Solo Practice vs. DSO: Financial Comparison Calculator

DSO offers to established dental practice owners can look extraordinary on paper — 7×, 9×, even 12× EBITDA. The reality is more complicated. Most offers combine a cash component, restricted equity rollover you can't touch for years, and an earnout tied to EBITDA targets. Meanwhile you trade your owner income stream for a production-based associate salary that's typically 20–30% lower. This calculator models both paths in real dollars so you can see which one actually wins for your situation.

How a typical DSO offer is structured

A large regional DSO offer to a practice generating $1.5M in collections at a 30% EBITDA margin ($450K) at an 8× multiple typically looks like this:

What the cash component actually nets you after tax

Dental practice sales are almost always structured as asset sales. The purchase price gets allocated across three buckets, each taxed differently:¹

• Personal goodwill (~50–70% of total): taxed at long-term capital gains rates — 20% federal + 3.8% NIIT for high earners = 23.8%.² This is the most tax-favorable bucket, and maximizing it is why most advisors recommend establishing and documenting personal goodwill pre-sale.
• Enterprise goodwill + covenant not to compete (~15–25%): ordinary income at your top marginal rate, often 37% for dentists with high practice income.
• Equipment and fixtures (~10–20%): §1245 recapture at ordinary income rates on the difference between fair market value and your adjusted tax basis. After heavy Section 179 or bonus depreciation, this can be substantial.

The income trade-off after the sale

DSOs typically offer production-based compensation at 28–33% of collections. If your practice generated $1.5M in collections and you earned $450K in EBITDA as an owner, your post-sale economics as an associate producing the same volume look like:

The retirement contribution difference is a hidden tax cost that most dentists don't factor in. A practice owner stacking a solo 401(k) ($72,000/yr in 2026) plus a cash balance plan ($100K–$290K/yr depending on age) might shelter $170K+/yr in pre-tax income.³ As a DSO W-2 employee, you lose the solo 401(k) and cash balance plan; the DSO's group 401(k) caps you at roughly the $72K total with an employer match that most DSOs don't maximize. That $100K/yr tax difference compounds significantly over a 5-year post-sale employment period.

The equity rollover: what it's actually worth

The rollover equity is the hardest component to value because it combines legal structure risk, market risk, and time horizon uncertainty:

• Illiquid for 3–7 years — you exit only on a DSO recapitalization, sale to a strategic buyer, or IPO
• Subordinated to debt — PE-backed DSOs typically carry 4–6× leverage; equity holders receive nothing until all debt tranches are repaid in a distressed sale
• No QSBS protection — IRC §1202(e)(3) explicitly excludes health services businesses from the QSBS qualified-trade-or-business definition, so even if the DSO eventually IPOs, there is no 100% gain exclusion available on your rollover units⁴
• Dilutable — unless your letter of intent includes anti-dilution rights, future capital raises can reduce your percentage ownership

Advisors with DSO transaction experience generally apply a 35–50% probability-weighted discount to face value of rollover equity when modeling a deal. The calculator defaults to 40%. If the DSO has a documented track record of successful exits (ask for specifics — company names, dates, proceeds per unit), you can adjust upward.

When selling to a DSO makes sense vs. staying solo

The often-missed third path: private buyer

Selling to a younger dentist via an SBA 7(a)-financed transaction offers a different risk/return profile than either staying solo or selling to a DSO:

• All cash at close — the buyer's bank funds the deal; no equity rollover, no earnout
• Faster timeline — typically 2–4 months vs. 5–9 for DSO deals
• Lower multiples — typically 5–7× EBITDA for a healthy solo practice vs. 7–12× for DSO deals
• No post-sale employment obligation — you can walk away after a 90-day transition period

Run the calculator with the private-buyer offer: use a lower total offer, 100% cash, and no equity rollover. You'll often find that the private-buyer path produces comparable or better 5-year outcomes because all-cash proceeds compound from day one and there's no income cut.

What an advisor actually does with a DSO term sheet

Most dentists receive a DSO letter of intent and immediately wonder: is this a good deal? An advisor who regularly works with dentists can evaluate the term sheet on dimensions a generalist won't know to check:

1. Model the specific offer with your actual tax situation — federal bracket, state, your existing retirement asset basis
2. Verify the DSO's capital structure — senior debt, mezzanine, preferred equity tranches, and what a distressed exit looks like for your units
3. Compare earnout targets against your trailing EBITDA trajectory and the DSO's typical management overhead additions
4. Identify whether a 338(h)(10) election applies (C-corp targets only) and whether it changes the deal economics
5. Help you negotiate: anti-dilution protection, information rights, tag-along rights, a put option at Year 4
6. Model post-sale retirement account strategy, Roth conversion window during the employment period, and IRMAA exposure from the sale year