4 Mistakes to Avoid during a Dental Practice Transition: Part One – Episode #634

Thinking about selling your dental practice but not sure where to start? On this episode of the Dentist Money Show, Matt and Jake break down four common mistakes dentists make when selling their practice and why preparation is key to a smooth transition. They discuss key considerations like valuation differences, long-term trade-offs, and how to maximize practice value before selling. Whether you’re considering a transition soon or planning for the future, this two-part series provides insights to help you navigate the process successfully.

Check out the Dentist’s Guide to a Successful Practice Transition e-guide to help you walk through the key stages of a practice sale, the differences in potential buyers, personal tax and retirement implications, and key questions to ask yourself during the transition!

Related Readings

How To Prepare for a Successful Practice Transition

How Much Money is Considered a “Living Wage?”

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Podcast Transcript

Intro: Hello everybody. Welcome back to another episode of the Dentist Money Show, brought to you by Dentist Advisors. We have a great show for today. we have a, a little bit of a change up. We have Jake and myself talking about all things practice transitions. This is a part one of our Practice Transitions podcast, where we talk about, the timelines, the things to be thinking about as you are transitioning out of dentistry. The ways to get organized, thinking about having a team in place and the things to be thinking about is, to maximize your value prior to sale selling. And then we talk a lot about the differences between a private sale and a DSO sale. So, as always, hope you get something outta this episode. Hope it adds some value to your life, and we hope you enjoyed the show.

Matt Mulcock: Jake, the madness is upon us. How are you feeling about the bracket?

Jake Elm: Um, my bracket is not doing great, I think, right? We do an office one. We have like an office pool. Office pool, that’s what people call ’em. And, uh, I think I’m at the bottom. Uh, I went over it as I usually do with March Madness stuff is I don’t really watch or pay attention to a lot of college basketball throughout the year. Not really my thing, but like the two days before. Um, I listen to like four podcasts and I dive in and I go through several brackets and, uh, I did all that research and it didn’t do me any

Matt Mulcock: All for Naugh.

Jake Elm: yeah. All for not, I’m, I’m at the bottom.

Matt Mulcock: I’m the same way as you, except I don’t do the second part, which is dive in and do any research. I, this year I did no research at all. I just didn’t have the energy or time, and so.

Jake Elm: That’s the right strategy though, Robbie, who people who listen to this podcast will know, they’ll know about Robbie. He’s at the top of our pool right now and he doesn’t watch a single game. He does game theory and he’s at the top.

Matt Mulcock: There he is. So by the time this comes out, we’ll have a winner. Who’d you pick?

Jake Elm: I picked Houston, so if Houston win, I might have a chance.

Matt Mulcock: Okay. I picked Michigan State. Don’t know why. Just, you know, Tom Izzo, you know, has been around a long time. I’m like, whatever. We’ll see what happens. Um, so we’ll know by the time this comes out. We’ll know how wrong we were. I was confident with the Eagles pick for months and, and it came through. I am not as confident with this pick, so I’m not calling any shots on um,

Jake Elm: What you’re telling me you’re not confident in five young men throw, like shooting a ball in a hoop that they can’t just be consistent over time. Shocking.

Matt Mulcock: Have no idea. Um, but I love this time of year so much. I, I, the weather’s starting to, uh, get warm again. 75 degrees in Utah

Jake Elm: For me. We got the masters in two weeks, which is always my, like spring is here, summer is coming

Matt Mulcock: Know. I love

Jake Elm: Golf tournament. Yeah,

Matt Mulcock: Dare I say, we are transitioning right now in with the weather, and I love, this is real. Like I love every transition season, like every season of transition. I love because it’s like something about, it’s nostalgic for me, so. I just love this. Like you’re coming out of a season into a new season. Um, so we thought, look, no further transitions. Let’s talk about transitions of seasons. Let’s talk about the transitions of practices. And, um, we, you, I wanna say mainly you, you and our marketing, incredible marketing team. I helped, like minimal on this, um, put together a e guide. Uh, the Dentist Advisors guide to a Successful Practice Transition, and you did a ton of great work using resources like Mike Baird and, and others Perrin DesPortes. And, and, and again, there’s a, a handful of people we worked with to help put together this guide.

And then we thought let’s do some content around this. So we’re actually gonna be recording a podcast. Sorry. We are recording a podcast Now we’re gonna be doing a webinar two part series webinar. Um, doing a webinar tonight and then doing another one next month in April. Not sure when this is gonna be coming out, but we’ll do a two-part series of this as well. So we just thought, again, we’ll jump in, talk about such a pertinent topic for dentists transitions. Let’s just start there, Jake, like what comes to mind for you? Talking to clients or just talking to dentists at events or just in new experience years working with dentists now. What comes to mind for you is like, what’s going on now versus even a few years ago with transitions

Jake Elm: Yeah,

Matt Mulcock: topic?

Jake Elm: I mean, you guys have talked about that on this podcast before. You’ve talked about the whole DSO revolution. I don’t know if we wanna call it. That’s something that’s really popped up about the past five to 10 years that has become just a part of our vocabulary. So that was, that’s like the first thing that came to my mind when it’s like, what’s different or what’s top of mind is we’re looking at dentists trying to transition their practices. We’ll get into that today, I think. Right? We’ll try and touch on a little bit of the DSO stuff, but the other, probably the secondary thing that came to mind was. Kinda like you said, which this is just a huge decision for a dentist to make. Maybe like if we’re trying to rank like financial decisions you make in your life or over a dentist career is buying your practice. Probably one, like picking the right practice, the right location, like that’s gonna have a huge impact on your life and your financial success. I think you could argue that selling is number two.

Matt Mulcock: Yeah,

Jake Elm: Biggest like actual like decision you make. That’s, I would say like those are both above, like buying or selling a house or anything else or property there. I mean, selling your practice. So anyway, I say that as like selling your practice is if it’s not the biggest single financial decision you’ll make in your life, it’s one or two or top three.

Matt Mulcock: It’s up

Jake Elm: You agree?

Matt Mulcock: Totally agree. I mean, we talk about this all the time, that the, the, the dental practice is the main engine for your entire financial life. It’s the, it’s what’s gonna make or break you financially. Um, spoiler alert, it’s not real estate, it’s not the stock market. Those are things to pull capital or pull assets out of your, your business and, and diversify for sure. But what’s going to make or break you? Is your financial, is your practice, so I totally agree. I think it’s the buying and the selling of this business is going to be the biggest financial decisions you make.

Jake Elm: And yeah, you wanna make sure you’re doing the right way. I mean, for most dentists, they’re practicing, their business is their baby. It’s something they put their blood, sweat, tears into for oftentimes multiple decades. And you wanna make sure of all this effort you put into it. That you are getting a fair shake, that when you do exit out, it’s at the right time that you want to be exiting. You’re getting the most values you can out of it, and you’re transitioning to like on the other side of the sale, you’re getting to where you wanna get to as well. Right? So just I think that’s important. Like you’ve put so much into this huge asset that you have, let’s make sure that you’re getting all the value that you can when you do so.

Matt Mulcock: Yeah, totally agree. Um, so let’s do this. So we’re gonna kind of break this into two sections. I think kind of following along with his Z guide. We’ll, we’ll reference the guide at the end, um, where you can find it on our website. I think we’ll just kind of follow a similar, uh, kind of a similar, um, agenda as we, or you know, kind of flow as we will tonight on the, the webinar ’cause we know a lot of people listen to this show who don’t attend webinars and vice versa. So, um, I think let’s just start with, I think it’s good to start with kind of what are the common. And this is not an exhaustive list. So we’ve established, this is really critical to get right, not an exhaustive list, but kind of four broad categories that we see of common mistakes when it comes to transition.

And we’ll break these down kind of one by one in more detail. Um, again, maybe some will get to on this podcast, maybe some will wait till two, till part two. But the common mistakes that we see Jake, um, all just kind of list them. I think one by one, like, we’ll just go through really quick. There’s four common categories of mistakes and then let’s just kind of go and go, kind of just commentary on each one. So, number one, um, waiting too long to prepare. Number two, not having enough, or, sorry, not having the right team in place or a team in place, period. Number three, being unorganized, not knowing your numbers. And then number four, being unclear as to your why, not having like a very clear why. So let’s start. Anything you’d add to that list, Jake, that comes to mind.

Jake Elm: No, that’s great.

Matt Mulcock: Feels good about that. Okay. Um, let’s start with number one. Waiting too long to prepare. What are your thoughts on this?

Jake Elm: Yeah, I think waiting too long to repair and we’ll get into like the organization factor, the organization piece. Those go hand in hand here. Um, yeah, it’s one of those things that I bet you a lot of people know this or it’s like kind of intuitive in the back of our minds, this applies to any.

Matt Mulcock: Yeah. Yeah, no, I think it’s great. I think you’re right. I think if there’s any, if there’s one end or the other, it’s, most dentists wait too long and there’s a lot of high consequences of doing that. Um, I think the word transition is key here. I think there’s multiple transitions in a dentist career. I think your whole career is just one big transition, and I, I don’t think it’s, like you said, ever too early to be thinking about.

What is my exit strategy? Knowing that it can change, right? It doesn’t mean you have to set this in stone and you have to follow it. But I think as you ramp up, as you get into practice ownership, and maybe you’re beyond those first few years of just like getting your head above water, I think you should be thinking about as early as possible. What does this look like for me at the end? Um, you know, there’s the, the, the famous story that, uh. Um, now she’s, now, her name’s avoiding me, the, the, um, author of Harry Potter, JK Rowling. There’s like, it’s like world, it’s like known now that as before as she started that book, she knew the ending, right?

Like she knew how that was gonna end and then she filled in the rest. I think it’s similar with dentists and any business owner, like any practice owner is, you should at least directionally know where you want this thing to go. I’ll give you an example or why this matters. There’s a huge difference, huge difference of a dentist who says, I want to have kind of this quote unquote lifestyle practice. I want to get this to a place of good profitability, kicking off, you know, uh, a nice income for me. I kind of know with how many chairs I have, what that’s gonna be. I wanna ramp this up, I want to get it profitable, and then I want to hold it steady and I wanna work three days a week and I wanna enjoy my life.

And I’m gonna do this for the next 25 years and just kind of ride off into the sunset. That’s a massive difference compared to the DSO entrepreneurial builder type dentist. That’s like, I’m gonna have five locations in the next 10 years. And that might seem obvious, like, and I think that difference is intuitively obvious, but it’s amazing how many dentists we talk to that like, haven’t even thought about what they want this to end up looking like.

Do you, do you see that too, Jake?

Yeah. I think the key word there is details, right? So I don’t want people to hear this and get so overwhelmed, like, oh my gosh, I have to have very detailed, figured out. No, you, you really don’t. It’s our belief that goals set the direction and then you fill the details in later and, and, and goals. Truly to me, I don’t know how you, I think you feel similar, Jake, like goals need to be, again, directional, but.

You know, if you’re the doc out there that, because we hear the other side of the spectrum, which is like, I need X number of dollars down to the exact dollar in this timeframe and here’s how I’m gonna, like, it’s never gonna work out in to that level of of detail. But I think what we’re saying is just have a vision generally of what you want this to look like, knowing that it’s gonna change.

And you should establish that earlier than, than you think. And I think the main reason for that. Is so you’re not react you, you’re less reactive. I think the ones that are just out there kind of like, I have no idea. They’re the ones that A DSO comes in to offer some number and they’re like, oh yeah, that sounds good.

Cause they’ve never put in the work to even think about what they want this to look like.

Yeah.

Well, that kind of comes back to the same point, right? We talk about preparing over the course of your career. This is exactly what we’re talking about. You should be prepared in knowing your numbers at all times, right? Like all those things are gonna make you. Whether you’re selling in the next couple years or you’re selling in 20 years, you should be tracking these key things.

And, and, and please, please, for what it’s worth, don’t be doing your own bookkeeping. Don’t be doing your own financial reporting. It just like there’s no argument to be made that you or your spouse. I don’t want to trigger anybody, but like there’s no argument that can be made that like you are getting what you need out of those important figures.

Doing it yourself and saving what, a few hundred bucks a month like it please.

Always. Always.

Yep. And again, we might be getting some angry texts after this, but just as a word to the word to the wise.

Yeah, totally agree. Um, so I agree. So that would, that’s another mistake on there. So, waiting too long to prepare. We’ll, we’ll talk about a timeline here and in fact, let’s do that. So we talked about being unorganized, but let’s come back to the timeline really quick. Someone who says, okay, I understand the concept of like, you know, I need to be preparing for this or thinking about this like early and often, but let’s fast forward this and talk about timelines for.

Uh, the, the dentist who’s like, okay, I’m like getting ready. Like what does the, what do those timelines look like? Um, for like actually transitioning out.

Please do not wait till you are like burned out. And like on the downhill slope, that’s like such a massive mistake. And you see revenue start to drop. That’s where you start to lose so much value in your practice. Don’t let revenue drop.

Exactly, your current associate maybe.

Yeah, I mean, I’d say minimum 90 days to get that done.

Yeah, that’s a great point, Jake, and, and the post one is gonna be so dependent on the, the deal itself. I’ve, I’ve heard of some private sales where the, the buying doc just wants the new doc out or the old doc out as quickly as possible. But in most cases, to your point, you’re gonna be working back.

Certainly with A DSO, it’s pretty rare. I mean, there’s situations we could talk about where you wouldn’t have a work back, but in most cases you’re gonna have that work back. So if we break that down, we’re talking the prep, the actual like final stage prep. Pre pre taking your practice to market. You’re talking at least 18 months, I’d say probably more like two years to get it, like fully.

You’re feeling good as you’re, as you’re getting, getting ready to take this thing. Then you’re talking, let’s say three months, right? To, to take it to market, depending on, again, if you have an associate in or all that. Then another three to eight months. So now you’re talking like, let’s say two and a half years, and then another, let’s just say like a year or two post.

So like we’re talking a four to five year period of total transition out of dentistry, out of that practice.

Yeah, and I think along the way as well, something, maybe add this to the mistakes list. Is a post transition plan. Like what are you gonna do? You know, if you’re those ages you just referenced, I think it’s pretty normal that we see this, where you’re in your fifties and you’re transitioning out. You, you better along the way as well.

Be thinking about once this transition’s officially over, what are you, what are you gonna do? Like I would hope you’ve been testing this. Hopefully you’ve been. As Dan Gilbert says with his design Your life framework is like you’ve been running prototypes, you’ve been investing in hobbies or other, other work ventures, but I think that’s a pretty underrated thing that not a lot of dentists think about these type a super high performance type people.

I don’t know if a lot of ’em are thinking about what they’re gonna be doing post post work. It happens all the time.

Yeah. Yeah. And again, we’re, we’re kind of thinking, I think the examples we’ve been alluding to is kind of like. Maybe single location or two locations. Not like, not like that entrepreneurial type dentist who’s building multi-location. That’s a whole, probably a whole other beast. Um, they, we’ll call the typical practice sale.

Uh, so another mistake we see a lot, and this kind of goes along with what we were saying and imploring people to not be your own bookkeeping. Uh, but I think another one is not having a team in place, uh, try to do things yourself or not thinking it’s worth the investment. But I think this is. Critical Jake to have the right team in place.

And some to me there’s some, like you have to have and you cannot do a transaction without a couple. So the one example I’ll give, or maybe there’s two, um, that you have to have would be an attorney and a CPA. Like I don’t see a world where you can do a transaction and make sure you are, you are hitting all of the.

Important just parts of the deal without an attorney and or someone representing you legally. Again, that could be like a, could be a broker, but it’s really like you’re gonna want an attorney and you, you’re gonna want a CPA.

Yeah, we’ll go into that. Like you said, details on that, on part two. But yeah, we’re, we’re biased. It’s, you know, maybe just a little bias of, of what we do and the importance of it. But I do think it’s critical. I think, I think a quality financial advisor can absolutely help you navigate this and in ways different or help connect the dots.

Between the attorney, between the CPA and the intersection of like your, of the, the practice business life and your, and your personal life, and what kind of life looks like post transaction? I think a quality advisor can absolutely bridge that gap for sure, but no, from the transaction itself, attorney and CPA, again, I do think having a a, a quality advisor would, would be huge, but.

I think having a team in place is, is huge, is super important for the, something like this.

Which I, I bet is probably surprising to people, but that is what the data, you, you, you did some deep dive in some data and that’s what you found was.

So, and, and, and, um, varying data, it’s hard to source this data of like, depending on where you’re pulling from in the sense of like, what’s con, what’s consolidation? Like, where are we at from consolidation, where are we headed? I like, personally, have had just in the last six months, probably had. Five to 10 different conversations with different people that are in the space that have given me all different answers of like where we are on the consolidation curve and all that.

So, well, I guess we’re just acknowledging we don’t really know and we’re, we’re saying that, um, but the data that you presented, just while we’re on the topic of private sales and, and how much is DSO versus private? I think according to the a DA. From a consolidation perspective you referenced in there, I think we’re somewhere around, they’re saying about 25 ish to 30% consolidated.

Is that, is that Okay, so above that, so we’re probably above 30% at this point.

Yeah. But what, what I, what I look at there is I think people hear that and they get a little spooked, like, oh my gosh, we’re going that far, that high in DSOs. But I look at that and say, well, but there’s still, even if we get to that point, we’re still 50% private practice. It’s still very much a viable path.

If you’re, if you’re coming out of dentist or dental school or you’re just a younger, a younger dentist. Um, let’s talk about, so we, we hit just to, to recap the four kind of common mistakes we see. Um, and maybe the fifth we’ll kind of add in there of like light thinking about life after transition. Um, but so waiting too long, not having a team in place, being unorganized and then having an unclear why.

We’ll hit that Unclear. We’ll hit the why part. I think on part two, that’s a whole other discussion. Um, let’s talk about, uh, we, so we talked about this timeline, we talked about those, that one to two years before transition, critical years, and maybe even, let’s extend that out a little bit and say things you should be thinking about along the way.

But certainly as you’re getting ready to, like, like you said, make this practice pretty. Um, what are the kind of key areas that you referenced Jake in, in the egu and things that Doc can be thinking about out there? Around, like what increases the value? How do you maximize your value of your practice in those final years?

Yeah, so communication with those staff members is key. Don’t, don’t let this be a surprise to your team. You should be talking about this, incorporating them in this process probably years before you actually do it.

Well, I guess that DSL is gonna do like even if they are gonna buy your practice, but it’s gonna hinder two things. It’ll hinder your value, it’ll hinder the multiple they give you, and it’ll also increase your work back. So if you’re the main producer in that practice and you’re working four days a week and you’re doing all the production, they’re still gonna give you, let’s say they still give you a solid multiple, they’ll give you a solid valuation, but you’re gonna have the longest work back.

They will possibly give, let’s say it’s, you know, five years. We don’t really see much beyond that anymore. Uh, we’ve seen as high as seven, but whatever it is, they’re gonna try to extend that as much as possible to, to squeeze as much work outta you as they can versus what you.

Yep. Just risk management, right?

Yeah.

Yeah. And then on the flip side of that, I’ve actually talked to doctors. I just talked to a doctor relatively recent, who had gotten to a place, had worked himself out of, he was doing like three, three plus million in collections and, um, wasn’t, was chairside zero days. He was fully associate driven practice.

He sold to a DSO, got a pretty solid multiple evaluation. Um, and zero. He had no work back. He was able to Exactly. Yep. He walked away. That’s pretty rare, but it, he was able to pull it off.

Yeah. Yeah, I think that’s great. I think those are key things to be thinking about. And again, a lot of it’s just intuitive, right? The higher, the higher. Uh, more efficient practice you have from a systems and technology and it’s, it’s, you’ve actually built a business that doesn’t rely on you as the owner.

You’re gonna maximize value there. That’s gonna look way, no big deal.

And on the collection side, ’cause you’re totally right. It’s like easier said than done. Yeah. Yeah. But at the very least, you just cannot let revenue drop. You just can’t. That’s gonna be the death nail to your valuation if you, if you see valuation or if you see revenue drop or if a buyer sees revenue drop.

Especially A DSO, but even a private buyer even, and a bank is gonna, it’s gonna hinder your valuation drastically if they see drops in, or you’re gonna have to have a really good explanation. And if you see multiple years prior to sale of revenue decreasing, that’s gonna be a huge hindrance to your valuation.

Uh, so let’s talk about, uh, uh, DSO versus private, the, the elephant in the room of, of all dental transition discussions, uh, of private versus DSO. And, and then in, in the second part, we will talk about, I think, a third alternative that we, that we want to spend some time on. But I think just for the, kind of wrapping up our discussion here, what’s the, kind of the final topic being the differences between.

Private and DSO. We’ve talked about this a ton. We’ve had tons of, um, guests on that have talked about this, but I don’t think it can be overused around. Do you go private? Do you go, do you go, uh, DSO. So let’s talk about first what we’re seeing Jake on just valuations. What’s the typical valuation or things to be thinking about on the private side?

It’s actually gone up. Yeah. Yep.

No, I just think it, it, it bears repeating because I think it just bears repeating that it is constricted by what the bank’s willing to offer. It doesn’t mean your business is worth that. This is why DSOs and private equity have flooded the market and, and have become somewhat appealing. And we’ll talk about the differences here if we’re using the same kind of practice with the million dollars in collections.

Um, but just again. Banks for years have basically set the values be because of their underwriting, their risk mitigation teams who are out there being like, we won’t go above this DTI or, you know, our debt to income.

If the buyer’s willing to go over that.

Yep. For sure. So then comparing that to the DSO side. So if we just use the same practice doing a million, they’re just basing it off of top line revenue, to your point, doesn’t, they don’t really necessarily look at what your EBITDA is. They’re just saying, you doing a million, we’ll say just for this example, you’re gonna get paid 800 grand, the, OR value’s 800 grand.

They’ll, they’ll lend 800 grand on that practice, which is gonna basically set the value. Let’s use that same. Practice. But this is where, again, you gotta know your numbers, you gotta be super organized because the, there’s gonna be a massive difference on the DSO side of that million dollar practice that has a 10% ebitda.

Basically, let’s just call it 10% profit margin after paying the doc versus a 25% ebitda. So let’s use this same example, million dollars in collections, but this practice is doing. Has a $250,000 ebitda, which would, by the way, be killer. That’d be a, a great ebitda.

Yep.

Yeah. Yeah, I think,

I think it’s pretty fair. I think some will tell you higher if they’re. Incentivized to do so. But I think four to six is a pretty fair I’ve seen. I think you can push higher again, depending on the size to like, like, so a lot of people out there will say as you hit seven figures in ebitda, so like your actual profit in margin hits over seven figures and now you’re doing a million plus.

That multiple will increase. It can scale up. Um, but yeah, I think for a typical practice, something like this, in that million to one five. Collections range with a solid ebitda. You, you’re talking Yeah. Four to six.

Yep.

Yeah, I think we should just hit some high level stuff because, uh, to us there’s not like anything, like a lot of these financial decisions or this transition discussion. There’s not like right or wrong for like a gen, there’s not like a universal right or wrong in our opinion. Um, this is trade-offs and you’re, to your point, all else being equal generally speaking because they’re, they’re not constrained by the same capital issues of banks.

They can offer you more, but, so yes, if it’s just financial on the, like, on the surface, like you said, I think a lot of people would be like, why would I ever sell privately? Well, because it’s not that easy. It’s not that simple and there’s some tradeoffs to be considered. So yeah. I think we should get into some high level like things to consider are the tradeoffs you’re making when you’re going with the DSO?

Yep.

It’s the number, probably the number one regret I hear dentists particular say is that they didn’t understand how hard it was gonna be to go from. The, the, the main person, the one running it, the baby, they created this whole thing and then they become an employee. I don’t think they realize how, they don’t, I know this ’cause I’ve said I’ve heard this time and time and time again.

They don’t understand how hard that’s gonna be.

You know, boss.

Yeah.

No. No, I think that’s great.

Almost never.

Yeah. Yeah. So, so they’ll, they’ll always split, and again, I say almost always, it is really rare, the numbers that we just quoted, million dollars in collections doing two 50 in ebitda, six times multiple, $1.5 million valuation. Very rarely are, if ever do I see a DSO. Come in and say, here’s your check for 1.5 million.

See? Because why, why would they? They are, if you just think about it from a risk mitigation standpoint, again, they’re buying your profits. Well, if you, in this example, chances are you are the producer, so they’re gonna hold you to that, producing those profits for them that they just paid you for. They just paid you six years of profits.

And so. They’re gonna make sure you stay on board or you’re incentivized to basically have all of that money materialized for you. So they’ll give you, chances are in most cases, it’s gonna be some type of split. Let’s say it’s 60 40. As a general example, I’d probably so 60, 40, 60% up cash of cash again, give or take.

And then 40%, Jake, just as you said in equity, um. Depends on the structure of the deal. We don’t need to muddy the waters too much, but that equity could, depending on if they’re buying a hundred percent of your practice, if they’re only buying a, like a certain percentage, that equity might be at the, at your, just your practice level.

So you still retain some ownership. Or if it’s like a hundred percent buyout, you would theoretically be getting equity, what they call the Topco level. So like the, the actual. Company level of whatever that DSO is. But this is where things, another trade off to consider and questions you have to ask is, um, what type of equity am I actually getting?

Um, am I, am I actually getting the same equity as the original owners in this DSO, the actual private equity partners? It’s called Perry psu. Am I actually getting the, the equal ownership or equal equity rights? S because if you don’t, that is a huge, huge difference in these deal, in these deals on the backend.

When they start to liquidate, whether that be a recap or something happens and goes wrong, you have to make sure you understand what that equity looks like on the backend.

Also, and, and, and we don’t wanna belabor the point too much, um, and get too lost in numbers, but this is so critical to understand just at least the concept when we talk about the, the numbers, right? So you said earlier, and I, and I hear Dennis say this all the time, like, why, what, why would you ever sell privately?

Like, and still to DSO, like, the money’s so much better, but let’s just, just this example that we’re using really quick, just conceptually. So we’re saying 1.5 million valuation. On a really solid EBIT a number, but you’re most likely only gonna see 60% of that upfront. So now we’re talking 900 grand versus the 800 grand that in our private sale example.

So you might say, okay, well I’m getting a hundred thousand dollars more, but again, there’s strings attached to this. So if we’re just taking that money on the front end, yes, it’s a hundred grand more. But if you were planning on working, if, if this was like something that you’re. You’re not exiting, which now a lot of dentists are doing this, so you’re gonna work for another.

And in a DSO sense, you have to work back. So let’s say you had to work back for five more years. Well, you just gave up a million dollars if profits over the next five years, if continued to work your practice that you would’ve had, if you would’ve just kept your practice for that five year period. So again, we’re talking over a five year period.

You got a hundred thousand more upfront than a private sale. Yes, you’ve got this equity that may or may not work out, but along the way, oh no, sorry, you gave up $1.25 million in profits. If you’ve got two, 250,000 EBITDA for the next five years, that’s what they just bought from you. So I, again, I don’t wanna get too lost in the numbers, it’s more just a conceptual, like, it’s not as easy to just say like, oh, the DSO is more money.

Maybe, but also maybe not. If you think about you just continuing to own your asset for the next five to seven years.

Yep. Yeah, totally agree. Um, I love this, Jake. I think it’s a great discussion. Talking, uh, uh, we want to, I think, wrap it up here for part one, tease part two. Um, we want to get to part two. We’ll talk more about, uh, how this incorporat, how, how this relates to your financial freedom number and how to be thinking about that into your total life.

And I think spend a lot of time around, I think we can talk about some of, some of the tax implications. But I think spend a lot of time around the why and around the why you’d want to do this, um, and getting really clear on that. Before going into any transition, any final words on part one you want to add here?

Okay. I think we’ve, we’ve given enough, uh, yeah. We always hope it’s helpful. Um, speaking of life transitions, if you want to be transitioning your life into something greater. You might want to consider the dentist money Summit. Jake, don’t you think they’d want to? Don’t you think? I think you didn’t know where I was going with that.

Did you? You had no idea. I told the team I was gonna get sillier and sillier with these, uh, with these calls to action, but I’m practicing a lot. Um, but honestly we would love to, to see out, uh, uh, in Park City June 20th and 20. June 20th and 21st in Park City, Utah. Our second annual whole new slate of speakers.

The theme is planned for the present. We’re actually gonna talk a lot about, we have lunch and learns as well planned, um, I believe a lot talking about dental transitions and practice transitions. So we’d love to have you out in Park City. Come meet the team, come uh, hang out with like-minded dentists to talk about all things, money, life, uh, business.

And again, just kind of finding your why behind why this all matters. So for now, uh, Jake, thanks for being here. This was awesome. Thanks for, for prepping. Uh, we also, I need to reference the eguide. Go to, to dentistadvisors.com.

Click on the education library. And under that there will be a, an egu section you can click on. And we’ll be right there. Um, and then on the webinar we’ll be linking that as well. So everyone, thank you so much for listening, Jake, thanks for being here. Till next time, bye-bye.

Keywords: dental practice transition, common mistakes, practice preparation, transition timeline, dental support team, private sales, DSO sales, DSO, private practice, practice management, dental ownership, dental practice value.

Practice Transitions, Retirement Plans