Dear Reader,

Let’s put aside the shiny brochures and slick presentations for a minute and get down to brass tacks. Joining a Dental Service Organization (DSO) is a financial decision that will ripple through every aspect of your life—personal and professional. I’m here to make sure you walk into this with your eyes wide open. We’re talking taxes, buyouts, and financial structures that can either set you up for a golden retirement or leave you wondering what happened. So, buckle up.

The Tax Man Is Waiting
I’m not here to sugarcoat anything. Selling your practice to a DSO means one thing: Uncle Sam wants his cut. And he doesn’t play nice. The way your deal is structured can have a profound impact on what you actually keep after taxes. Here’s the good news—done right, you can minimize Uncle Sam’s share. Done wrong? Let’s just say you’ll be writing a check that’ll sting for years.

Here’s what you need to know:
Most DSOs will offer a combination of cash and equity in their organization. This sounds great, but you need to understand how it’s taxed. Cash is taxed as a capital gain (good news) but not all cash is created equal. If a portion of the payment is considered “ordinary income,” your tax rate could skyrocket. This is why it’s crucial to have tax-savvy professionals in your corner. Structure the deal wrong, and you could be handing over nearly half your earnings.

Equity: The Double-Edged Sword
Let’s talk about the equity piece. Most DSOs will offer you a stake in their organization as part of the buyout. Why? It keeps you invested in the practice’s continued growth and profitability. In theory, this is great—when the DSO grows, so does your wealth. But don’t overlook the risks.

Equity is not cash. It’s a bet on future growth. If the DSO thrives, you could see a significant windfall when you sell your stake. If it falters, your equity might be worth far less than promised—or even nothing. Before you sign, scrutinize the terms of this equity offer. When and how can you cash out? What restrictions are in place? Are you locked in for a certain period? Knowledge is power, and in this case, it’s the difference between financial security and regret.

Buyout Structures: It’s Not Just a Payout
Most DSOs structure buyouts as a mix of upfront cash and “earn-outs.” An earn-out means you’ll receive additional payments based on performance metrics after the sale. Sounds like a win-win, right? Not always. If the metrics are unrealistic or if the DSO’s changes to the practice hinder your ability to hit targets, you might see far less than you expected.

I’ve seen too many dentists dazzled by big headline numbers, only to be disappointed when reality kicks in. If your deal includes an earn-out, nail down the metrics. Insist on clarity. Protect your ability to earn what you’re promised.

Operational Impacts: What Happens Post-Sale
You’ll need to consider what happens to your income once you join the DSO. Many deals offer a handsome upfront sum but can lead to reduced income down the road if terms aren’t carefully negotiated. Will you be working chairside? Will your pay structure change? Can you still grow your income through performance bonuses? Remember, your financial picture doesn’t stop at the buyout.

Tax Strategies to Maximize Your Payout
Now, back to taxes—because it bears repeating. Proper tax planning can save you hundreds of thousands of dollars. Consider setting up a retirement plan, like a deferred compensation agreement, or using charitable trusts. Speak to a tax specialist who understands DSO transitions. This isn’t an expense; it’s an investment that pays for itself many times over.

Debt and Liabilities: Hidden Costs You Need to Watch
Not all deals are created equal. Sometimes, liabilities—such as outstanding debts—become part of the negotiation. Clarify who handles what. DSOs may assume some of your liabilities or may require you to handle them yourself. This can change the value of the offer substantially.

The financial implications of joining a DSO extend far beyond the sale price. Taxes, buyout structures, equity stakes—each of these can make or break your financial future. The right strategy? Get informed. Surround yourself with experts. And don’t rush into anything. You’ve built a successful practice; now it’s time to secure the financial future you deserve.

If you want to walk through the specifics, give me a call. I’ve structured deals worth hundreds of millions and have seen what works—and what doesn’t. Together, we can ensure you walk away with more than just a handshake and a smile. You’ll walk away with the peace of mind that you made the right move.

Sincerely,

Stan Kinder

and Your Team at Everything DSO