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SWOT analysis for dentists considering selling their practice to a DSO

Feb. 9, 2023
Are you wondering about the advantages and disadvantages of selling your practice to a DSO? The SWOT analysis can help you decide.

If you are a dentist weighing the pros and cons of selling your practice to a DSO (dental service organization), you are not alone. Many independent dentists are intrigued by DSOs, but they aren’t sure if such an arrangement is the best move. Here I will provide you a framework in the form of a SWOT analysis (strengths, weaknesses, opportunities, and threats) to help you decide what’s best for your situation. The SWOT format has been used extensively in business for many years, and we can apply it to the current dental practice marketplace.

Independent dentists

Strengths

Autonomy. You own the practice. It’s your business. You’re the boss. Many dentists entered the profession because they wanted autonomy. Even if a DSO offers you top dollar for your practice, you must factor in how much you value the independence inherent in owning your own practice.

Minimal bureaucracy. You don’t need permission from an off-site management company when you want to purchase equipment, hire new staff, or make other changes in the practice. Unencumbered by red tape, you can also be nimble when it comes to executing decisions.

Legacy. If you remain independent and sell to another independent dentist, you pass along the legacy of your life’s work to someone of your choosing. The rewards are both financial and personal.

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Weaknesses

Silo mentality. As an independent dentist, you are isolated. There are dentists in your community who face similar challenges, but you aren’t interacting with them daily in your work environment. From a business perspective, it can be a lonely existence.

Small fish in a big pond. The big fish (DSOs and independent group practices) are getting bigger. Look at other industries. Big box stores are causing small retailers to cut their profit margins or close their doors. You can fight the headwinds, but there is increasing market pressure to either sell or be swallowed up.

No economy of scale. When you run a solo, independent practice, you have a limited practice management and marketing budget and little leverage with suppliers. If you choose to take a day off during the week—and certainly you are entitled—your practice produces nothing that day. Larger practices keep the treatment rooms humming all during the workweek and sometimes through weekends.

Opportunities

You are the brand. You can create your own practice culture/lifestyle. You are not supporting a corporate entity that someone else created. If you decide to open additional offices and expand your empire, that is your prerogative.

You can be a pillar in your community. You can set yourself apart by being a constant, even as other large practices may experience high dentist and staff turnover.

Run it, build it, sell it. Despite market forces, you can develop a salable practice that can be attractive to either an independent dentist or a DSO. It is not easy to find a qualified independent dentist to buy your practice, but such sales still happen every day. If you decide to entertain offers from DSOs, your practice will be a valuable asset. Heads you win, tails you win.

Threats

Rising overhead. Most dentists find it impractical to work chairside much more than 35–40 hours per week. Fixed overhead runs every hour of every day—168 hours per week. DSOs can create more production to counter overhead, which continues to climb. We are in an economy with the highest inflation in more than 40 years.

Human resources headaches. You face continual challenges with hiring, training, and retaining team members. DSOs can offer salary and benefit packages far beyond the means of solo practitioners. You cannot sustain a successful practice over the long haul without dependable, competent team members.

Competitive disadvantages. You are up against bigger players who offer patients longer hours and lower fees. Even as your costs go up, your large-practice competitors undercut your fees and shrink your profit margin.

Analysis

For the independent dentist, DSOs offer choices that were not available in the pre-DSO world. You no longer have to wait for that wonderful young dentist with a mountain of educational debt to take the plunge and agree to take out a seven-figure loan to buy your practice. The banks know that dental practices are still a safe bet (which is why DSOs are well funded through their capital sources), but that young dentist may blanch at the thought of taking on what can seem like a crushing debt burden to buy your practice. Also, consider that no matter how up-to-date your practice seems to you, the new dentist will likely still aspire to buy more shiny new equipment, further increasing the loan amount. Your potential buyer may run you up and down the flagpole and ultimately decide to take a pass on your practice, opting instead to go to work for a DSO.

Selling to a DSO has other upsides. For example, many offer the potential for significant additional compensation on the back end, some years after the sale. As for your tenure while working for the DSO after the sale, keep in mind that DSOs are trying to give you the best of both worlds. They understand that “best business practices” may conflict with the personal touch you have always brought to the practice. More DSOs are now trying to walk the talk—offering you as much independence as is practical while still bringing their management expertise to bear on the practice.

As a savvy business owner, you need to continually look at trends, talk to other dentists who have sold to either independent dentists or DSOs, and leverage your business to maximum advantage. For some dentists, maintaining the status quo for as long as possible and then selling to an individual will make eminent sense. For others, however, finding a DSO that is a good fit with the doctor’s goals, relative interest in running a business, and risk tolerance will turn out to be a wise business decision in the long run.

The bottom line

The bottom line is that you should always strive to grow your practice and run it efficiently. A thriving, well-managed practice will be attractive to potential buyers, including both independent dentists and corporate entities. The more potential buyers of all stripes who are interested in your practice, the better positioned you will be to get maximum value.

Carefully consider the points in this SWOT framework, add additional points to reflect your specific circumstances, and make an informed personal decision about selling your greatest asset. 

Editor's note: This article appeared in the February 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

About the Author

David Schwab, PhD

David Schwab, PhD, is a professional speaker, author, and consultant who helps dentists grow their practices, educate their patients, and train their teams to make practices more profitable. He teaches dental teams on-site to convert leads, solve problems, and work together more cohesively. An internationally known seminar speaker, Dr. Schwab’s seminars are as popular as they are useful. Contact him at (407) 324-1333, davidschwab.com, or on LinkedIn @davidschwabphd.

Updated January 6, 2023

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