub-DSO arrangement gives practice owners access to wealth-building opportunities in the equity arbitrage consolidation marketplace without taking on the risks of growing a practice by traditional means. In a sub-DSO, the practice owner transacts their business for a large upfront payment and typically retains a percentage of ownership. The equity isn’t held at the DSO or practice level – it exists in a holding space that allows room for expansion.

This can be a huge advantage for practice owners. There’s a saying in the dental practice startup sector: Operating one practice is easy, two is taxing, and three is make-or-break. That’s because it’s difficult to acquire and centralize the infrastructure and expertise you need to support additional practices, such as acumen in marketing, credentialing, hiring and firing, accounting, etc.

If you choose to partner with a DSO, you won’t have to face those headwinds alone. A strategic partner can remove risk and help shoulder the cost of growth because they already have the administrative infrastructure in place. You can plug into it and grow exponentially as a majority or minority partner and owner/operator of a sub-DSO.

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How Practice Co-Owners Can Reconcile Mismatched Retirement Time Horizons

Brent Anderson

By Brent Anderson, professional transition strategies, Practice Transition Consultant.

Here’s a dilemma that’s not uncommon in dental practices with two or more owners: What happens when one of the owners is ready to retire and the other wants to keep working? In the past, choices were limited, and the owners either had to sell the practice or bring in an associate (or multiple associates) to buy in so the doctor who wanted to retire could take the value of their share and leave.

The flaw in the associateship model is that associate arrangements fail far more often than they succeed – up to 80% dissolve because the owner’s expectations and priorities are out of sync with the associate’s, their business styles are incompatible, they can’t agree on a practice transition timeline or they’re a mismatch philosophically on other vital business issues.

Luckily, dentists who are practicing now have more options than selling outright or bringing in associates. Here’s a closer look at some of the options practice owners have today, including partnerships through dental service organizations (DSOs), followed by advice for practice owners who are trying to reconcile mismatched retirement time horizons.

Today’s Practice Transition Options

Practice owners have many more choices when it comes to practice transitions today than they did in years past, particularly since the number of groups and DSOs is growing rapidly. That translates into opportunities for doctors to gain more value when selling their part of a practice and/or a chance to roll equity into the practice or DSO to generate investment income after they retire.

For doctors who plan to keep working after a co-owner retires, options for practice transition include arrangements where they can benefit from an equity roll into the practice or DSO too while also gaining support from the purchasing group. Support can include assistance with managing the business, help with clinician or manager recruiting, etc., to keep the practice going strong. Transition options include:

The right fit for practice owners will depend on their personal preferences and plans, business goals and risk tolerance. But given the high failure rate of associateships, it’s great to have more options.

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