Prerequisites
- Identical charts of accounts across PCs, with hygiene tracked as a department. See Set up bookkeeping
- Intercompany balances reconciling monthly
- Management fees invoiced and paid in cash
- 835-level data accessible for the AR waterfall
The monthly package
Seven documents. Produce them from month one; the cost is low early and prohibitive to reconstruct later.1
Per-entity and per-office P&Ls
Show each PC and the DSO on a standalone basis, using the same format and account structure. Where one PC holds several offices, break the P&L down per office. Buyers commonly underwrite at the office level, and a blended PC-level view can hide a weak location.
2
Consolidated P&L with eliminations shown
Show the eliminations as a visible column, not folded silently into the totals. Anyone reading it needs to see that management fee revenue and expense net to zero.
3
DSO standalone P&L
When the transaction involves DSO equity, show the DSO’s standalone results separately from the group’s consolidated or combined results. Patient-service revenue earned by the PCs should not be presented as though the DSO earned it. Label both views and identify the transaction perimeter.
4
DSO EBITDA bridge
From reported net income to adjusted EBITDA, with each adjustment named and quantified:
That last line is the one groups omit and buyers always find. Show it yourself.
5
Office-level unit economics
Per office, per month:
6
Fee-coverage check, per PC
Can this PC pay its management fee out of its own collections, after clinical compensation and direct expenses?Report the ratio and trend for each PC. A PC that remains below 1.0 after its ramp may have a fee above what the entity can support, weak unit economics, or both. The first possibility also raises an FMV question. See Where the profit lives.
7
AR waterfall from 835 data
Cash conversion by service-month cohort: for services rendered in month N, how much had been collected by month N+1, N+2, N+3, and so on.This report shows collection velocity by service cohort and can reveal deterioration before it becomes visible in days in AR. It also gives an underwriter the analysis in a form you can define and reconcile.
The KPI pack
Alongside the financials, monthly:Same-store growth: define it honestly
Large DSO platforms are privately held and do not publish a common same-store benchmark. Define the metric in writing and apply it consistently because investors will test your calculation.- Which offices are in the same-store base, commonly those owned for the full current and prior period
- When a de novo enters the base (at open? at month 13? at maturity?)
- When an acquisition enters the base, and whether its pre-close trailing revenue counts
- Whether the measure is production, net revenue, or collections
When audited financials become necessary
What auditors will ask about consolidation
Expect the PCs to be consolidated into audited financials even though the DSO owns no equity in them. Under ASC 810, an entity consolidates a variable interest entity when it is the primary beneficiary, having both power (directing the activities most significantly affecting economic performance) and economics (absorbing losses or receiving benefits that could be significant). In a typical DSO structure, the management services agreement (MSA) supplies the power and the management fee supplies the economics. ASC 810’s related-party guidance also treats parties subject to agreements restricting transfer of their interests as de facto agents, which describes your friendly dentist under the transfer restriction agreement.2 Auditors will want: the MSA, the transfer restriction agreement, evidence the fee was paid, and the intercompany reconciliations. Have them ready.Verify it worked
- All seven documents produced monthly
- Per-office breakdown where a PC holds multiple offices
- DSO standalone shown separately and labeled
- Eliminations shown as a visible column
- EBITDA bridge includes the accrued-but-uncollected fee deduction
- Hygiene reappointment and PPO write-off trends in the KPI pack
- Same-store definition written down and disclosed
- Fee-coverage ratio reported per PC with a trend
- AR waterfall built from 835 data
- Consolidation documentation ready for auditors
Common failure modes
Sources
- Hygiene reappointment benchmarks are consultant-sourced and directional: recall and hygiene retention benchmarks (high performers pre-book 85–95%; roughly half of practices pre-book at all).
- FASB ASC 810, Consolidation. See BDO, Control and Consolidation Under ASC 810 (May 2024); Deloitte, Primary Beneficiary. Confirm application to your facts with your auditors.