So, you might be wondering how you can make yourself appealing to a DSO.

Or perhaps rather …

What are the characteristics of a strong candidate for affiliate with a DSO?

There are some things which DSOs are really looking to avoid.

If you are operating a practice which is underperforming and hoping that a DSO will “fix” your business …

I’m sorry to say that you’ll probably have a hard time.

Most DSOs are looking for practices with a strong history of growth and profitability, with strong reputations and brand identities.

So, what happens to your staff if a DSO buys your practice?

If you are having this fear …

Or if your staff are feeling apprehensive,

Don’t worry.

It’s normal to feel this way, but I also want to explain why you don’t need to be concerned.

BUT, you do want to be cognizant of one important point.

(If you missed this little miniseries on why DSO’s might back out of a deal, check my previous 2 emails as well)

The most obvious reason why a DSO may back out of a deal is if, after due diligence, they conclude that you have been less than forthright or somehow acted in bad faith.

This can be if they discover a problem you didn’t disclose.

Or if the information presented to them was wrong.

So a DSO showed interest in you, gave you a letter of intent, and started all their due diligence.

But then …

They decided NOT to proceed.

Why would that happen?

In this email I’ll breifly talk over the first main reason, and then I’ll get into the second main reason in the next.

The first is about how the earnings analysis holds up.

If initial assumptions regarding the numbers fail to hold up during the Qualify of Earnings analysis.

Usually if this happens, it leads to a re-pricing discussion.

But, the outcome of this discussion is typically found to be unsatisfactory by one of the two parties involved.

The Quality of Earnings analysis is a deeper dive and more comprehensive review of your financials and usually adjusts from a cash basis method of accounting to accrual.

So if the numbers presented initially aren’t in alignment with their analysis, in order for the DSO to proceed, they would need to make some kind of adjustments to their preliminary analysis.

Depending on how great those adjustments are, you may not like what they have to say …

And if you and the DSO can’t come to an agreement then they may walk away.

Honestly, if you aren’t going to get the deal you want, then that may be the best thing anyway.

But you also may want to consider your perspective and expectations.

Just food for thought.

More in the next email.

Once a DSO gives you a Letter of Intent …

“When should I sell my practice?”

I’m going to give you the often frustrating answer of …

“It depends.”

Ok, that’s probably not all that surprising.

But the question of when to sell your practice depends largely on you, your practice, and your goals.

And then you also take into consideration the environmental factors (what’s going on in the economy, etc).

Understanding yourself and what you’re trying to accomplish is an important first step.

As far as the second …

The biggest mistake I see practitioners make is to try to time the market with the sell of their business.

I talk about that more here.

If you’re still considering a DSO, I’d like to take you through what your path to a deal can look like.

If you’d like to read this more in depth, I recommend my book “Everything DSO” - {link}

(Or just schedule a call with me and I’ll walk you through based on your situation)

How you got HERE is likely because of one of three events …

You, as an owner dentist, have decided to explore a transition in your career/business/life and a DSO sounded like a good possibility to get what you want.

The most common error I see dentists make, when it comes to looking for DSO offers …

Is to focus on the “the number” too much.

They get an offer, and then quickly flip to the final page to see what “the number” is.

So what’s the problem with this?

Well I see two problems:

While it’s easy to find DSOs who are hungry to buy dental practices …

And who may show interest in yours …

That doesn’t mean you’ll land a successful deal.

Take Dr. Crane for example …

He had a great offer on his practice.

But as soon as the buyer started to perform their “due diligence,” things really fell apart, FAST.

Dr. Crane had been trying to sell his practice and retire for a number of years but he wasn’t able to find a buyer that would offer him the price he wanted.

When he DID find a buyer giving him the offer he wanted … the details didn’t add up.

This is one of those situations where you can really find out why some DSOs will back out of an offer.

Read here to find out more.

There’s one more category which DSO’s sometimes use in their deal structures …

It’s called “Contingent Earn Out”

This category is used when there is some ambiguity around the expected future performance of your practice is fast-growing.

The point is that the DSO wants to avoid penalizing you by giving you a pathway to full value IF certain benchmarks are achieved.

(This also protects the DSO if those benchmarks aren’t achieved)

This has become much more popular since the pandemic disrupted business.