The DSO Sale Scam: Don’t Take the Bait

In my opinion (backed by years of experience and a LOT of homework), those who are persuading doctors to sell to a DSO are either lying or they don’t know what they’re talking about. Their ethic is ever more shared by one of my golfing buddies who told me recently, “If your opponent has money in his pocket and can read, you need to take his money.”

Let me explain…

To set the stage, watch this Jim Gaffigan bit on camping, and pay attention to the advice from the bears:

 

According to Jim’s joke, here’s the “advice” for dealing with a bear:

• Play dead
• Cover yourself in honey
• Climb on a large white plate
• Don’t run away from us—I mean the bears!

 

A lot of “advice” out there is just bait to trap you. In dentistry, the bears are brokers and DSO reps trying to convince you to sell your practice. Below are some of my favorite pieces of advice from “the bears!”

 

#1: “Just get a valuation to see what your practice is worth.”

I wouldn’t advise you to let one of these guys “value” your practice any more than I would advise you to just “talk” to a prostitute.

These business types who are selling for DSOs or brokering practices can run circles around the average doctor when it comes to knowledge of the finances and valuation of your practice. They will say all the flattering stuff you want to hear and can “calculate” almost any number on their spreadsheet to make you feel like you’re winning the lottery. But the valuation number they give you will be a bogus number for these reasons:

First, the sale of your practice ALWAYS comes with a contract to work back, typically for five years. For every year you work back for the DSO, you need to subtract 1x EBITDA from the price they’re paying you. For example, a 7x EBITDA sale price to a DSO with a 5-year work back is the equivalent of selling for 2x EBITDA in a walkaway sale.

Remember that EBITDA is simply one year’s worth of cash “earnings” from the practice, paid to whomever owns the practice.

In a walk-away, private sale to another doctor, you’ll generally see practices selling for 3-4x EBITDA, depending on a few factors. DSOs tout that they pay doctors 5, 6, 7, or even 10 times EBITDA!

Just remember, the real price is “whatever they’re telling me – 1x EBITDA for every year you work back for them. And that’s if the deal were 100% in cash…

Second, much of the “value” they “pay” you for your practice will be in DSO stock. The number they place on this DSO equity is literally a plug figure that they want to use to get their valuation to the number they want to show you. If they want you to see $10M, and they’re willing to pay you $4M in cash, they’ll magically use $6M as the “value” of the equity.

But the truth is that neither you, nor they, have a clue how much this equity is worth.

 

#2: Sell your practice at low long-term capital gains tax rates.

This is terrible advice. Here’s why:

• When you’re ready to retire, you can easily structure your sale to get capital gains treatment, so this is not a unique selling point for a DSO sale. Saying that you’ll get capital gains treatment for selling your practice is like a restaurant telling you, “and we offer free water!”
• Brokers often charge 10% fees on the full, inflated price (including equity). This means you’d be paying 20% in fees on the cash portion, assuming they give you 50%.
• In general, don’t make financial decisions just for tax reasons.

This last bullet point is a sound principle. Follow it and thrive.

 

#3: You should sell to “take some money off the table,” or to diversify your career.

When it comes to your investment portfolio that you do not control, yes, we absolutely recommend you diversify. However, when it comes to your own career, you are the product. Dentistry is unique because the value is tied to your hands. When you sell, you give up control and income. You become the investment.

If you’re such a great investment that a DSO wants to own you—shouldn’t you own yourself?

 

#4: You should “partner” with an IDSO (“invisible” DSO).

The principled advice is this: don’t partner with non-producers. In the 18 years I’ve been working with dentists at every level, I’ve seen this scenario play out numerous times:

• Younger doctor works for an older doctor (or group) who owns multiple locations.
• Younger doctor runs location C, and is the only producer in that location.
• Older doctor (or group) offers to allow younger doctor to “buy in” to just location C. Younger doctor is excited for this ownership opportunity and takes the deal.
• Eventually, younger doctor realizes that all the revenue are because of him and gets tired of shipping ½ of the profits to the group.
• Younger doctor eventually gets fed up and leaves, with us saying “we told you so”

100% of the collections of a practice are due to the producing dentist; there will never be an exception to this. Therefore, the non-producer will NEVER be able to add value at the same level that you can.

 

#5: “You’ll get the money you deserve—maybe even generational wealth.”
If DSO sales were the jackpot they claim, I’d be the first to encourage it. As an investment advisor, I’m financially incentivized to grow your wealth—but this isn’t the way.

Selling to a DSO is a financial downgrade, and much of what you’re being promised is a scam. The closer you are to retirement, the less harmful—but it’s still the wrong move.

How do I know this?

• I’ve been doing dental finance and accounting for nearly 20 years, and I’ve analyzed countless DSO offers.
• Value in dentistry comes from production. Whoever owns the production, owns the wealth. If you are the dentist, you are the investment.
• DSOs make you their investment—and the return they earn comes straight from your pocket.

Take just a minute or two, or five, to ponder these last bullet points. They are intuitive, even self-evident truths. Although they contradict everything every pro-DSO salesman in America is saying, truth is truth. Dentists are the value in dental practices. We also know that, throughout history, business owners are always the wealthiest people. Add those two together: dentist + business owner = greatest wealth building opportunity for Dr. ________, DDS.

We all knew this just five years ago—somehow the DSO narrative caused a lot of people to believe “the world is flat.”

 

What’s the bottom line? DSOs aren’t offering you freedom or wealth—they’re offering a cleverly disguised paycheck with many strings attached. The numbers might look flashy, but once you dig into the details, it’s clear: selling to a DSO is not a smart financial move. You are the engine of your practice’s value. Own that. Control it. And don’t let someone else profit off what you create and produce with your hands.

Stay in the driver’s seat. Your future—and your wealth—depend on it.