Top 5 Things for DSOs to Consider Before Acquiring a Dental Practice

Growth through acquisition is in the DNA of successful DSOs and small practices looking to take their next step. And the good news—there’s great growth opportunity in the market right now.   

COVID has had a significant impact on the dental industry. Some dentists are looking to accelerate their retirement plans. And with the pent-up demand of patients who have been putting off visits to the dentist, it’s foreseeable that as patients return, they may require more advanced work. Another pandemic-related consideration is the need for practices to be more efficient. With less predictable patient volume and schedules, growth-driven DSOs can provide much-needed support for non-clinical functions to increase practice efficiency.   

As you seek to grow your DSO through acquisition, it’s essential to know what to research so you can make sound business decisions while minimizing risks. In fact, your research might uncover just the right acquisition opportunity, such as a practice owner getting ready to sell and retire.   

Here are the top 5 things you should research before you acquire a dental practice.  

1. Research the target market   

Do your market research to determine where you want your DSO to expand. Consider geographic areas or specialties to narrow down which practice makes the most sense for acquisition. Consider what areas would be optimal for future referrals between offices post-acquisition for your patients and your DSO.   

2. Research the dentist and the practice

Once you’ve identified a potential practice to acquire, take time to get acquainted with the dentist and the staff to understand their culture and their needs. Get a feel for the working culture of the practice and ask yourself if it aligns with your organization or departs from it.   

As to their needs, how can your DSO help bridge any gaps in their staffing or operation? Before acquiring a practice, it’s imperative to understand the nuances of the practice and its operations.  

3. Research patients  

Since each practice is unique, find out how they manage patient relationships and look into indicators such as the percentage of recall appointments versus new patients and how well the practice attracts and keeps patients. Find out about their billing practices, case acceptance rates, and clinical practices to see if there are any red flags.   

Get a good understanding of what patients at this practice expect out of their patient experience and ensure that your DSO can meet and hopefully exceed these expectations, so the acquisition is a smooth and positive experience for the patients as well.   

4. Research the business side of the practice  

Beyond the clinical aspect of the practice, it’s crucial to get the complete picture of the business side of the practice. Determine the true value of the practice by focusing on the EBITDA (earnings before interests, taxes, depreciation, and amortization) and seek the expertise of a consultant, accountant, and attorney as needed. Are there strategic, legal, financial/accounting, tax implications for when the acquisition becomes final?   

Find out why the practice is looking to get acquired and what challenges they’re facing if any. Obtain audited financials and previous years’ tax returns.   

5. Research their technology   

Depending on what technology the practice currently has at their practice, you may need to convert data or implement new software at their practice. Aside from software, are there any technologies that are due for replacement, such as imaging devices, servers, or office equipment? Is the practice leveraging newer technologies such as cloud-enabled imaging or practice management solutions?  

Ask the right questions 

Here are some questions to think about as you research whether a practice is the right fit for acquisition:  

1. Questions related to the owner-dentist:  

  • What are the dentist’s short- and long-term plans for the practice?   
  • Is retirement coming up?   
  • What are their exit strategies?   
  • What are the dentist’s practice philosophies?  
  • What is their dentist’s management style? 

2. Questions related to the practice:  

  • How is the employee turnover rate?  
  • What aspects of the practice need the most help from the DSO? Human resources, marketing, billing, collections, scheduling, etc.  
  • How many operatories does the practice have?   
  • What is the ratio of new patients versus existing patients?  
  • What are the case acceptance rates?   
  • What is the culture of the dental practice?   
  • How is work-life balance maintained or not maintained?   

3. Questions related to the practice’s building and location:  

  • Are the neighboring areas growing with more people moving to the area, or are populations holding steady or shrinking?  
  • Does the office need renovation?  
  • Is the office located in a desirable location?   
  • Is the office exterior or interior due for any repairs?   

4. Questions related to finances, taxes, and valuation:  

  • What is the collection rate of the practice?  
  • What is the EBITDA multiple of the practice?   
  • Are there any tax law changes or tax implications that need to be considered?   

5. Questions related to technology   

  • What kind of technology does the practice currently have in place? Are there areas for improvement?   
  • Is there any equipment or technology that needs to be replaced soon?  

Make an informed decision   

By asking the right questions as you conduct your due diligence from staffing, operations, patients, culture, and finances, you can reduce the chance of any surprises during and following your acquisition. Once you’ve completed your research and are ready to move forward with your acquisition, the real work begins. To learn more about how our solutions can help make acquisitions easier and your DSO more efficient, read our eBook: How Integrated Dental Software Can Benefit Your Practice.