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Dental Service Organizations (DSOs) have rapidly expanded across the dental industry over the past decade. Backed by private equity, fueled by consolidation strategies, and promoted as a modern solution for dentists, DSOs have become a significant force shaping the way dental practices operate today.
However, a crucial question remains: Are DSOs truly built for long-term success, or are there structural challenges that could limit their prospects?
This blog explores how DSOs work, why they’ve grown so quickly, the hidden risks behind their model, and what the future may hold for dentists considering this path.
A Dental Service Organization (DSO) is a business structure that provides centralized support to dental practices. Instead of each practice managing its own operations, DSOs handle:
Dentists working within DSOs typically focus on clinical care, while the organization manages the business side.
Private equity firms see dentistry as:
This has led to large-scale investments in DSOs.
New graduates are drawn to DSOs because they offer:
DSOs aim to grow by:
At the core of most DSOs is a simple strategy:
This model is often referred to as a “roll-up strategy.”
DSOs typically purchase practices based on a multiple of EBITDA (profit).
For example:
This higher valuation attracts many dentists to sell.
However, the structure of these deals is more complex than it appears.
When a dentist sells to a DSO, the payment is usually divided into three parts:
While the headline number may look attractive, much of the value:
At first glance, DSOs promise efficiency and growth. But the economics behind them are more nuanced.
When a dentist sells their practice:
Even if the DSO offers a higher purchase price, part of that value is often offset by:
Private equity firms are focused on:
This often means:
Their goal is not necessarily long-term ownership but rather: Buy, grow, and sell at a higher value
In many DSOs, early participants benefit the most.
This creates a structure where: Early participants may see strong returns, while later ones may not experience the same level of benefit.
Unlike industries driven by software or automation, dentistry is highly dependent on people.
These factors make scaling more difficult compared to other industries.
Many multi-location dental businesses struggle in what can be described as a middle stage:
At this stage, practices face:
Only a small percentage successfully transition beyond this phase into large, well-structured organizations.
As DSOs continue to expand, several challenges may impact their long-term sustainability.
After selling their practices, many dentists:
Replacing experienced dentists with equally productive associates can be difficult.
Some DSOs:
If growth slows, these valuations may not hold.
Rapid expansion can lead to:
As more DSOs compete:
It is unlikely that DSOs will disappear entirely. Instead, the industry may experience:
Some DSOs may:
Despite the risks, DSOs can still be a good option in certain situations.
The decision to join or sell to a DSO should not be based on trends or peer influence. Instead, it should involve:
Dentists should consider: Not just the sale price, but the total financial outcome over time
DSOs have changed the dental industry, but their future is still developing.
For many dentists, private practice continues to provide:
The key is not choosing what is popular but choosing what aligns with your financial goals, risk tolerance, and long-term vision.Make informed decisions about DSOs with PracticeCFO. Our experts help dentists evaluate offers, understand financial outcomes, and choose the best path for long-term growth and stability. Listen to Episode 146 of The Dental Boardroom Podcast: https://podcasts.apple.com/us/podcast/146-who-owns-dentistry/id1518344747?i=1000757102884
Wes knows what's best for dental practices. He's been doing this for a long time and he sees lots of practices. He can tell me how our practice is doing, and what we can do to increase our productivity. With past CPA's, there were no ideas. It was all coming from me, saying "I think I can do better, but I don't know how." I come in to meet with Wes and he says "You CAN do better, and I know how."
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PracticeCFO helped me develop a plan for the future. I have colleagues that work with other accountants that don't have a plan - they just look at the numbers of the practice and that's it. There's no plan for 10, 20 years from now. But with PracticeCFO, you get that. PracticeCFO makes you feel like you're they're only client.
(In reference to his practice sale) What could've been super stressful, wasn't! When picking John and Wes, it was from word of mouth recommendations and other people's experiences from the past that really did it for me. And it turns out that those recommendations were right on the line.
Wes knows the business side of dentistry. His comprehensive plan will organize your personal and professional finances so you can focus on taking care of patients. Massive ROI.
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I love Practice CFO! They have helped me obtain a practice and maintain a practice. They are incredible people who are on top of everything and make owning and running the business portion of a practice easy. They couldn’t be better for my business and my sanity. They have every detail of the business and taxes taken care of where all I have to do is show up and follow their easy steps to success!
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