DSO Sale vs Staying Independent

Dental service organizations (DSOs) are buying practices at multiples well above what individual dentists usually pay. A DSO offer can look very attractive, but it trades your future practice profit for cash today, equity in the DSO and a salary. This calculator compares the DSO path with staying independent over the same period, after a simple estimate of taxes.

What this calculator does

Enter your practice's adjusted EBITDA, your total income as owner, the period to compare, the DSO's offer terms and what you'd expect from a private sale later. It shows:

• the DSO path total: cash at closing, post-sale pay and rollover equity, after tax,
• the independent path total: owner income plus a later private sale, after tax,
• the difference between them,
• the purchase price, cash at closing after tax and the value of rollover equity after its sale.

The formula in plain English

Purchase price = adjusted EBITDA × DSO multiple.

DSO path = cash at closing × (1 − sale tax rate) + rollover equity × growth multiple × (1 − sale tax rate) + post-sale pay × years × (1 − income tax rate).

Independent path = owner income × years × (1 − income tax rate) + EBITDA × private sale multiple × (1 − sale tax rate).

Both paths end at the same point: you've sold the practice and been paid for the years in between.

A worked example

Dr. Rivera's practice has $450,000 of adjusted EBITDA, and she earns $650,000 a year as owner. A DSO offers 7× EBITDA, with 80% paid in cash and 20% as rollover equity. After the sale she'd earn $320,000 a year. She compares 5 years, assumes the rollover equity doubles at the DSO's next sale, and uses a 28% tax rate on sale proceeds and 42% on income.

• Price: about $3.15 million.
• Cash at closing after tax: about $1.81 million.
• Rollover equity after its sale: about $907,000 after tax, if it really doubles.
• DSO path: about $3.65 million. Independent path: about $3.34 million.

The DSO comes out about $307,000 ahead, but almost all of that depends on the rollover equity doubling. If the equity only holds its value, the paths are nearly even. If it falls, staying independent wins.

Why it matters at each career stage

If you're: Practice owner

Run this with your actual EBITDA and a real letter of intent. Change the rollover growth to 1× and 0× to see your downside. If the DSO path only wins when the equity grows, treat that equity as a bonus, not a plan.

If you're: Employed

If you're an associate at a practice that might sell, understand how a DSO sale could change your pay, schedule and buy-in options. Ask the owner directly if a transition is on the table.

Questions to ask before you sign

How is EBITDA defined? Small changes in what counts as an expense or what your post-sale salary will be can move the price by hundreds of thousands of dollars.

What are the employment terms? Ask about length, pay formula, clinical autonomy, staffing and what happens if you leave early.

How big is the non-compete? Check the radius and length.

What's the equity really worth? Ask how the DSO's previous rollover equity has performed and when the next sale is expected.

Compare your practice's value first with the dental practice valuation calculator, and see how the sale affects your retirement timeline with the FI number calculator.