Why DSO Offers Are Often Bad Deals for Dentists

So right in front of me, I have an offer, an offer to buy a practice, an offer from a group. And this offer is like so many offers I see. The terms, the money, all the transaction details and we're going to be going over that in today's episode because I need us to see in dentistry why almost all of these offers are a bad deal for the selling dentist. You need to understand these offers. You need to understand how the math works, even if you're not looking to sell right now. At some point you're going to want to buy, you're going to want to sell, you're going to know someone in this situation and that's exactly what we're going to go to detail by detail step by step in today's episode of The Dental CEO Podcast.

All right. So we've got this offer in front of me here. This is an offer to buy a practice of a dentist I know. And not only do I have the offer in front of me, but I have spent a lot of time ahead of this episode doing the math, figuring out is this offer worth it? The reason why I'm going through this on the podcast is because for more than a decade, we in dentistry, we sellers, we dentists have been screwed by bad offers. I've mentioned in a previous episode how I felt like some of the DSOs are basically getting practices for free and dentists don't even know it. Well, today's the episode, but we're going to go through the math and you're going to see number one, what are these offers like? And number two, what kind of money is involved? And most importantly, number three, how we know if this is something right for us, not just a good offer, but does it make life sense to do this?

The Practice, Real Estate, and Initial Valuation

So let's dive in. So let's start out with the fact that this is an offer to purchase a practice and the real estate. The dentist owns both the practice and the real estate and this practice is very, very profitable. So the practice does 1.4 million in EBITDA. So if you remember from previous episodes, EBITDA is one way to look at the profitability or the financial success of a practice. And many practices are running a 20 to 25% EBITDA margin, sometimes 30% EBITDA margin. And so if we have a practice that's got 1.4 million in EBITDA, then it is probably doing about five and a half million in collections per year. So we've got five and a half million dollar practice. It has the owner dentist and it has a couple associates as well and it's got 1.4 million of EBITDA. And now this dentist got an offer actually an unsolicited offer, but got an offer to have someone buy the practice and buy the building and that someone is a group.

Now these groups like to either call themselves a traditional DSO or a non-traditional DSO, a dentist owned DSO. They come up with all kinds of labels for themselves as a way to kind of make dentists feel better about selling. And those labels do sometimes change who the DSO will eventually sell to, but let's just make sure we call them all a DSO because legally speaking, it's highly likely that they are structured as a DSO. No matter who owns the DSO, no matter what they label themselves as, what the pitch is about who they are and what they want to do, they're a DSO. And so we've got this five and a half million dollar collection practice. We've got 1.4 million in EBITDA, which is about a 25% margin and we've got some real estate. Now, what's the practice worth? This offer is giving them a valuation of seven times EBITDA.

Seven times 1.4 million is valuing the practice, not the building, but just the practice at 9.8 million. Now a seven multiple in today's world would be an average multiple, I'd say for 1.4 million in EBITDA. When you look at practices that are maybe more modest in size where they're collecting, let's say $2 million instead of five and a half million, those practices are going for five and a half times EBITDA or so. Things can make that number go up, things can make and go down. When you have a group of practices, you start getting sometimes into a higher multiple, but it doesn't actually have to be a group. What we really mean is how much EBITDA does the dental organization represent that's being bought. And the higher the EBITDA number, sometimes a higher the multiple offering. And so this is a seven multiple, which is I'd say a normal kind of expected multiple for an organization that's generating 1.4 million in EBITDA.

However, the devil's in the details. The devil's always in the details when it comes to these deals. Now not only are they offering $9.8 million for the practice, which is seven times EBITDA, but they're also offering almost a million dollars for the real estate.

The real estate may be worth a lot more than that. You see, the real estate of a dental practice so often an owner of a dental practice is kind of getting a value of that real estate based on what similar buildings go for in the area, almost like you get a comp on a house. But in commercial real estate world, the value of that real estate has a lot to do with the rent being paid and the strength of that tenant and obviously the profitability after receiving that rent. And so we've got this kind of push and pull that we can do as an organization where we can pay ourselves more rent when we own our building, we can pay ourselves less rent. And typically owners have been playing that game to kind of minimize their own taxes. But when it comes to selling the practice and selling the building, we now got to go back at that push and pull game and understand how the building is valued and how the practice is valued.

Where do we want most of the profit? And especially if we're going to get the building cash upfront, but maybe to practice we don't get all cash upfront. All of that impacts where do we want to put our value? Do we want to pay more in rent or less in rent in order to optimize our value? And so the building here is offered less than a million dollars and is that a good value? I don't know, but that's something that the owner, before ever even talking to a potential buyer, the owner would work through the exercise to understand, okay, how much do I want to pay myself my building and rent so that I am maximizing my overall value when looking at the practice and the building? Some of you are going to want you to pay yourselves more in rent because of how the valuation of building in your area works and what kind of deal you're getting for the practice and others might do the opposite.

All right. And for this conversation though, that's the end of the building. I don't really want to dive in more to building. I want to focus on the practice, but there is this building component to it. And as a side note, the seller always kind of thought they would always own the building as an asset. And so selling the building wasn't necessarily something that they were super excited about.

Deal Structure – 60% Cash, 40% Retained Equity

Okay. So now let's go into the details. I said devil's in the details. So the practice was valued at seven times EBITDA, seven times 1.4 million EBITDA is 9.8 million. That's what the practice is worth. And remember, it's collecting 5.5 million here, but it's got healthy EBITDA times seven multiple. It's worth 9.8 million. However, it's not 9.8 million cash upfront. This deal was offered to give the seller 60% of that value in cash upfront.

So in other words, the seller is going to get 5.88 million of cash upfront. They're not going to get the 9.8 million. Okay. Well, what about the rest? Well, the rest of the money, the 40% left, it's almost $4 million in value. 40% left is still going to be owned by the doctor, by the seller. Now this is a better deal than many I see when it comes to this one thing. Oftentimes when you get 60% in cash and then there's the leftover equity, oftentimes that leftover equity is rolled up into the new entity and you owning 40% of it doesn't give you any distributions because the new entity doesn't intend to distribute any money. But in this particular deal, the seller keeps 40% and will get 40% of distributions while owning the 40% of the practice. So that's a better deal than most. Most deals are a lot worse than this because you basically own 40% of a company that doesn't distribute any money and therefore owning 40% doesn't really give you any distributions every year.

I hope that made sense to everyone. So let me back up a bit. When you own a piece of a company and the company distributes money, you get your own fair share of the money being distributed. So if this particular company distributes 1.4 million in, let's just call them profits and you own 40% of that, you get 40% of 1.4 million. But sometimes deals are structured so that you are getting shares of the company above it, shares of the DSO or shares of another entity that is not distributing any money. It's reallocating its money, it's loading itself up on costs and at the end of the year, there's zero to distribute. You own 40% of a company that has no money to distribute and that's a rude awakening for doctors that do deals like that because maybe they assume they'd still get a little bit of money from being an owner, but that doesn't happen.

Hopium and the Recap/Liquidity Event Problem

All right, back to this deal. This deal has that happen. So in this deal, the doctor would sell 60% and get under six million for that cash upfront and then they retain 40% of it and they would get 40% of the distributions until they can sell their 40%. Well, when can they sell their 40%? This is the big problem in a lot of DSO deals. You see what DSOs do is they say, okay, you're going to retain 40% and that 40% is going to be worth so much because someday in the next two to five years, someday we are going to sell ourselves or we're going to do what's called a recap. We are going to have this liquidity event for the DSO of this huge multiple, like a 10 times multiple or 12 or 14 and your 40% times 14 will be worth a ton of money.

And so the dentists are like, "Oh my God, yeah, I want that." So I'll sell my practice, I'll get 60% cash today, and then the 40% I hold someday soon they think I'll be able to sell it for this double digit multiple. And it's almost like I would've sold my practice for two or three times what it's really worth. And that's like the greedy temptation that the doctor has. But what has happened in the last three years especially is that these DSOs have either, number one, not been able to recap or sell themselves and the doctors have held onto stock that they can't sell. Or number two, those recaps have been at a much lower multiple than kind of hope or promise to the doctor. Or number three, the doctors haven't been able to sell at a recap that occurred or at least not been able to sell everything they wanted.

In all three situations, the doctors left owning a piece of the company too long or having to sell it for too little. And this has resulted in a massive uptick in lawsuits from private dentists who had sold to DSOs now suing that DSO because there's no way for that private dentist to get the money out that they always expected to get out. And you know what's happening with these lawsuits? The private dentists are losing. So if we step back here and talk about these deals, if you are given a piece of the deal in cash upfront, the promise, the rest someday at a large multiple, that promise is nothing more than just hope and you should not get high on Hopium because that can cause you to do some very strange illogical things. That is just hope. And so we've got to be very careful with signing a deal that without the hopium is a bad deal.

We don't want to sign a deal that must have hopium in order to make it good.

Two Exit Options for the Remaining 40%

All right? So what about this deal? Well, we're getting 60% cash upfront. What about the 40%? Well, the 40% in this particular deal talks about two possibilities for the doctor, the owner, the seller selling the rest of their shares. Possibility number one is that they have to be in the group for at least three more years and at the end of the three years, they can force the DSO to buy the remainder of their shares. And the valuation put on that is 100% of collections. So let me say that differently. When they want to sell the remainder of their shares, the value of the entire practice will be set not at seven times EBITDA, not at 10 times EBITDA or whatever. It's set at 100% collections. Well, let's do some math here.

What's the multiple of that? Practice is collecting 5.5 million. So it does 1.4 in EBITDA, which means it's getting a multiple of less than four if you want to sell the rest. You're selling the first 60% at a multiple seven, but the rest, you got to sell it a multiple of four if you want to force the sale after three years. So that's a discount. That is almost half of what it's worth. So I'm selling 60% at a good value, but I'm selling the remainder at a half value is one way of looking at it. That's option one. That's to force the company to buy your shares. That's better than most DSOs. Most DSOs do not have this kind of put option or they don't have a way for you to force the DSO to buy your shares. So that's why these lawsuits happened. These dentists were just stuck, stuck with these shares and no one to sell to.

That's the first way to sell in this deal. I can force them to buy my shares at almost a half value. The second way to sell is to wait, to wait for some sort of liquidity event, whether that is refinancing the debt, whether that's some sort of sale to a private equity group or to a DSO, or whether it's some sort of employee stock plan, some type of kind of liquidity event. We can wait for that to happen. And at the time of a liquidity event, this says the value will be at 10 times EBITDA at 10. Okay.

We're going to get a seven multiple for the 60% upfront and then for the remainder, we're either going to get less than four multiple or all the way up to potentially 10. But less than four, we have a true timeline. We can force it after three years. At 10, there's no timeline. If we kind of do the math real quick and assume the practice doesn't shrink or grow after we sell it, that's a big assumption. Let's just pretend like a practice stays the exact same. Then how much would we get? Well, we'd sell 60% now. That's worth 5.9 million in cash and then we got to sell the rest. And how much is the rest worth? Well, the rest is worth either that 100% collection, that forced sale amount, that's 2.5 million, or it's worth the 10X, right? 40% of that, that's 5.6 million. So this whole thing is going to have a range of values and we're going to get to that range in a second, but the range of values is basically going to be, if we do the math here, 8.4 million on the low end after three years or more, all the way up to 11.5 on the high end after three years or more.

If we were to divide that by the EBITDA to get a net multiple, a net multiple of this organization, it will take us at least three years to achieve the net multiple, then we see we're getting between a six and about an eight, between a six and an eight multiple net. That is the 8.4 million on the low end to 11.5 million on the high end and that is a three year commitment or more. All right, a six to eight multiple on the surface that is a normal, reasonable multiple for an organization this size. It's not a, let me drool with greed because I'm getting a double digit multiple kind of liquidity event. It's just kind of a normal value for the organization this size, but here's the kicker. Here's what kills almost every single one of these thefts.

The Three-Year Work Requirement and Lost Owner Profit

This seller is required to stay for three years and potentially more, but three years would be the minimum. You're required to stay for three years. I'm about to walk you through the math of why that kills almost every deal. And by the way, when they stay as a dentist for three years, they're going to get paid 35% of their collections, which is kind of a common thing for a dentist such as this that does surgeries and general dentistry, 35% of collections. And there is a non-compete of five miles. This is a pretty densely populated area. The five miles is a significant amount of space and that's for over two years. So after they stop producing in the practice, they're going to have a two-year, five-mile non-compete. The problem is that three-year requirement. So this is for whatever reason the math that dentists don't understand. Every year you're required to stay as a dentist after you sell is a year of you're only getting paid an associate salary.

You're no longer getting paid the owner's profit as well. You're still there, you're still in the practice. You could have not sold and worked those three years and received three years of associate salary and owner's profit. Well, since you sold and you stayed for three years, now you're still there, but because you don't own, you're only getting the associate's salary. You are giving up three years of owner's profits by staying there. In other words, three multiples of EBITDA by staying there. For every year you have to stay in essence is reducing your multiple by one. So if you're getting like a six to eight blended multiple, but you have to stay for three years, you're not getting six to eight. Really, when you compare it to had you just owned for those three years and then sold, you're not getting six to eight. You're getting like three to five.

Sell-and-Stay vs. Keep-and-Sell Later

So let's do the math here. If this dentist sells 60% upfront for seven multiple and then sells the rest after three years for kind of this range they might get on the low end, less than four multiple on the high end, a 10 multiple. If they sell that, but they have to stay for three years, then what we have to do is take the cash they would've gotten, but now subtract in a way, subtract the distributions they gave up. Because what I want to do is I want to compare two scenarios. If I sell and stay for three years, or if I don't sell and stay for three years, if I don't sell and stay for three years, I'm an owner for three more years and then I can try to sell, right? Or if I sell now and stay for three years, I'm not an owner for those three years.

And then at the end of that, I don't own the practice anymore. I want to compare those situations, those scenarios. So if I have a three-year commitment, I am in essence going to gain the cash, let's just call it 8.4 to 11.5 million, but I'm going to lose 2.5 million in distributions because I'm no longer an owner. So when we adjust this for the cash loss, we adjust it so we can compare the two, we end up with 5.9 to nine million. Well, I'm going to come back to that number. I know all of you guys are listening and you're probably not sitting down with a pen and paper, although I think maybe you should re-listen to this and actually sit down on the pen and paper, walk through this with me, but let's look at, well, what happens if you work for three years?

You stay in the practice, you don't sell, you just work for three more years. What happens? Well, you're going to get three years of EBITDA and of course you're three years of salary. That EBITDA is 1.4 million. You stay for three years, you're going to get three times 1.4, you're going to get 4.2 million in profit plus whatever you get to sell. Well, that brings up the next question. What would I get offered if I were going to just sell and walk away? Because this is not an offer for that. This is an offer to sell and stay, but I want to know, well, what would I get if I sold and walked away? And you can maximize the value or minimize the value with the right strategy. If you were to sell and walk away but you are a primary component of that practice's success, you are going to get a depressed multiple.

So to sell and walk away in this situation, I think you would get a five multiple, not the seven you're worth, but maybe a five because the new buyer's going to have to scramble to put in a dentist or two to replace you and it's going to be more risk for them and so they're going to offer a lot less money. So to sell and walk away might be a five multiple or you could try to maximize your value while you're there for the next three years, you could take three years to replace yourself so that at the end of those three years you're worth a seven because you are no longer a vital component of that practice's production and success. If you're not a vital component, you're going to get the true value you deserve. If you are a vital component, you walk away, you're adding risk to whoever buys it, you're going to get a depressed multiple.

So let's just assume worst. You want to work for three years owning it and then sell and walk away and you get a final depressed multiple worst case scenario, right? How much money would you end up with? Well, if you're following the math, you'd get 4.2 million in profits over those three years by owning it plus out of five multiple, you'd get another seven million in sale price that adds up to 11.2 million, 11.2 million, okay? That's worst case scenario. If we go to best case scenario and you replace yourself over the three years you're working, then you wouldn't get 11.2 million, you'd get a full value, you get 14 million, 14 million. So what I want you to remember right now listening to me is if you were to work three years and then sell, you'll get between 11 and 14 net cash your way over those three years.

If we go back and we say, okay, if you sell now and have to stay for three years at least, what are you getting? You are getting somewhere between 8.4 on the predictable end of three years to Hopium of 11.5. So you're getting eight and a half to 11 and a half if you do the deal, or you're getting 11 to 14 if you don't do the deal. Both of those, you got to stay three years, but if you do the deal, you no longer control it. If you do the deal, that practice may shrink. If you do the deal, you got a boss. You do the deal, you're being told what to do. If you do the deal, the company that now bought you might increase your costs and your EBITDA could go down. If you do the deal, you're going to have a regional manager to answer to.

If you do the deal, they may bring another dentist that will take away some of your production that you were doing. If you do the deal, you may no longer control your schedule the way you want, your patient base, your employees, your instruments, your supplies, your equipment, your marketing, your strategy if you do the deal. So if this doctor does the deal and takes on the risk of change and has to work for at least three years, they will walk away with for sure 8.4 million, Hopium says 11.5.

But if they stay, they don't do the deal, they still stay for those three years, they have to stay, but they own it and they either walk away cold or they replace themselves and walk away. They won't get 8.4 to 11.5. They will now get 11.2 to 14. In other words, by doing this deal and staying for three years is going to cost them $3 million and risk. And if they were to stay the same amount of time in the practice, they keep control. It would be lower risk and they would make $3 million more in cash by staying.

Lifestyle, Taxes, and the Illusion of the Big Check

I could guarantee what happens when you get a deal like this. You get a deal like this and you're like, "Oh my God, they're giving me a $9.8 million valuation. They're going to give me five and a half million of cash now." And you think about, "Oh my God, what can I do with the five and a half million? What's that going to be like?" And then, okay, just stay for three to five years and I can sell my 40%. Oh my God, my 40% might be worth a lot. And what you're completely ignoring is giving up all the profit every year while you no longer own it, but you still have to be there. And that's a ton of money. And you completely forget that you're going to lose control. You completely forget that the big multiple they're telling you you might get is actually Hopium.

There's nothing guaranteed here that tells you you get that. The only thing guaranteed is that you can sell this thing, this 40% after three years for a low multiple, a half multiple. That's the only thing guarantee. And most DSO contracts don't even have that guarantee. Sometimes there's no guarantee, which means everything's hopey, which means the only thing you can count on is the cash you got on day one. And you might have to stay there longer and longer and longer. Remember, every year you stay, you've notched down your multiple. You've lost entire years of profit. Every year you stay. That's why Heartland offers you five times EBITDA to buy your practice, but makes you sign a five-year commitment. Then where are you at at the end of five years? You could have owned the practice and had five years of profit, but instead you sold the practice for five years of profit and worked five years and no longer own it.

A five multiple making you work for five years is a horrible deal. And that is what most dentists have done in the jumbo DSOs that have gotten deals from companies like Heartland. From my experience and the deals I've seen at least, that's what the majority of those deals have looked like and have come across my desk. And I can't wait to hear from you guys. I'm sure you guys, you know what? I never asked for comments on our videos, on our podcasts and everything. This would be a great one to comment on. Have you been a dentist that sold to a DSO and got locked into a multi-year agreement and are now just now realizing, "Oh my God, I sold, but I've eaten away at a lot of that money. I'm not getting double digit multiples. I'm not independently wealthy anymore and I may not even be able to retire.

I may have to go do this again. I may have to start or buy another practice." Because here's what happens to you personally. You're living on a lifestyle right now. Your lifestyle's based on your yearly profit, your EBITDA. And when you sell your business, you give up that profit. And so if your lifestyle doesn't shrink but stays the same, then you start eating away at your sale cash, that pile of cash you got on day one, you start eating away at it. And hypothetically, if you sold for a seven, then within seven years, that cash is gone. And sometimes people increase their lifestyle because they get this big pile of money and they start upgrading things. That is not even including what taxes do to this money. Gosh, if we were to look at taxes, taxes can take away a fourth or a third of this money.

And now I might get a comment from one of you saying, "Well, if you sell today and get money today, like this dentist, go back to this dentist. If they sell, they get 5.9 million cash today. Don't we get value on that cash today? We could put that in account that can make interest. Don't we get value there? Absolutely. But is it significant? I did the calculation. So I looked at if I were to sell, if this dentist were to do this deal, that 5.9 million taking away taxes and adding an 8% return would give them over three years a million dollars. But if they didn't sell and they held the money and they got distributions every year, then they would get a few hundred thousand dollars. So while yes, it's worth something, it's not going to completely change the deal. And the longer the time period, the smaller this difference becomes.

Final Comparative Analysis and Recommended Strategy

So if we now kind of include that into the analysis and saying, okay, we got a lot of variables here. And I'll start over here. I'll review all the variables with you. So option one, we sell part of the practice now, work three years, and then sell the rest. We get money now, we get money later, and we make some returns on our money now after paying taxes. All in, what does now that look like? It was 8.4, I'm going to add the million you get from returns. Now we're at 9.4 million guaranteed. Now, yes, we could be at potentially 12.5 million hoping. 9.4 is guaranteed. Okay. Well, what are we at if we don't sell today? We work for three more years instead of having to work for a DSO for three years. We work for ourselves for three years. We keep three years of profit and in those three years, we will either just be ourselves and walk away at the sale for a depressed multiple or we'll replace ourselves over three years and sell at a normal multiple.

Now we add kind of the return on investment of our EBITDA. Now what are we after after the EBITDA taxes and all that? What are we at now? We are at 11.4 to 14.2 million. So if we don't replace ourselves, we've made at least two or $2 million more by not selling the practice. If we do replace ourselves, we've made up to $5 million more.

Let that sink in because here was my advice to this dentist. It's obvious now how the math works. They're going to make you stay for at least three years and the only thing you can count on is this kind of seven multiple in the beginning and this depressed multiple at the end. Everything else is hopium. And even if the hopium hits, it doesn't surpass what you would do if you didn't do this deal. Don't do the deal, but instead do this. If you really do want to sell in three years, take the next three years, own the practice and transition yourself to no longer be the main driving force behind this practice of success. And that will probably mean that this doctor will need to replace themselves with two other doctors. That is almost always a situation. You replace an owner doctor with two normal doctors and you get very similar financial success.

Replace yourself over the next three years and walk away with, on my analysis here, 14.2 million instead of the guaranteed 9.4 million you were offered — 14.2 million — and you still own the real estate if you want. And if you don't want, well, let's go through an exercise to figure out how much rent we should pay into the property so that both the value of your practice plus the real estate becomes the highest amount it should if you want to sell the real estate. Otherwise, let's not sell the real estate. Let that be an income producing asset for you and your family while you've got a net $14.2 million.

Simplified Selling to DSO Example for a Smaller Practice

Now I know that this might sound like big numbers to you to some of you. Let me simplify this. Let's say you have a million dollar practice and you want to sell potentially to a DSO and your practice generates 200 grand a year in EBITDA plus it generates your own salary. And so maybe add it up together, you're making like 350 grand a year, right? 200 EBITDA plus your own salary is 350 grand a year. You are thinking about selling this practice and Heartland or someone like Heartland comes in and says, "We'll offer you six times EBITDA. We're going to give you 80% of it in cash upfront and make you roll the next 20%." Well, 80% times six is 4.8, but you have to work five years. At the end of five years, what do you have? You have the 4.8 times your profits that you got on the sale price plus you own 20% of this practice.

That's what you have at the end of five years. But if you didn't sell, you'd have five years of profit or five multiple and you'd still own the entire thing and you could sell it to a dentist for five times multiple. You'd end up with, in essence, 10 times profit if you held it for five years and then sold to a dentist instead of 4.8 times profit selling it to a DSO plus owning 20% of something you can't sell.

Almost always, almost always, like nearly 100% of the time in the deals I have seen, you are better off not selling because of the time commitment they require for you to be in that business. If there's a time commitment, you might as well continue owning it. So the key here to sell your organization, your practice is to transition yourself out to where you are no longer needed to stay and then find a buyer that will give you a good, fair multiple while allowing you to walk away. That is going to give you the most amount of money.

Predators vs. Prey – Who Really Wins in DSO Structures

Now as a side note, what I'm not talking about right now in this episode are groups that own 20, 30, 40, 50 practices. They're trying to go to 100, they're playing a different game. I'm not talking about the predators. I'm talking about the prey. I'm talking about the offices that the predators gobble up and the prey gets this kind of deal that they think might be good, this hopium deal.

The predators that are dealing with private equity or private investors or they've got a huge organization that they're going to sell to an even bigger predator, those predators, that deal structure is a lot more complicated than this and oftentimes it can be a huge windfall for those people, but there's very few predators out there that are getting those kinds of deals. The vast majority of us, especially those listening to this podcast probably, are the prey. And I'm not saying that in a bad way, I'm just talking about like we're being gobbled up by the predator. We don't get a predator deal, we get a prey deal. And a prey deal involves praying for hopium. It involves getting some sort of multiple that on the surface looks great and also maybe a hopium multiple at the end that isn't guaranteed and the killer of the deal is the time commitment.

If Your Dental Practice is Struggling, Fix Before You Sell

Don't do a deal like that. The majority of you guys and gals, if you really are ready to sell and walk away, transition yourself out and then sell for a full multiple, allowing yourself to walk away while keeping all those years of profit. Now, unfortunately, some of you are in crisis mode, you're traumatized by being an owner maybe and you're like, "I want to sell that. I'm not making a lot of money. I need out. I can't find the right staff." Selling is not your solution to that. Your solution is coaching. Your solution is a consultant. Your solution is someone coming in and cleaning everything up for you so that you can generate profit. Do that anyway before you sell. Whether you're struggling or not, have a coach come in and maximize your profitability, but your solution that when a practice is broken, the solution is fix it.

Don't sell it. You go sell a broken house, it's not worth much. You go fix a broken house and then sell it is worth way more. So if you are broken right now in your ownership journey, you need to fix and the fix is going to be coaching. The fix is not selling. When you sell, you have permanently engraved into your journey this massive loss and you may not even understand how much you just gave up, but you gave up a ton of wealth for your family. It was a huge loss to you. The minute you sell, you've locked in the loss. Don't sell if you're struggling. Get coaching. It's the cheapest thing you could do. Get coaching to fix the practice. If you are looking to sell, then transition yourself out so that you are not needed. Keep all the profits while you're transitioning and then sell and walk away.

Closing Thoughts

That's going to make you the most money. This dentist was going to lose $5 million by doing a deal like this without understanding how to do it properly. Guys, I hope this was informative to you. If I confused you, then go listen to this again with a pen and paper, pause and try to follow the math. And if I got your wheels churning, then I think I've been successful, but there's not enough people saying what I'm saying that all these DSO deals that all these docs have been doing for all these years have a problem and that problem makes the deal, in my opinion, not worth it. All these poor doctors that thought they were getting something that was going to be life changing and worth it for them didn't. Or if they think they did, they may not know. They may not know the math.

They may not realize what they actually gave up. And I think that all of us need to understand the math. I wish we were taught in school. I wish that when we knew the math that all the deals offered to dentists will completely change, but the deals right now are so pro DSO. The DSOs have a hard time losing. If they do deals like this all day long and they don't get overleveraged and overaggressive in how they spend away their capital, then this is an amazing business model for a DSO. As long as you've got these dummy dentists saying yes to these dummy deals high on hopium, the DSO is going to win. Don't be that dummy dentist high on hopium. Do this math the right way and I think you'll see what I just showed you. All right, that is today's episode, Dental CEO.

Thank you guys so much. I hope you subscribe because I've got future episodes coming, one of which I'm going to dive hard into profit loss statements and show you how you could take a practice that's broken and can completely fix it before maybe you sell to another group. Thanks a lot. See you next time.