Building an Exit Strategy How DSOs Fit into Your Retirement Plan

Dear Reader,

Let’s have a heart-to-heart about your future. You’ve likely spent decades building a practice. You’ve put in the long hours, managed every curveball that came your way, and served countless patients. But now, the idea of retirement is creeping up—maybe sooner than you think. The question is: Will your practice be a bridge to the retirement you’ve dreamed of or a missed opportunity? Enter the role of Dental Service Organizations (DSOs) in your exit strategy.

Here’s the truth: planning your exit isn’t just about selling a practice for a lump sum and riding off into the sunset. It’s about long-term financial security, preserving your legacy, and maximizing what you’ve spent a lifetime building. Done right, a DSO transition can be the key to a prosperous, worry-free retirement. Done wrong, it can leave you feeling shortchanged. Let’s dig into how to make sure you get it right.

Step 1: Define Your Retirement Goals
Before you even think about negotiating with a DSO, you need to know what you want. Are you looking for a full exit with a clean break, or do you envision staying involved for a few years? Do you want a lump-sum payout, ongoing income, or both? Answering these questions is critical because they shape every aspect of your deal.

Consider this:

• If you want immediate financial freedom, you might opt for a higher upfront payment and less equity in the ongoing practice.
  
  
• If you want to remain involved and maximize long-term gains, retaining an equity stake and earning chairside can keep you financially engaged for years.

Knowing what you want helps you tailor the deal to meet your unique goals.

Step 2: Understand the DSO’s Financial Structure
Not all DSO deals are created equal. You need to understand how your practice will be valued and how the payout will work. Most DSOs offer a combination of cash and equity. Here’s where it gets interesting—and potentially lucrative.

• Cash vs. Equity: Balancing Immediate and Long-Term Wealth
  A hefty cash payout gives you immediate liquidity. That’s great for paying off debt, investing elsewhere, or simply enjoying life. But don’t overlook the equity portion. An equity stake in a growing DSO can yield substantial returns as the organization expands. If your retirement plan can accommodate a little risk, this can be a powerful wealth-building tool. However, make sure you fully understand the terms—how long you’re locked in, when and how you can sell, and the potential tax implications.
  
  
• Performance-Based Payouts (Earn-Outs)
  Many DSO deals include performance-based payouts over time. This can be a great way to maximize the sale price, but it comes with strings. If the practice underperforms due to DSO-imposed changes or other factors beyond your control, you might see less than you hoped. Negotiate performance metrics carefully and ensure they’re achievable.

Step 3: Factor in Tax Implications
Let’s not kid ourselves—taxes can eat a big chunk of your retirement nest egg. Selling to a DSO isn’t just about getting the best price; it’s about keeping the most money possible. Work with a tax professional who understands the nuances of DSO transactions. Explore tax-saving strategies like retirement accounts, charitable trusts, or installment sales. Proper planning can save you hundreds of thousands of dollars.

Step 4: Plan for Your Next Chapter
Retirement isn’t an on-off switch. Some dentists thrive on a “soft landing,” gradually reducing hours before stepping away entirely. DSOs often offer flexible arrangements that allow you to stay chairside while letting them handle the headaches of management. This approach can be both financially rewarding and emotionally satisfying. Imagine still enjoying the aspects of dentistry you love—without the administrative grind.

Step 5: Protect Your Legacy
A successful DSO transition isn’t just about money; it’s about protecting the legacy you’ve built. Make sure the DSO’s values align with yours. Will they honor your commitment to patient care? Will your staff be respected and treated well? Will they support you if you choose to remain involved? Your legacy should be something you’re proud to leave behind, not a source of regret.

Step 6: Know When to Exit and When to Stay Involved
Timing matters. Selling too early can leave money on the table. Selling too late can make you feel trapped. Watch market trends, evaluate your personal readiness, and make sure the timing feels right. A good DSO partner will work with you to create a plan that aligns with your desired timeline and goals.

Final Thoughts: Turning Your Life’s Work into Long-Term Security
Partnering with a DSO can be the cornerstone of your retirement plan—but only if it’s done with careful planning and foresight. Define your goals. Understand the terms. Protect what matters most to you.

Need help making sure you get it right? Let’s talk. I’ve walked countless dentists through this process, ensuring their exit strategy delivers the wealth, security, and legacy they deserve.

Sincerely,

Stan Kinder

and Your Team at Everything DSO