If you’re considering buying or selling a dental practice or dental services organization (DSO), a successful outcome depends on navigating a variety of complex issues. It's also important to work with experienced advisors who can provide guidance and expertise throughout the process.

Three considerations can help you make better decisions on whether to buy or sell a business and smooth the transaction process: valuation, transaction-readiness, and due diligence.

Valuation

Valuation is a critical factor in any dental practice transaction. Several key elements impact the value of a DSO, including historical and forecasted financial performance, patient base, equipment and technology, and the management and provider teams.

• Financial performance. Buyers want to see a track record of consistent financial performance and future growth potential. They also want to understand the quality of revenues and earnings produced and how historical performance aligns with forecasted future performance.
• Patient base. A strong diversified patient base with a high retention rate and mix of insurance and self-pay payors is attractive to mitigate revenue concentration risk.
• Equipment and technology. State-of-the-art equipment and technology can be a significant differentiator. Buyers want to understand the technology infrastructure; age and condition of the equipment, software systems, and technology enablement; and any upcoming upgrades or replacements.
• Management and providers. Achieving alignment with management and providers to generate growth is an important factor in creating buyer value.

Transaction-Readiness

Being transaction-ready is another critical factor in a successful dental practice or DSO transaction. Being transaction-ready means having a solid understanding of the value of your business, key business differentiators, and the ability to support your position with data. Additionally, advance preparation and organization of data, responsibilities, and timelines will allow for a smoother process.

Transaction-readiness can help you reduce risks associated with the sale process. By addressing potential issues early, you can mitigate the risk of deal-breaking surprises during due diligence, including previously unidentified tax liabilities, accounting issues, or operational weaknesses.

The transaction-readiness process often occurs with the assistance of third-party advisors, including attorneys, accountants, investment bankers, valuation experts, cybersecurity consultants, and other business advisors.

Due Diligence

Due diligence is a critical component of any dental practice or DSO transaction and involves a comprehensive review of various aspects of the business, including financial, tax, and IT, among other areas.

Financial

• Evaluate the recurring quality of earnings to support the financial position and performance of the seller.
• Understand any cash vs. accrual basis reporting differences and the impact on the quality of earnings.
• Analyze cash flows and cash conversion related to revenues and costs including the impact of memberships or packages sold in advance of providing services, purchases of supplies and payroll.
• Provider compensation and retention. Retention of key providers and employees is of great importance to buyers. As such, compensation is often a heavily negotiated point. It’s crucial for sellers to understand the buyer’s perspective and to develop a compensation structure that aligns both provider and owner goals for future business growth.

Tax

• Assess the deal structure to understand buyer and seller tax implications at transaction close and beyond.
• Understand any significant historical tax liabilities and exposures. Analyze historical federal, state, and local filings compared to filing obligations to understand what potential risks exist.
• Examine payroll and employee classification matters. Review employee and contractor classification to ensure appropriate payroll tax compliance.

IT

• Assess software and hardware. Understand whether the applications and systems utilized are internally developed or licensed from third parties. Analyze IT infrastructure to assess data and cybersecurity policies and processes and understand HIPAA-related compliance and any near term required systems upgrades.
• Review cybersecurity. Assess security protocols, user access controls, history of incidents such as ransomware attacks and data breaches, and how often HIPAA risk assessments have been conducted.

Compliance

• Build a robust compliance ecosystem. Perform a comprehensive assessment of your current compliance program against established frameworks covering leadership oversight, policies and procedures, training, communication lines, enforcement of standards, risk assessment, audit and monitoring, and corrective response.
• Compliance program & risk assessments. Assess the maturity and effectiveness of your compliance infrastructure in anticipation of buyer scrutiny. Conduct focused risk assessments to uncover potential regulatory, financial, and reputational vulnerabilities. Use these insights to build a clear, actionable compliance roadmap that demonstrates readiness and helps support a smoother transaction process.
• Compliance audit & monitoring. Be prepared to address compliance risks before the transaction. This includes documentation of routine audits and monitoring, special investigations, risk-based audits and monitoring, and quality control audits—especially in billing and coding operations.
• Payer audits & investigations. Assess historical and ongoing exposure to payer audits—including Medicaid, rapid access clinics (RAC), Centers for Medicare & Medicaid Services (CMS), the Office of the Inspector General (OIG), and commercial payers. Review audit findings, conduct extrapolation analyses, and evaluate documentation, coding, and billing practices to help ensure transparency and reduce post-close compliance risks.
• HIPAA privacy & data security assessments. Evaluate the strength of HIPAA compliance and data privacy practices. Identify potential exposure related to protected health information (PHI) safeguards, documentation gaps, and cybersecurity vulnerabilities that could raise red flags during diligence. Ensure policies, procedures, and security protocols meet regulatory expectations to instill buyer confidence and minimize post-close liability.

With the right approach and experienced advisors, you can successfully prepare for a transaction, navigate due diligence, and achieve a successful outcome in your dental practice or DSO transaction.

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Additional Resources

• Transaction Consulting Practice
• Health Care Consulting Services