A Complete Guide to Managing the Sale of a Dental Practice, or DSO

June 20, 2024 | 5 min read

Selling a dental practice or a Dental Service Organisation (DSO) can be a daunting task, but understanding the process can help you navigate it smoothly and make your practice more appealing to potential buyers. This comprehensive guide will walk you through the steps to planning a successful exit strategy.

Prepare your dental practice for sale.

Buyers are looking for a well-organized practice. Here's how you can get yours ready for sale:

1. Reduce Patient Balances: Buyers don't want to inherit a practice with outstanding patient balances. Start by increasing your collections and reducing the accumulation of new balances. This will make your financial statements cleaner and more attractive to potential buyers.

2. Update Fee Schedules: Having outdated fee schedules can complicate things for buyers. Update them to reflect current rates and services. This will improve your operational efficiency and prevent confusion during the buyer's review process. Clear and current fee schedules demonstrate that your practice is well-maintained and financially sound.

3. Resolve Claims: Unresolved claims can be a red flag for buyers. Ensure that all claims are paid to improve your cash flow and balance sheet. Regularly review your submissions to ensure there are no outstanding claims. This not only makes your practice more attractive but also boosts your financial health.

4. Increase Active Patients: A high number of active patients is a significant selling point. Re-engage with previous patients and encourage them to update their information. This can be done through marketing campaigns, follow-up calls, or special offers. A large and active patient base indicates a thriving practice and makes your practice more appealing to buyers.

5. Standardize Systems: Outdated or inconsistent systems can deter buyers. Update your technology to ensure all your systems are standardized. This includes practice management software, billing systems, and patient communication platforms. Standardized systems make it easier for buyers to transition smoothly and quickly integrate into your operations.

Simplify the merger and acquisition process.

Smooth integration is crucial when merging or selling a dental practice. Here's how you can facilitate the process:

1. Provide Financial Reports: Clear and detailed financial reports are essential for the due diligence process. Provide potential buyers with comprehensive financial statements, including profit and loss statements, balance sheets, and cash flow statements. Transparent financial reporting builds trust and confidence in your practice.

2. Document Operations: Detailed documentation of your practice's operations can make the transition smoother for buyers. This should include information on daily operations, employee responsibilities, practice management platforms, and care philosophies. Comprehensive documentation helps buyers understand how your practice functions and what they need to maintain continuity.

3. Keep Your Team Informed: A well-informed team is crucial for a smooth transition. Keep your staff updated on the sale process and involve them where appropriate. Encourage open communication and address any concerns they may have. A collaborative environment helps maintain morale and ensures a smoother handover.

4. Prepare for Negotiations: Be ready to discuss asset purchases and employee agreements. Understand what assets are included in the sale and be clear about the terms of employee retention. Being prepared for these discussions shows buyers that you are organized and professional.

5. Streamline Processes: Work with the buyer to transition internal systems and patient databases seamlessly. This involves coordinating with the buyer to eliminate silos, streamline processes, and reduce redundancies. A smooth transition of processes and data makes your practice more attractive and valuable to buyers.

Share key metrics with buyers.

Transparency builds trust. Provide potential buyers with key metrics to give them confidence in their investment:

1. Practice Valuation: A professional valuation demonstrates your practice's revenue and profitability. It shows buyers that your practice is financially healthy and worth the investment.

2. Cash Flow Model: Share your practice's cash flow model to demonstrate its financial stability. A robust cash flow model indicates that your practice can sustain itself in the long term.

3. Account Receivables: Highlight your efficiency in collecting payments by providing aged account receivables. This shows that your practice is proactive in managing its finances.

4. Lease Agreement: Confirm the availability of your facility by providing a copy of the lease agreement. This reassures buyers that the practice location is secure for the foreseeable future.

5. Production and Collection Reports: Show how different treatments contribute to your cash flow with detailed production and collection reports. This helps buyers understand the financial performance of the various services offered.

6. EBITDA: Present your practice's overall financial health by providing Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) figures. EBITDA is a key indicator of your practice's profitability and financial performance.

Highlight What Buyers Value

Focus on what makes your practice attractive to buyers.

1. Low Operating Costs: Low overhead and operating expenses indicate higher profitability. Emphasize your efforts to keep costs down without compromising on quality.

2. High Collection Rates: High collection rates are essential for good cash flow. Demonstrate your efficiency in collecting payments from patients and insurance companies.

3. Efficient Technology: An up-to-date and efficient technology stack improves operational efficiency. Highlight any recent upgrades or investments in technology that streamline operations and enhance patient care.

Investing in modern technology can significantly increase your practice's value. Automation and improved productivity ensure that the practice runs efficiently. For example, using comprehensive dental software like tab32 can help manage data, generate clear financial reports, and streamline operations. Features like patient communication modules can enhance patient experience and retention, making your practice more appealing to buyers.

Preparing for a Profitable Sale

Buyers seek out financially sound and well-run practices. Having a well-thought-out exit strategy in place before negotiations begin can help you stand out. To make sure everything is in order, it's best to begin preparing your practice for sale several years in advance.

You can increase productivity, streamline claims, improve patient experience, and automate tasks with the aid of an all-in-one dental practice management system like tab32. These upgrades raise the overall value of your practice in addition to making it more appealing to potential patients.

To learn how tab32 can assist you in closing a deal and pave the way for successful dental M&A transactions, request a demo.

These guidelines will help you negotiate the challenges of selling a dental office, or DSO, and set yourself up for a successful and profitable exit.


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