Whether you’re looking to sell your practice in the short or long-term future, there are some important factors to keep in mind to ensure it goes smoothly. So in this episode, Jeff discusses what options you have and some key “do’s and don’ts” for selling a dental practice.
Topics:
1:10 – Should you sell? Or is there another option?
11:37 – Selling to a DSOs vs a private buyer
22:37 – Planning for a sale in the long-term future
Links:
Video on Associate Pay Plans - https://www.youtube.com/watch?v=2rcmdiY3dN8
Learn more about MGE - https://www.mgeonline.com
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Questions From This Episode
What does Jeff say is an overlooked alternative to selling a well-established practice?
Rather than selling, he recommends building the practice into a self-sustaining operation that doesn't require the owner's daily presence, using what he calls the "sales doctor" model. The owner gradually hands off production to associates, shifts into primarily presenting treatment and doing exams, and eventually can step back into more of an oversight role while the practice keeps generating recurring income.
Why does Jeff say whether you're relocating matters when deciding whether to sell?
If you're staying in the same general area as your practice, he'd lean toward keeping it as a source of recurring income, since it's still relatively easy to step in personally if something goes wrong. If you're moving out of state and starting fresh elsewhere, he'd generally recommend selling, since managing a remote practice adds real difficulty unless you have a genuine partner in place there.
How does a DSO's valuation model differ from the traditional way dental practices have been sold?
The traditional model paid around 70 percent of the prior year's collections, so a million-dollar practice sold for about $700,000. DSOs instead pay a multiple, often five to seven times, of EBITDA (earnings before interest, taxes, depreciation, and amortization), which can value a practice at several times what the traditional model would have offered.
Why does Jeff say grouping several local practices under one shared brand name doesn't reliably unlock DSO-level payouts?
A genuine DSO centralizes billing, marketing, and management across its locations, and sophisticated investors doing due diligence can tell the difference between that and a group of practices that simply adopted a shared name. He also points out that a practice large enough to interest a DSO in the first place is likely to get that higher valuation on its own, without needing to group with other offices.
What tradeoff does Jeff say comes with selling to a DSO instead of a private buyer?
The upside is typically a significantly higher valuation, especially for larger practices that would struggle to find a private buyer able to finance the purchase. The downside is a longer required commitment, often three to five years if you're still the primary producer, compared to a traditional sale where a new owner usually wants you to step back much sooner.
Episode Transcript
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Since I started this podcast, I've wanted to record an episode on selling your practice and practice transitions. The problem is, every time I sat down to plan it, I couldn't figure out how to keep it under two hours, which obviously wasn't going to work. One advantage of our position here at MGE is that we work with dentists across just about every type of transition scenario imaginable, selling, bringing in a partner, clients who've been through it themselves and then came to us afterward. We've seen some genuinely good outcomes and some bad ones. So what I decided to do was pull out a handful of the more important points on transitioning or selling and build an episode specifically around those. My name is Jeff Blumberg, and I'm your host.
Let's start with the first big question. Maybe you've been thinking about selling your office, whether you've been practicing a while or not, maybe you want to relocate out of state. So, should you? That's obviously an individual decision affected by a number of things. First: have you actually planned for it? If you're retiring, do you have other sources of income? We've had clients who sold with a substantial real estate portfolio already generating income, and others, especially post-pandemic, who relocated from a city to a more rural area or a different state entirely, which means selling, then getting licensed and setting up shop elsewhere. And there's the simpler question too: do you actually want to keep practicing? These are the things worth thinking through, and ideally you want some kind of real plan. You don't want to sell, travel for a year or do whatever you'd been dreaming about, and then suddenly find yourself with nothing to do.
Here's something you may not have considered: if you've been practicing 20 or 25 years and built up a decent-sized practice, you may not actually need to sell. We've been talking to clients about this for more than a decade, the idea of turning your practice into a functioning machine that doesn't depend on you being there regularly. You can keep your hand in it, maybe even stay chairside occasionally, or just manage the business, while associates or a partner, a whole separate topic, handle the rest. To get there, you need to build the practice up to a point where it's efficient, with overhead under control, so it's still genuinely profitable even once you're no longer one of the main producers.
Since this comes up constantly, how do you actually move from being chairside to not needing to be? There are a couple of routes. The traditional path is bringing in associates and gradually phasing yourself out. I'm a bigger fan of what we call the sales doctor model, which I covered in more depth in the Associate Pay episode. The transition works like this: you need a genuinely high-volume practice to begin with, a solid flow of new patients and a strong hygiene program. From there, you gradually drop clinical responsibilities, maybe keeping higher-end procedures for yourself at first if your associates can't do them yet, say you place implants and they don't yet, so you might keep that to a couple mornings a week while associates pick up the rest of production. You, as the owner, increasingly focus on exams and case presentations, becoming what we call the sales doctor. That's how you transition away from being a full-time chairside doctor while still keeping some hand in the clinical side if you want.
There's a specific way to structure pay for a production doctor under this model, which I go into in that other, longer episode, also available as a video on the MGE Management YouTube channel, about half an hour long, so you're not overpaying them to the point where there's no profit left for you.
Once you're primarily the sales doctor, keep in mind you need real patient volume to support this, four or five new patients a day, two or three hygienists running, that kind of scale. One sales doctor can actually keep multiple production doctors busy, since selling a case and producing it take very different amounts of time. Selling a larger case might take 30 to 40 minutes of your time, while producing it might take three or four hours. So one sales doctor can realistically support two, maybe three production doctors.
Say you've got two associates and you're functioning as the sales doctor, maybe still placing implants, maybe not. Eventually, if you need to take a few days off, one of those associates will have to step in and cover exams and case presentation. You'll start to notice which one has a natural inclination toward sales. MGE clients train their associates on sales as part of our program specifically so this becomes apparent faster. That associate can eventually be promoted into the sales doctor role themselves, letting you phase out further, done gradually, of course, so the transition happens well. At that point, you'd bring on another associate as a production doctor, maintain oversight of the practice, but no longer need to be chairside constantly. Want to take a week off, two weeks, a month? You can.
One honest note on that setup long-term, purely my own take: if I were planning to be away from the office for extended stretches, a month at a time or more, I'd still want regular reports to confirm things were running well. Ideally, I'd want one of those doctors, maybe the one I'd promoted to sales doctor, to actually be a partner, even with a relatively small equity stake, since that gives them real skin in the game. Partnerships are their own whole topic for another episode, but I wanted to flag it, because there's a real risk otherwise: your partner isn't going to just quit, whereas an associate can. That's not the only reason to bring in a partner, you genuinely want someone with a vested interest, but it does add real stability to that role.
Assuming you've built this out and the practice is paying you recurring income whether or not you personally show up, there's really no reason to sell at that point, unless someone makes you a genuinely lucrative offer, in which case you'd do the math: this practice is netting me $200,000 a year and I'm not even chairside anymore, is whatever they're offering actually better than that? The advantage of keeping the practice is that the underlying asset retains value and continues generating cash flow. We've seen clients successfully run this model, and it tends to work best when they stay in the same general area as the practice, not living across the country from it.
Which brings up the next consideration if you're thinking about selling: are you staying local, or relocating? My own take, if I had a practice in New Jersey and had built it to the point where I'm not chairside anymore but it's generating steady income, and I'm staying in New Jersey, I'd keep it. If I'm moving to Florida, I'd lean toward selling, mainly because if something genuinely goes wrong, an associate quits unexpectedly, say, I don't want to be getting on a plane to go sort it out from Florida. That's not to say it can't be managed remotely, we've had clients relocate out of state and make it work, but it requires being a genuinely skilled administrator and manager, and it adds real challenges if you can't just drive over and handle something in person. If you're fully transitioning out, moving states, and starting something new elsewhere, that's usually when I'd say sell, unless you had a genuine partner in that original location to share the responsibility.
Now let's get into something I want to address directly: DSOs. You might have this exact scenario, a practice paying you $200,000 a year that you're not showing up to daily, and then a DSO comes along offering a dramatically larger number, because the DSO valuation model works completely differently than a traditional private sale. Think of it like a real estate portfolio during a hot market: if your rental properties are netting you $200,000 to $300,000 a year but you could sell them right now for a $5 million profit because prices have gone parabolic, you have to actually do the math on what that means 10 or 15 years out. Sure, $5 million is appealing, especially if the market later crashes and that gain evaporates, but you also give up your recurring income stream. You have to work through that tradeoff for yourself.
So let's talk about the traditional valuation model first: roughly 70 percent of the prior year's collections, that's been the standard in dentistry for as long as I've been in the industry. Sometimes it runs a bit lower, into the 60s, for a distressed sale or older equipment, and it's historically run a bit higher in Canada, or in particularly hot local markets. But 70 percent has been the general benchmark. A practice doing a million dollars a year would traditionally sell for $700,000, and the seller typically stayed on for a month or two, sometimes up to six months, occasionally longer as a part-time associate, depending on the specific deal.
Now we're in an era where DSOs are buying up more and more practices, increasingly aggressively over the last five years specifically, which is exactly why I wanted to address this directly. DSOs typically target practices doing at least $1 million to $1.2 million a year, and we have plenty of clients well beyond that, $3, $4, $5 million or more, so a lot of our clients get approached. There's a tremendous amount of capital flowing into dentistry right now through DSOs, venture capital, and private equity. We actually had a client who was setting up a small multi-practice group of their own attend an industry conference with their attorney, and described venture capital firms lined up along the back wall like exhibitors at any other conference. There's a lot of money looking for somewhere to go, and dentistry has become one of those places.
With that much capital moving around, there are also a lot of misconceptions floating around, and I want to address a few of them directly. To be clear upfront, I'm not an attorney or an accountant, I'd encourage you to do your own due diligence on all of this, but there's a lot of rumor and secondhand information circulating, similar in spirit to the pre-internet era, when you'd hear all kinds of claims about people or situations with no real way to verify them.
One misconception: some doctors think if they group together with several other local doctors, roll their practices under one shared brand name, "ACME Dental Centers," say, with five locations, they can then sell that combined entity to a DSO for a much higher payout than selling individually. Here's the issue: DSOs aren't paying 70 percent of collections, they're paying a multiple of something called EBITDA, earnings before interest, taxes, depreciation, and amortization, essentially a cleaner measure of what the business actually earned once you add back certain non-cash accounting expenses like depreciation on equipment or amortization on things like intangible assets. If a practice's EBITDA is a million dollars, a DSO might offer five to seven times that, $5 million to $7 million, even if that same practice, if it did $5 million in collections, would only fetch $3.5 million under the traditional 70 percent model.
Given that gap, it's understandable why some people think grouping smaller offices together under one name might unlock that same kind of multiple. I'm not trying to discourage anyone, I just don't think it necessarily works that cleanly, and if you're considering something like this, I'd look into it very thoroughly first. What worked in the earlier days of this trend isn't necessarily working the same way now, since venture capital firms and DSOs themselves have gotten considerably more sophisticated about due diligence. A genuine DSO owns the underlying assets, equipment, everything except the patient charts, which, depending on the state, legally have to remain owned by the doctor, not the fund. If a group of doctors just renames themselves collectively without actually centralizing billing, marketing, or management, that's not really functioning as a DSO, and sophisticated investors tend to catch that. Also worth noting: if you already have a genuinely large practice, you're likely to get that five-to-seven-times-EBITDA offer on your own anyway, without needing to artificially group with anyone else.
Unfortunately, we have seen this play out in a way worth mentioning: once a practice reaches that higher-volume level, finding a private buyer under the traditional model becomes genuinely difficult, there just aren't many individual doctors who can secure a $5 million-plus loan the way you might for a more modest practice. I'm not here to trash DSOs broadly, I know people within a few of them who I think are genuinely fine, letting doctors continue practicing largely as they were before. I also know of others I'd steer well clear of, where it's clearly not about patient care or doctor autonomy. There's real variation.
If you do end up selling to a DSO, there's a genuine tradeoff. The upside is a meaningfully higher valuation, which is exactly the scenario I mentioned earlier, a practice doing $6, $7, or $8 million a year getting offered $10 million by a DSO, when even the old 70 percent model would only have put it around $5.6 million, and there simply aren't many private buyers who could finance that anyway. The downside is you'll typically be committed to staying involved for longer, depending entirely on what you negotiate.
So if a DSO sale is somewhere in your future, here's what I'd think through. Most DSOs will want you continuing to do essentially what you were already doing. So if you've already transitioned into more of a management role, going in only a day a week or a few days a month, that's likely what they'll want you to keep doing, which isn't a huge ask. But if you're still the primary chairside producer at the time of sale, expect them to want that continued for anywhere from three to five years. This differs from a traditional private sale, where a new owner doctor usually wants you gone relatively quickly so they can start producing themselves, once patient introductions are handled. I've seen clients deliberately accept a lower financial offer in exchange for a shorter commitment or more personal flexibility, because their own time mattered more to them than maximizing the number. If a DSO sale is genuinely part of your future, get a truly excellent attorney, someone who'll negotiate every point carefully, and make sure you're not at a disadvantage in any part of the agreement.
Stepping back from the sale question specifically: even if you've only been practicing three to five years, it's worth genuinely thinking about what the next 15 or 20 years look like for you. Most people don't, especially earlier in their careers, when it's genuinely hard to picture yourself that far out, I remember being 30 and being unable to fully imagine being 50. But I'd encourage you to start thinking about business succession, estate planning, continuation plans, sooner rather than later, since most people only address these things once it's already too late. A small, almost funny example from my own life: when I first got life insurance, my wife wasn't thrilled about it, understandably, since it meant confronting the idea that we wouldn't always be around. But we had two small kids at the time, and I didn't want her left in a difficult position if something happened to me. Once you handle things like that, they're simply done, and you can stop thinking about them and move forward. Life is genuinely unpredictable, so it's worth having these pieces in place.
Beyond that, what do you actually want the next 15 years to look like? Are you building a large practice? Staying smaller, working a couple of days a week? What's the actual plan? If your practice isn't currently where you want it to be, maybe you've hit a plateau, that's where real education on practice management and growth comes in, which is exactly what companies like MGE exist for. If you're having trouble scaling, or your practice simply isn't performing the way you'd like, give us a call, (800) 640-1140, or visit mgeonline.com and click through for a free consultation.
As you think through your own long-term plan as a private practice doctor, keep one thing in mind: right now, you're genuinely in the driver's seat. Once you sell, that changes. So it's worth mapping out your plan now, even if it only covers the next five or ten years, since there's a lot happening in the industry right now worth factoring in. I've covered various economic pressures in other episodes, inflation, staffing challenges, insurance plan participation, but there's also a real growth opportunity window I discussed in episode 36. You've got genuine economic headwinds on one side, and a genuinely rare growth opportunity in private dentistry on the other, happening at the same time. If expansion or growth is part of your future plans, now's a strong time to take advantage of it.
I was talking to a client just two weeks ago who bought his fourth office. What's interesting about his situation is he's not really chairside anymore at all, he's actively building this out, and he could realistically keep acquiring practices until he's running ten, or even a hundred, and sell at that scale himself, potentially becoming the next significant DSO player, which honestly would be a great outcome, since he's doing it the right way, running genuine private dentistry with patients' interests at the center, which is exactly what we want to see. He's a private doctor looking to create real opportunities for other dentists. We have clients running multiple offices across New York, Pennsylvania, the Midwest, and there's no shortage of ways to build something like this right now.
The core point is: know what your actual long-term plan is, your future goals, and eventually your succession plan, because then you're always working deliberately toward that end goal instead of just drifting along without a clear direction. And right now, you genuinely have a window of opportunity worth taking advantage of.
I know this episode covered a lot of ground, but I wanted to get it out there, especially the material on DSOs, since there's a lot of strange or incomplete information circulating on the topic. The fundamentals really aren't that complicated, but again, do your own due diligence to fully understand your specific situation. My honest recommendation: you have a limited window right now to genuinely grow and expand, so take advantage of it if that's part of your plan. If you want to hear more on practice transitions, bringing on associates, and related topics, check out the episode webpage for Dental Business Rx, there's a button there to ask a question directly, or you can email me at jeffb@mgeonline.com.
I hope this episode helped. If you'd like to hear more like it, don't forget to like, subscribe, or follow, whichever applies on your podcast platform. I appreciate you taking the time to listen to my thoughts on this subject today, and we'll see you at the next episode.