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Dentists can still find the right DSO for their business.

How to prepare for DSO negotiations

March 4, 2024
Consolidation in the dental industry is declining. But that doesn't mean you still can't find the perfect DSO for your practice. Here's how.
Gary Kadi, Founder of NextLevel Practice

It was bound to happen. As experts predicted, consolidation in the dental industry is reaching its peak and might even be on the downside. While this doesn’t mean that consolidation is over, it does mean that it will become increasingly difficult to qualify for the dental service organization (DSO) that you want. 

But I’m not saying it’s impossible. There is still plenty of time to join a DSO, especially in 2024. This means two things for you: the wait and see period is over; now is the time to take action if you want to join a DSO. Second, DSOs are no longer falling all over themselves to buy your practice, and you need to prove to them that you’re a good investment.

Luckily, there are still plenty of quality DSO 3.0s that are looking to expand. If you are fully prepared, you’ll have no problem finding the right group of like-minded practitioners to join.

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What changes and what stays the same when you join a DSO?

What are DSOs looking for? Here are three of the most important things they’ll expect you to have in place that you might not know about:

Physical room for expansion

One thing that DSOs (and specifically the private equity firms that back them) are most interested in is your potential for growth. It’s one of the reasons they’ll pay significantly more than what a private dentist would offer, because they’re not just buying the business you’re doing now, but the business that you could produce in the future. 

Most dentists have a large, untapped potential for growth in their own patient base. This is something that I talk about often. Instead of trying to attract new patients, if you work on retaining your current patients and increasing case acceptance, you could increase your profit by 50% or more!

This growth, when pursued and achieved, has physical ramifications, too. If you’re working on more cases with more patients, you need a place to do the work. That’s why having multiple operatories is hugely valuable, or at least, available physical space that you could convert into operatories or other useful spaces as you expand. 

At least one associate

At this point, DSOs are less interested in solo-operated practices. Harkening back to the idea of potential, they want you to prove that you can meet increased production goals with a fully functional team.  

An associate is also crucial to help support your career goals. If you’re looking to join a DSO as an exit to your practice, you will need to have an associate who can cover the workload after you leave. Even if you are mid-career and plan to stay in practice for several more years or even a decade, having an associate on staff means that you can immediately or eventually reduce your chairside hours while still maintaining a high level of production.

A minimum EBITDA of $300,000

While we’ve discussed EBITDA in past issues of Dental Economics, here’s a quick recap. EBITDA is an acronym that describes a way to measure the profitability of a practice: earnings before interest, taxes, depreciation, and amortization. To calculate it, add your net income (aka profit) to your total taxes, depreciation, and interest paid. 

While it has been standard to only consider practices with a 20% EBITDA margin, most private equity firms today also look for an EBITDA of at least $300,000. If you’re well over that mark, you’re golden. If not, there’s still time to work on your EBITDA before you talk to a DSO. I understand that’s easier said than done, so I recommend you find a coach or consultant you can work with one-on-one to create and achieve targeted goals. 

While the window is starting to close, there is still time for you to find and join a DSO, creating new freedoms and generational wealth in the process. If you’ve been on the fence until now, let this be a clarion call. Get off the fence, prepare your practice, and reap the incredible rewards. You can do it!

Editor's note: This article appeared in the March 2024 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

Gary Kadi, founder of NextLevel Practice, is on a mission to help dentists beat the odds. While most dentists now don’t retire until age 69, and 96% of them aren’t financially free, Gary has developed the strategies and methods to empower dentists to retire on their terms. The more than 6,000 practices he’s worked with generate over $1 billion in combined collections. Gary has helped them discover true freedom—becoming time-free, debt-free, and frustration-free.

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