Key Takeaways
- Dental practice succession planning is a structured, multi-step risk-management process that transfers ownership and leadership while protecting practice value, patients, and staff.
- Owner-dentists aged 55–65 face high-stakes decisions, and delaying or choosing the wrong path can cost millions in lost value.
- Succession planning can involve eight main dimensions, including valuation methodology, buyer fit, deal structure, timing, tax treatment, and post-close obligations.
- The 5 D’s (death, disability, divorce, disagreement, and departure) can be addressed through buy-sell agreements, insurance, and transition plans that reduce the risk of unplanned ownership transfers.
- McLerran & Associates is a dental practice succession planning advisor for owners who want to maximize value and find the right fit because it is dental-only, works both the private-buyer and DSO/PE paths in roughly equal measure, and delivers a CPA-led, diligence-grade valuation that holds up under buyer scrutiny.
Talk through your goals and transition timing with McLerran & Associates.
How to Evaluate Your Succession Options
A complete evaluation framework covers eight connected dimensions that build on one another. Valuation methodology comes first because it sets the number every other factor uses, whether the practice is priced as a percentage of collections, a multiple of seller’s discretionary earnings (SDE, which is the total cash flow available to a working owner-dentist before the owner’s compensation and personal expenses), or a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization, which institutional buyers use after charging a market salary for every dentist’s clinical work).
Once that valuation exists, buyer fit focuses on whether the successor’s strategy, culture, and financial backing match what the seller wants for patients and staff. Deal structure then determines the mix of cash at close, retained equity, and earnouts. Timing compares the seller’s personal readiness with current market conditions. Operational impact describes how much the seller’s day-to-day role changes after closing. Tax treatment explains how proceeds are taxed, and the top marginal ordinary income rate of 37 percent versus the top long-term capital gains rate of 20 percent (23.8 percent including the 3.8 percent net investment income tax) creates a difference of about 17 percentage points. Risk addresses the likelihood that any deferred payments arrive, and post-close obligations define how long the seller must keep working and under what terms.
The right path can depend on a practice’s specific numbers and the owner’s reasons for selling. An honest comparison requires a real valuation. With one, the owner chooses from full information. General industry guidance defines these dimensions in the abstract. McLerran & Associates quantifies them for a specific practice on both paths at the same time, so the owner sees the tradeoffs clearly. For a deeper look at the available paths, see Dental Practice Succession Planning: How To Choose Your Path.
The Market Landscape For Dental Practice Succession Planning
For most of dental history, succession usually meant one doctor selling to another through a local broker. Over the past decade, private-equity-backed dental service organizations (DSOs) created a second, structurally different pathway: affiliation. DSO affiliation among U.S. dentists more than doubled from 7.2% in 2015 to 16.1% in 2026, while dentist practice ownership fell to a 20-year low of 73%, according to TUSK Practice Sales’ Q4 2026 Dental Market Report. A study published in Health Affairs found that private-equity affiliation among U.S. dentists rose from 6.6% in 2015 to 12.8% in 2021.
Four succession pathways now exist for many owner-dentists. An internal buy-in or associate-to-owner transition transfers the practice to a dentist already working in it, typically over 3 to 5 years. Family succession passes ownership to a family member, often combining a partial sale with phased gifting. A private doctor-to-doctor sale transfers ownership outright to an individual buyer, usually funded by a practice loan. DSO or private equity affiliation sells a controlling interest to an institutional buyer in exchange for cash, retained equity, and an employment agreement.
Several U.S.-specific factors can shape which path is most viable for a given practice. The Federal Reserve raised its target range for the federal funds rate to 3.75%–4% on September 16, 2026, and new SBA underwriting rules took effect October 1, 2026, which tightened financing for individual buyers and made the private-buyer path harder for some sellers to execute. The share of dental students intending to join a DSO-affiliated group more than doubled since 2018, rising from 16% to 34%, which narrows the pool of future private buyers.
Staffing pressure, regional variation in buyer demand, and changing owner priorities add further complexity. Demand for premier, Class A practices remains steep, and valuations sit near historically high levels, although no specific multiple can be promised for any individual practice.
What Are the 5 D’s of Succession Planning?
The 5 D’s of succession planning describe five events that can be some of the main forces behind an unplanned ownership transfer: death, disability, divorce, disagreement, and departure (retirement). Each event can be addressed with specific legal or financial documents before it occurs.
Death is addressed by a buy-sell agreement, which is a legally binding contract that determines who can buy the deceased owner’s interest, at what price, and how the purchase is funded, typically through life insurance on each partner. Without this structure, a practice can pass to heirs who have no ability to run it.
Disability is statistically more common than death during a dentist’s career. An ADA-posted study cited by Dentist Advisors found that roughly one in four dentists who carry disability insurance will make a claim on their policy at some point in their career, which measures claim frequency on disability policies rather than predicting that any given dentist will become disabled. Disability often receives less attention in plans than its frequency suggests. A disability insurance policy written on a true own-occupation basis pays if the dentist cannot perform dentistry specifically, even if they could work in another field. A disability trigger in the buy-sell agreement then defines what constitutes disability, how long it must last before a buyout begins, how the practice will be valued at that moment, and whether payment will be a lump sum or installments.
Divorce can transfer a practice interest to a non-dentist spouse without warning. Operating and partnership agreements can include provisions that restrict ownership transfers to non-dentists and establish a buyout mechanism if a partner’s marital estate is at risk.
Disagreement between partners can paralyze a practice. Partnership and operating agreements can include deadlock-resolution clauses and dispute procedures, including a defined process for one partner to buy out the other, so a disagreement does not become a forced sale at a distressed price.
Departure (retirement) is the planned exit many owners picture first. A formal retirement or transition plan can sequence the handover of clinical duties, patient relationships, and ownership over a defined timeline. The other four D’s matter because departure does not always happen on schedule.
What Is the Dentist 2 Year Rule?
Knowing the events that can force a transfer is only half of the picture; the other half relates to timing. The dentist 2 year rule refers to the practical window, roughly 2 years before going to market, during which a practice can be positioned to protect its value and support buyer financing. Clean, normalized financials let a buyer trust the earnings number. Stable staffing and documented systems show that the practice can run without the owner. Addressed deferred maintenance removes a discount that buyers might otherwise apply.
The dentist 2 year rule functions as a planning guideline rather than a legal requirement. Sellers who begin this work 2 or more years out often achieve stronger valuations than those who decide to sell and list within months. The two-year window represents a minimum. The sequenced timeline below shows how starting earlier can create more decision points and preserve flexibility. For a detailed checklist of preparation steps, see the Dental Practice Succession Planning Checklist.
When Should You Start Planning a Dental Practice Transition?
Most owners benefit from starting earlier than they expect. Each additional year of runway can add another decision gate before the owner feels pressure to close, which can preserve options and negotiating strength.
Five to seven years out, the work focuses on goals and groundwork. Owners can define personal and financial goals, obtain a preliminary valuation, begin EBITDA improvement efforts, and review buy-sell and operating agreements. The related documents often include a buy-sell agreement review, operating agreement review, a preliminary valuation report, and a brief memo capturing goals.
Three to five years out, owners can commission a formal valuation, compare pathways side by side, develop an associate or partner pipeline, and review disability and life insurance coverage. At this stage, a formal valuation, a side-by-side path comparison, an associate agreement or partnership term sheet, and an insurance policy review usually support the plan.
One to three years out, owners typically choose a path, prepare financials and a data room, engage advisors such as a broker, CPA, attorney, and financial advisor, and begin buyer or partner discussions. Advisor engagement letters, 3 years of normalized financials, a confidential information memorandum, and an NDA template often form the core documentation.
Six to twelve months out, owners usually go to market or finalize an internal agreement, complete diligence preparation, and negotiate the letter of intent (LOI). A marketing profile or internal buy-in agreement, a diligence package, and a signed LOI support this phase. In the final 90 days, the focus shifts to defending quality of earnings through diligence, finalizing the purchase agreement, and planning transition communications to staff and patients, supported by the purchase and sale agreement, a quality-of-earnings defense file, and a staff and patient communication plan.
Dental Practice Succession Planning Cost: 2026 Guide explains what each stage of this process can cost and how dentists often budget for it.
Discuss your transition timeline with a dental-only advisor.
Emergency and Disability Succession: The Part Most Plans Skip
An emergency succession plan answers three core questions. It specifies who runs the practice if the owner cannot, who has signing authority, and what the buy-sell agreement says about the trigger. Musculoskeletal disorders are the largest category of long-term disability claims among dentists, accounting for roughly 28% of all filings, according to the Academy of General Dentistry. A back injury, a wrist condition, or a cardiovascular event can remove an owner from the chair with little warning.
The mechanics of a disability buy-sell trigger involve five variables. The definition of disability comes first. A true own-occupation definition pays if the dentist cannot perform dentistry specifically, which matters because a dentist with a hand injury could still hold a desk job. The waiting period describes how long the disability must persist before the buyout obligation activates, often 12 to 24 months. The valuation method explains how the practice will be valued at the time of the trigger rather than at the time the agreement was signed. The funding mechanism distinguishes insurance-funded buyouts, which pay immediately, from installment-funded buyouts, which depend on the practice generating cash while the owner is out. If the agreement is silent, many states default to litigation, which can be slow and expensive.
Many owners hold a buy-sell document that nobody has reviewed since signing. If the agreement predates significant practice growth, the valuation method it specifies may produce a number far below current market value. Business overhead expense (BOE) insurance, which is a separate policy owned by the practice, can keep payroll and rent paid while an owner is out. That coverage can buy time to recover or execute a planned sale instead of a distressed one. Reviewing the buy-sell agreement against current practice value and applicable state law can be a concrete first step that costs time rather than cash.
Private Buyer Vs. DSO/PE Vs. Family: Comparing The Pathways
The three primary pathways differ on valuation method, cash at close, work-back obligations, and tax treatment, and those differences can compound significantly over time.
In a private doctor-to-doctor sale, the practice is typically valued as a percentage of annual collections or a multiple of SDE. Private sales commonly price at 75%–90% of annual collections, with 100% of the purchase price paid in cash at closing, and in a walk-away private sale the seller typically works back roughly 4–8 weeks before exiting. The seller usually exits cleanly and quickly. The trade-off is that the headline number is generally lower than a DSO offer, and the buyer pool, which consists of individual dentists with practice loans, is constrained by financing availability and the financing changes described earlier.
In a DSO or private equity affiliation, the practice is valued as a multiple of adjusted EBITDA. For lower- and middle-market DSO transactions, an indicative range is approximately 5x–9x adjusted EBITDA. DSO deals typically pay 60%–70% of the purchase price at closing. The remaining 30%–40% often arrives as retained equity or an earnout tied to future performance. A minimum 5-year working agreement is typical, although a shorter work-back may be possible if the owner has already worked themselves mostly out of the chair. As much as 40% of a DSO deal can be paid in equity rather than cash, and much of the goodwill portion of a DSO deal can be treated at long-term capital gains rates rather than ordinary income, subject to confirmation with a tax advisor. The retained equity is illiquid and its value depends on the DSO’s performance and the timing of a future recapitalization or sale, so many owners treat it like an investment rather than cash.
Family succession often trades headline price for continuity and flexibility. It typically combines a below-market sale price with phased gifting, seller financing, and a long transition period. The economic outcome is usually lower than either of the other paths. The non-financial benefits, such as preserving a family legacy and controlling the pace of exit, can still make it the right choice for some owners.
A side-by-side valuation can provide the clearest comparison of these paths because SDE multiples and EBITDA multiples apply to different earnings bases and cannot be compared directly without rebuilding the underlying calculation. McLerran & Associates produces that comparison because it works both the private-buyer and DSO/PE paths in roughly equal measure, which single-lane advisors, local generalist brokers, and multi-vertical firms generally do not offer. General industry guidance describes these pathways in the abstract. McLerran quantifies them for a specific practice with specific numbers.
The Downsides and Costs of Succession Planning
Comparing pathways on paper is the easy part; executing one can involve real costs. Advisor fees, time diverted from clinical production, emotional weight, and the risk of committing to a buyer or path before the picture is complete all factor into the decision. A formal valuation, legal review, and advisory fees can create meaningful out-of-pocket expense before any sale proceeds arrive. For a detailed breakdown, see Dental Practice Succession Planning Cost: 2026 Guide.
Several practical steps can help manage these costs and risks. Starting early preserves optionality, which can make the other protections possible. A seller with time can keep the plan flexible by avoiding exclusivity with any buyer until diligence is substantially complete. A seller who has not yet committed can also run a process among multiple qualified buyers instead of negotiating with one. Together, these choices can be some of the most reliable ways to protect both price and terms.
Common Pitfalls and How to Avoid Them
The most frequent and costly mistakes in dental practice succession planning often cluster around valuation, process, and communication.
- Valuation built on collections rather than normalized earnings. Two practices with identical collections but different overhead earn very different profits. Buyers and lenders usually price on normalized SDE or EBITDA, not revenue. Mitigation: obtain a CPA-led valuation that unpacks every add-back before going to market.
- Comparing headline multiples across different earnings bases. An SDE multiple and an EBITDA multiple are not comparable without rebuilding the earnings calculation. Mitigation: require any advisor to show the earnings base alongside the multiple.
- Granting exclusivity too early. Exclusivity can eliminate competitive tension and hand pricing power to the buyer. Mitigation: avoid exclusivity until diligence is substantially complete and terms are agreed in writing.
- Thin diligence preparation. Buyers who find surprises in diligence often re-trade the deal or walk. Mitigation: build a complete data room, including 3 years of normalized financials, production reports, payer mix, lease, and employment agreements, before the first buyer conversation.
- Ignoring purchase-price allocation. How the purchase price is divided among goodwill, equipment, and non-compete payments can determine how much of the proceeds are taxed at capital gains rates versus ordinary income rates. Mitigation: engage a CPA with dental transaction experience before signing any LOI.
- Skipping transition communications. Staff and patients who learn about a sale from rumor rather than the owner can lose confidence in the practice, which may erode value before closing. Mitigation: plan staff and patient communications as part of the closing checklist, not as an afterthought.
For single-location owners, owner-dependency, which describes the degree to which production is concentrated in the selling dentist, is a common valuation discount. For multi-site groups, provider risk and clinical continuity are leading reasons buyers walk, according to TUSK Practice Sales’ Q4 2026 Dental Market Report.
Why McLerran & Associates Is The Best Choice For Dental Practice Succession Planning
McLerran & Associates is a dental practice succession planning advisor for owners who want to maximize value and find the right fit because it is dental-only, works both the private-buyer and DSO/PE paths in roughly equal measure, and delivers a CPA-led, diligence-grade valuation that holds up under buyer scrutiny.
The verifiable reasons behind that verdict include several specific advantages.
- Roughly 35 years in business, dental-focused. McLerran & Associates has been in business roughly 35 years, with its first ~25 years focused on doctor-to-doctor brokerage and DSO sell-side advisory growing over the last ~10 years. The firm focuses on dental, reading specialty-by-specialty and market-by-market dynamics rather than treating every practice the same.
- ~50/50 split between private-buyer and DSO transactions. That balance can make a genuine side-by-side comparison possible. Single-lane advisors can describe the other path. McLerran prices it.
- CPA-led, diligence-grade EBITDA analysis. The valuation is built from the ground up, with every add-back unpacked, before the practice goes to market. That preparation can help the number hold when buyers scrutinize it and can reduce the risk of deals being re-traded at closing.
- Structured auction-like process. McLerran typically generates around ten offers in 45–60 days among a vetted pool of well-qualified buyers, with poorly run buyers removed from the list before they reach the table.
- Scale and track record. Approximately 2,000 successful practice sales, roughly $2 billion in closed transaction volume, more than 10,000 practices evaluated, and a transaction rate of approximately 85–90% versus an industry norm closer to 35–40% illustrate the firm’s experience.
- Sell-side only. McLerran represents the seller rather than the buyer, which aligns its incentives with the owner’s outcome.
General industry guidance, including resources from authoritative dental associations and multi-vertical advisory firms, often stays at the benefit and framework level. It explains what succession planning is and why it matters. McLerran & Associates delivers a real valuation, a competitive process, and a side-by-side path comparison, which can support decision-level planning. For guidance on selecting the right advisor, see Best Dental Practice Broker: How to Choose an Advisor.
McLerran & Associates has offices in Cleveland (Justin Klingshim), Atlanta (Matt Sutton), Northern Virginia (Andrew Kobylski), Los Angeles (Steven Au), and Phoenix (Brian Carroll), which provides national reach with regional market knowledge.
Connect with McLerran & Associates to discuss your practice and potential paths.
Conclusion And Next Steps
Dental practice succession planning is primarily a risk-management exercise that culminates in a sale. The events that can force an unplanned exit, the minimum positioning window, and the decision gates along the timeline all support one goal: helping the owner choose a path from a position of information rather than urgency. Emergency and disability succession mechanics can protect the practice and the owner’s financial security if something happens before the plan is complete. A pathway comparison built on real after-tax economics, rather than headline multiples alone, can make the final choice easier to defend.
As the earlier comparison showed, McLerran & Associates works both the private-buyer and DSO/PE paths in roughly equal measure, which can make a genuine side-by-side valuation possible. Its CPA-led, diligence-grade valuation and structured process can help owners see how each option might play out in practice.
Several next steps can move planning from concept to action. Owners can review the last 3 years of financials, clarify personal and financial goals, compare pathways on real after-tax economics, engage advisors with dental-specific transaction experience, and obtain a preliminary valuation before any buyer conversation begins.
Start your confidential conversation with McLerran & Associates.
Frequently Asked Questions
What Should a Dental Practice Succession Plan Include?
A complete dental practice succession plan includes several components. These can include a current, CPA-led practice valuation and a side-by-side comparison of available pathways (private buyer, DSO/PE, internal buy-in, family succession) on after-tax economics. A sequenced timeline with decision gates from 5-plus years out to closing can guide the process. An emergency and disability succession protocol can specify who runs the practice, who has signing authority, and what the buy-sell agreement’s disability trigger says.
The plan can also include reviewed and updated buy-sell and operating agreements, disability and life insurance coverage mapped to the plan, and a data room with 3 years of normalized financials, production reports, payer mix, lease, and employment agreements. A transition communications plan for staff and patients rounds out the structure. Many owners review and update the plan at least every 2 to 3 years, or whenever practice revenue or ownership structure changes materially.
What Are the Downsides of Succession Planning?
The primary downsides often involve time, cost, and emotional weight. A formal valuation, legal review, and advisory fees can create meaningful out-of-pocket expense before any sale proceeds arrive. The process can divert attention from clinical production and can take 12 to 24 months or longer from preparation to closing. There is also the risk of committing to a buyer or path too early, because granting exclusivity before diligence is complete can eliminate competitive tension and hand pricing power to the buyer.
Several mitigations can help. Starting early can reduce urgency. Keeping the plan flexible and avoiding exclusivity until terms are substantially agreed can preserve negotiating strength. Running a competitive process among multiple qualified buyers, rather than negotiating with one, can further support both price and terms.
When Should You Start Planning a Dental Practice Transition?
The practical minimum often falls around 2 to 3 years before the intended sale date, which aligns with the two-year rule for positioning the practice. Many owners see the best results when they start 5 to 7 years out, when there is enough time to improve EBITDA, develop an associate or partner pipeline, update legal agreements, and obtain a preliminary valuation without urgency. Owners who wait until they are ready to sell immediately often face a compressed timeline that limits options, reduces competitive tension among buyers, and can result in a lower valuation. TUSK Practice Sales’ Q4 2026 Dental Market Report recommends that owners considering a sale within 5 to 10 years assess their practice’s value and discuss transition options with advisors early.
Should I Sell to a Private Buyer or a DSO?
The right answer can depend on the practice’s size, profitability, and the owner’s personal goals. Smaller premier practices, commonly in the $1–1.5 million revenue range, often fit a private doctor-to-doctor sale, which typically pays 100% cash at closing with a short transition obligation. Larger practices, generally $1.5 million in revenue and above, are more likely to attract DSO or private equity interest. In those cases, the headline number can be higher, but a meaningful portion may arrive as retained equity or an earnout rather than cash at close, and a multi-year working agreement is common. Owners in the middle can often pursue either path. A side-by-side valuation that quantifies after-tax proceeds on each path can provide the clearest basis for choosing, which is the type of analysis McLerran & Associates produces because it works both markets in roughly equal measure.
How Do I Know Which DSOs Are Good Partners?
Vetting a DSO works best when treated like evaluating an investment. Key questions can include whether the whole company is profitable and whether revenue is still growing at the offices it already owns. The experience and stability of the management team, the track record of the private equity firm backing it, and the post-close environment for dentists who have already affiliated also matter. Not every DSO is a good partner. Some are undercapitalized, some have created poor post-close environments, and some carry debt loads that put retained equity at risk. McLerran & Associates vets buyers before they reach the table and has blacklisted DSOs known for poor outcomes, so owners in its process typically see well-backed, well-run candidates with a track record of satisfied sellers.
Why Use McLerran & Associates Instead of My Local Broker?
A local broker who knows one or two buyers can provide limited market exposure, weaker valuation work, and less aggressive bidding, because buyers often bid less aggressively on deals from advisors who transact infrequently. McLerran & Associates is dental-only, works both the private-buyer and DSO/PE paths in roughly equal measure, and runs a structured, auction-like process that typically generates around ten offers in 45–60 days among a vetted national buyer pool. Its CPA-led, diligence-grade valuation can hold up under buyer scrutiny and can reduce the risk of re-trades at closing. The result is a transaction rate of approximately 85–90%, versus an industry norm closer to 35–40%, which reflects more closings at the agreed price.
