If you are in the practice three to five days a week and contributing meaningfully to revenue during the sales process, a DSO will generally expect that involvement to continue after closing for a defined period. Your practice’s valuation is not determined by the purchase agreement alone, because your continued production is part of what the DSO is acquiring.
Why buyers favor a five-year commitment
A DSO is acquiring an earnings stream, and in an owner-operated practice a meaningful share of that stream depends on the owner’s personal production. Patient relationships have to transition to the associates who will carry the schedule over time, and the practice has to demonstrate that it can sustain its performance as the owner’s role diminishes. The length of your commitment is the DSO’s protection during that transition.
That is why a cautious buyer leans toward five years, and why a three-year commitment from an owner who is still producing heavily will be noticed. A buyer offered less time from the provider generating the revenue may adjust the cash paid at close, the portion tied to future performance, or its willingness to proceed. This is not a penalty. It is the buyer pricing the gap between the revenue you generate and the time you are willing to commit.
Begin planning five years before you intend to stop practicing
Most of the guidance available to practice owners makes the same point: begin early. If you intend to stop practicing dentistry at a particular point, the planning window opens roughly five years before that date, because the years following a sale are spent working in the practice. An owner who begins early has greater control over how long to stay, how much of the schedule to carry, and which partner to choose.
What changes when you become an employee of the DSO
The length of the commitment is not the only term that matters. Over a period of five years or longer, you are an employee of the DSO’s group, and several additional terms follow from that.
The first is compensation. As an employee, you will be paid for your clinical work, so you should understand what fair market compensation looks like for a dentist in your role and geography. This is also where your own financial needs belong in the analysis. Consider whether you could comfortably support your lifestyle and obligations on that salary, because it will be a central source of income for the length of your commitment.
The second is what happens if the relationship ends early, whether the DSO ends it or you choose to leave before the term is complete. These provisions exist to protect the DSO, just as you will want to protect your own position, and you should understand them fully before you sign.
The third is the non-compete. If you left the practice in five years, how far would you need to relocate to continue practicing? Five miles? Twenty? Or are you retiring, in which case it may never apply to you?
Protect your position with experienced guidance
None of this should be read as a negative. These terms arise in every transaction. They are simply points to consider carefully, so that you protect your position as deliberately as the DSO protects its own.
This is where an advisor and an attorney with experience across hundreds of transactions, and who have represented hundreds of doctors, become valuable. They have seen nearly every variation of these terms. They should also know you, including your goals, your timeline, and the life you want after the sale, so that the agreement is structured to serve you and is one you are comfortable with.
Now, if you have worked yourself out of the chair when you choose to sell your dental practice, many of these terms will look significantly different from what was discussed. In this scenario, the 3-year timeline becomes very realistic for you, and in some instances, you’re able to actually walk away from the deal once it closes.
If you’re ever looking to begin the exit planning process and understand what the terms of an employment agreement could look like with a DSO, TUSK Practice Sales is happy to have that conversation and share what we have seen in the market.
Frequently Asked Questions
How long does a DSO want a dentist to stay after selling their practice?
A DSO typically wants a dentist to stay in the practice for three to five years after the sale. In today’s market, many buyers prefer closer to five years because they have limited tolerance for risk.
Will a three-year commitment affect the sale price of a dental practice?
A three-year commitment can affect the sale price of a dental practice when the dentist is still producing heavily, because the DSO is weighing how long it can count on that revenue.
When should a dentist start planning a sale to a DSO?
A dentist should start planning a sale to a DSO about five years before they intend to stop practicing, because most deals include a three to five year commitment after the sale. Starting early leaves more choice in how long to stay and which partner to choose.
What employment terms come with selling a dental practice to a DSO besides length of stay?
Selling a dental practice to a DSO also brings terms such as the dentist’s compensation as an employee, termination agreements, and non-competes. These terms appear in almost every transaction and are worth understanding before signing.
Who should review a DSO employment agreement before a dentist signs it?
A dentist should have both an experienced advisor and a healthcare transactional attorney review a DSO employment agreement before signing it. The advisor helps shape the terms around the doctor’s goals and what the deal is worth, and the attorney provides the legal review.
