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Entrepreneurial satellite practice strategies and master DDSOs

Oct. 12, 2021
There’s no better time to be an entrepreneur in dentistry than right now. Dr. Brady Frank explains why.

There is no better time to be an entrepreneur in dentistry than right now. We have a clashing of the worlds as big money corporate is quickly gobbling up market share. It’s true that the greatest wealth is created during the times of great change. Having acquired many satellite practices myself, and either lectured, trained, joint-ventured, or partnered with many other dentists over the last 20 years, it’s very clear to me where the greatest opportunities lie in today’s dental landscape.

In fact, I would like to share what I call the “golden combination”—quite fitting as we may be experiencing the second golden age of dentistry as of this writing. The goal of this combination is to build a self-sustaining group built on partnerships as opposed to associates. The exit strategy goal is to receive double-digit multiple of EBITDA on your terms, rather than single-digit multiples of EBITDA on their terms. I will explain this, but here are the basic steps to the combination:

  1. Acquire value-added locations.
  2. Add value through both “natural” and “forced” appreciation.
  3. Joint venture with specialists.
  4. Convert associates to partners to maximize everyone’s income and equity.
  5. Combine your group/practice with others creating highest value (DDSO: dentist-owned DSO).
  6. Recapitalize by partnering with a capital group.
  7. Reinvest in private practice dentistry as a private lender and real estate investor.

Learning how to assess and find “value-added” opportunities with significant upside is one of the most important skills to find success in dentistry’s new landscape. I created a graph (figure 1) to help you quickly analyze a practice purchase opportunity with the goal of the highest increase in value after purchase.

Team up for the best outcomes

Whether you’re solo or have multiple locations, there are some wonderful opportunities to team up with existing private practitioners to have the best financial outcomes in dentistry today. One of those strategies is called the master DDSO. As you have seen in the market, the larger the group, the stronger the valuation methodology, and thus the higher the valuation or purchase price. Private practicing dentists are banding together to create greater economies of scale, greater profits, and more fun in clinical practice.

The master DDSO concept is quite simple: Private solo practices and groups combine efforts to achieve much higher financial gains. Small solo practices (under $1.2 million) are valued based on a percentage of last year’s gross revenues. Large solo practices and multiple location groups are valued based on a multiple of EBITDA. The greater the EBITDA, the greater the multiple used for the valuation. For instance, a practice or small group with EBITDA between $500,000 and $2 million might sell for six to seven times EBITDA, whereas a group—structured as a master DDSO with $25 million of EBITDA trades—for between 12 and 15 times EBITDA. That’s double the profits by teaming up with other private practitioners! And because the master DDSO often doesn’t sell to a DSO but rather to a large capital group, the DDSO is able to structure much more favorable terms. Now you have greater clarification in relation to my earlier statement about the goal of a master DDSO: double-digit multiples of EBITDA on your terms, rather than single digit multiples of EBITDA on their terms.

Said another way, you can have your cake and eat it, too! In fact, I am in the midst of coordinating the launch of a national master DDSO right now and am welcoming any solo practice or private group to join. Larger groups like this often go through several sales, or recapitalizations, creating even greater wealth accumulation for the affiliated private practitioners. What a wonderful strategy to capitalize on the current DSO upward trend. Figure 2 demonstrates the concept and advantages.

The second golden age of dentistry

To bring all this together, it’s true that the majority of the world’s wealth is created or held in real estate. It's also true that the most valuable real estate subclass is health-care commercial real estate. If you look at the history of almost all founders of groups and DSOs around the nation, their profits always tend to migrate toward real estate. Once you have reaped the financial rewards of today’s dental market, it is time to solidify your financial foundation with health-care real estate investment. Real estate gives one the equity increase, passive income, and hedge against inflation that dentists want when they cut back on their clinical days. Those who have done well with DDSO concepts are acquiring health-care complexes throughout the nation and partnering with other dentists. In fact, I am actively working on multiple health-care real estate projects throughout the nation myself. Dentists are also using their retirement funds and investing in this lucrative asset class indirectly through their self-directed IRAs as private lenders.

As you can see, we are in the midst of the second golden age of dentistry. Make sure as many dentists as possible reap the rewards by sharing this information with your colleagues. Who knows—perhaps these strategies will spark some entrepreneurial ideas that cause you and those closest to you to take action! We do not have to go the corporatized route of medicine. We, as dentists, can be the leaders as dentistry continues its conglomeration—not fighting the trend, but profiting from it.

Editor's note: This article appeared in the October 2021 print edition of Dental Economics.

Brady Frank, DDS, is an international clinical and business lecturer, inventor, and founder of multiple companies in the dental space. Since graduating from the Marquette University School of Dentistry in 2001, he has owned multiple private dentist-owned dental support organizations (DDSOs). He is a founding member of the DDSO Alliance. Reach him at [email protected].

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