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Practice owners beware: 6 DSO tactics to watch out for

July 31, 2022
Dental service organizations sometimes use aggressive sales tactics to convince practice owners to sell. Before you sign on the dotted line, be aware of these common tactics.
Jay Geier, Founder, Scheduling Institute

Dental service organizations (DSOs) backed by private equity groups have been cannibalizing the dental industry for some time, but the wolf that used to be dressed in sheep’s clothing now wears an Armani suit. Their sales and marketing tactics continue to get more sophisticated and aggressive. Independent practice owners exhausted by the ongoing consequences of COVID-19 have become vulnerable prey.

I’m not against an independent owner selling their practice, but I can’t abide seeing them robbed of the business’s true value through misleading and manipulative tactics. Recognize the following six well-disguised tactics for what they are and be prepared to defend yourself and your business until the time comes when selling may be right for you.

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1. Instilling fear that you must sell now

Fear is the most commonly used tactic to manipulate the decisions and actions of others, including the fear of what you will lose by not doing what they want you to. DSOs would have you believe that if you don’t sell now, you won’t have the opportunity to do so later, because there won’t be buyers. However, there will always be buyers for viable, profitable practices. Wait for the right time and circumstances to sell based on how long you need income, and then make an educated, well-informed decision without succumbing to fear tactics.

2. Enticing you with a big dollar figure

It’s human nature to get excited at the prospect of getting the biggest check you’ve ever seen. DSOs use this excitement to pressure practice owners into moving too quickly without fully understanding the terms. For example, you may find out that a $3 million offer—with the implication that you would receive a $3 million check—is actually structured so you receive only half up front, plus some amount in stock, and another million in five years. If the DSO is resold within that period, the new owners may have no legal obligation to fulfill the terms of prior agreements, and you may never see that final payment.

3. Appealing to your pain points

DSOs skillfully bait doctors by addressing typical pain points, such as the hassle of handling administration when you’d rather just treat patients, the constant concern over cash flow and earnings, the stress of feeling you’re not good enough at the business management aspects, and the fatigue of burnout as you question how long you can keep doing this. Don’t believe for a minute that a DSO can—or wants to—run your practice better than you can learn to do yourself. We coach our clients to cut the bait by saying, “I don’t need your money. So, what do you bring to the table? Why would this be better for me, my team, and my patients?” You’ll find it’s not.

4. Exaggerating claims

Their brochures tell you what you want to hear, claiming they’ll expertly handle all the administrative functions—billing, marketing, recruiting, hiring, and team building—so you don’t have to. We encourage our clients to visit one or more of the DSO’s offices as a patient. Talk to the doctors and staff to get an idea of the culture. Does everyone appear to be working as a cohesive team? Does the look and feel suit you? A DSO with hundreds of units uses a cookie-cutter approach to minimize costs, so you won’t see any personalization, team building, or “family culture.” You need to decide whether that’s really what you want for your patients and your people, especially if the office will continue to have your name on the door.

5. Offering to appraise your business

You need to pay to have your business professionally appraised to give you a good handle on what it’s worth from your vantage point, not just today but as a steady revenue stream and for its long-term growth potential. Even if a DSO offers to do it for free, don’t allow it. That’s a conflict of interest and is essentially letting the buyer set the price. DSOs have no interest in the long term, so their appraisals are guaranteed to be low. Even worse, once they do the appraisal, you could inadvertently find yourself locked into doing business with only them. Invest in knowing what your practice is worth both short and long term so you can make a fact-based decision. If you decide to sell, you can negotiate based on accurate information and feel confident in the outcome.

6. Requiring a nondisclosure agreement

Most DSOs will ask you to sign a confidentiality or nondisclosure agreement as soon as you start a discussion, no matter how introductory it may seem to you. They will try to intimidate you by making this seem like a requirement right up front, but it’s not. It’s their way of prematurely locking you in. Once signed, you can’t shop around for other buyers, continue to gather information, seek advice, or compare notes to find out if they deliver on their claims, and you definitely can’t ask colleagues who sold to them how they’re making out financially. A DSO’s stable of lawyers will ensure you don’t try.

Sell on your own terms

Not if, but when you are approached about selling your practice, you must take control of your fate and your long-term financial future. The alternative is to unwittingly sell your life’s work for less than it’s worth or cave during a moment of weakness, believing all you’ve been told by the buyer. The time will come when selling your business may be the right thing to do. If so, do it the right way by adhering to the following:

  • Learn how to make the practice as viable and profitable as possible.
  • Understand the value of what you have before you sell it.
  • Become knowledgeable about the buyout process with the benefit of expert legal advice.
  • Know who you’re selling to in the long term.

Editor's note: This article appeared in the July 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

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