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There’s a lot for the private dentist to consider when determining what is best when it comes to DSOs.
After agonizing over whether or not to become part of a dental support organization (DSO), a decision has been made to join it. Reading the literature and becoming familiar with the terms of admittance and growth in the DSO, it seems like the correct choice has been made.
Based on the age of the dentist and how much longer he or she wishes to work, this seems like an ideal solution to the problem of the exit strategy of the professional. It allows clarity as to what will happen in the next phase of the dentist’s life as he or she will have had the time to plan with financial planners, the dental CPA and attorneys. Part of the planning process had to include interviews with more than 1 DSO to understand the differences between what was out there trying to entice joining the DSO with its benefits and financial rewards. Now you are part of the DSO and working and waiting for the upside of the organization.
Are you getting what was promised?
The DSO will assuredly provide the benefits and compensation that they promised to the dentist. The lack of the need for administrative and non- clinical services should be available from the start of the acquisition. These chores and their lack of a desire to continue with them was a big selling point for joining the DSO. Now there are highly trained professionals who will be in charge of these services such as posting to accounting books, keeping track of hiring and firing personnel, and other administrative tasks like insurance and retirement plans.
Meeting with attorneys and other duties will no longer be part of the dentist’s job description. There will be more time for learning techniques, attending seminars and study clubs to enhance the professional clinical status and understanding of what the dentist was trained to do. This change in responsibility may induce the dentist to continue his or her career since there will be so much less stress in the dentist’s professional life. The dentist may even wish to participate in the DSO hierarchy with additional time and money commitments to the DSO. However the dentist is thinking, it will be more about the rest of his or her life and not about listing the dental practice with a professional broker or trying to find an associate to facilitate his or her exit strategy. This certainly sounds like the cure to aggravation and pressure in the day to day work life of the dentist.
What of the promises of the “pot of gold?”
The “pot of gold,” that most DSOs promise is the hope that another larger DSO will come along and acquire the current DSO with a higher earnings multiple so that there may be a 1-time payment or a series of payments that make the original investment become a much more attractive one.
It must be understood that there are no guarantees that the additional DSO, hedge fund or venture capital company will appear. This concept is what makes the DSO so attractive from a financial standpoint. Besides the relief from the daily non-clinical service that must be provided to the dental practice and which is certainly a major point of why the DSO is joined, the extra amount that may be available on a subsequent merger is something that a private practice can not achieve.
The steady stream of income with additional patients joining the private practice is a wonderful thing. A 5 percent or more increase in gross revenue or net income every year is not guaranteed but it almost always occurs as the dentist’s own practice becomes more well known and accepted in the community. With the slow but sure growth in the private dental practice, there is almost no chance for the large 1-time payment that is possible with the DSO on its next step.
The time to assess what is the best course of action for the dentist with his or her own practice:
As the dentist becomes older, the DSO seems like a terrific solution for exit strategies, reducing the stress of every day working and being responsible for all matters pertaining to the dental practice. It doesn’t matter if it is clinical or non-clinical, the dentist is the one who makes the decision about what must be done to resolve any situation. Once the dental practice is part of the DSO almost all administrative duties disappear. There is a highly trained team that takes over the responsibilities of the non-clinical side of the practice. This also includes the supply ordering, equipment repair and replacement obligation and all other administrative duties. The one caveat is to make sure that the merged practice and the dentist who joined the DSO understand that the “pot of gold,” may or may not occur and if it does take place, it may be later than expected.
What about not joining the DSO; how will the private dental practice proceed?
Prior to the popularity of the DSO, private dental practices certainly fared well enough and had good earnings and the respect of the community in which they were located. The material points of concern were the day to day administrative duties including hiring and firing staff, inventory supply and state of the art equipment at the dental office. The exit strategy was also a major concern with the potential for a large commission to be paid to the dental practice broker and the length of time necessary for the broker to find someone who would acquire the dental practice. Once the transition occurred, that was the end of the career for the dentist unless the buyer wanted the seller to work for a short time while the new dentist got his or her plan of succession into effect. There were no additional incentives with the transition. There is a lot for the private dentist to consider when determining which format is best for himself or herself. Study things carefully and make the decision. Don’t look back.