How to Weigh Your Options When Considering Transitioning Your Practice
It’s no secret the dental industry is not currently set up to provide adequate support for private dentist owners as they prepare to transition their practice, unless they’re willing to give something up – typically either their hard-earned equity or clinical autonomy. Neither trade-off sounds appealing for most independent dentists who have spend their career dedicated to their practice. Many are left wondering how to weigh their options and ensure they receive the maximum financial benefit they’ve earned over the years.
When beginning to explore an eventual transition, most private dental practice owners have a few options to explore, including:
- Selling to a current associate or other independent dentist
- Selling to a DSO
- Joining a Dental Partnership Organization (DPO)
In most cases, selling to another independent dentist enables you to exit the quickest (the typical commitment to stay onboard is between 3-6 months), it yields the lowest total profit from the sale (usually 5x the practice’s EBIDTA – earnings before interest, depreciation, taxes and amortization).
Selling to a DSO does offer a higher profit from the sale, typically 6x the practice’s EBIDTA but it does come with some tradeoffs. The typical commitment to stay onboard is between 2-3 years and you will often need to relinquish a large portion of your clinical autonomy during that time.
Joining a Dental Partnership Organization (DPO) has become more common, as it allows dentists to gain some of the benefits of both of the other options. DPO’s typically offer the highest profit potential, around 8x the practice’s EBDITA and they can help connect you with another independent dentist buyer. As with a DSO, they do typically require a 2-3 year commitment to stay onboard.
Regardless of the route you select, it’s imperative to plan ahead (we recommend developing a transition plan 2-5 years in advance) and taking proactive steps to ensure your practice is operating as efficiently and cost effectively as possible, so it’s best positioned for valuation and an eventual sale.
Planning ahead and working to lower your operating expenses enables you to:
- Increase your practice’s profitability and your take home pay
- Thoroughly evaluate all available options for your practice and your team
- Earn a higher valuation
- Receive the maximum financial return when the time comes to sell your practice
When developing your succession and transition plan, you’ll need to carefully select a team of trusted experts to help you with accounting and tax services, legal support, retirement planning, practice management and profitability support. Dynamic Dental Advisors (DDA) can help you evaluating the current financial and operational state of your practice and the steps you can take to better prepare for a transition.
To learn more, please contact Meghan Conger at: [email protected].