7 Tips for Maximizing Value in a Funeral Home Sale

Thinking about selling your funeral home? Get the most out of your valuation.

 In speaking with funeral home owners across the U.S., it has become apparent that more and more are receptive to the idea of a sale. The industry is no stranger to the big-named public and private equity-backed companies seeking large, multi-location funeral homes. There are, however, a handful of select private buyers paying attractive multiples for good, quality family funeral homes. Even successful, multi-generational family-owned funeral homes are considering a sale as they weigh some of the risks and benefits of partnering with a larger, well-financed buyer.

The NewBridge Group has been advising funeral home owners on mergers & acquisitions since 1997. Based on our experience, below are several tips that can help make your funeral home more attractive should you decide to explore a sale:

Solidify your Management Team

Much of a buyer’s perceived value of your funeral home lies in the strength of your management team – the individuals that will help carry your legacy if appropriately groomed. For example, would your staff be equipped to handle the business’s day-to-day needs if you were to become sick suddenly – not to mention sell your business, retire, and move to the beach? Proving to a buyer that your sales will not decline post-sale requires a reliable funeral staff that can assume leadership, provide continuity, and represent the business.

Double-Check your Pricing

Many traditional funeral homes are considered pillars in their community, with noteworthy trends of increasing call volumes over the years. Some are reluctant to increase pricing, however, as they feel an obligation to the community they serve or to compete with newer, low-cost funeral home. If your funeral home name is solid and you are committed to customer service and personal touch, we find that many funeral homes are leaving dollars on the table (this includes both traditional funeral services and cremation pricing). There are several strategies available for revenue pricing analysis that our NewBridge team is happy to discuss with you. Buyers cannot project increased revenue with an expected price increase shortly after closing. Ideally, the proper pricing will be in place at least one year prior to a sale.

Get a Handle on Costs

The NewBridge Group performs about 75-100 valuations annually. We sometimes see beautiful funeral homes with property values greater than operational/business values. Keeping a funeral home updated and well-maintained is very important; however, one does not always need to remodel or relocate to keep pace with the competition. We often hear funeral home owners tout all the beautiful features of their facilities and are surprised when they discover the value based on an EBITDA or revenue multiple is lower than their real estate/property value. Investing in a crematory is also a major consideration. These days, we see the benefits of investing in your own retort- buyers will generally recognize its future value.

Understand your Value

You may have a good idea of what your business is worth; however, it’s always prudent to have a third party validate your value. Today’s values are driven by multiple earnings (EBITDA), revenues, and a combination of other factors (pre-need, annual call trends, and management team among them). In addition, multiples can vary based on size, so larger funeral companies with multiple locations will typically command higher valuation multiples than a single or few locations. Also, remember that a valuation is only a piece of paper/document with a best guess. Actual market value is what a willing buyer and seller agree on.

NewBridge offers to perform complimentary valuations owners contemplating a transaction with no obligation, even if they don’t expect to sell in the immediate future. Many owners decide that now is not the time for a sale based on their current expected value. Many of our current customers received a free valuation a few years ago but were not ready at the time. But they trusted our judgment after we provided an honest opinion about their business a few years before, and knew who to contact when they ultimately made the decision to sell.

Understand your Motivations

I have seen many prospective sellers say that offer price is not the most critical factor and that having a buyer that will continue their legacy and treat their employees and customers the same way they always have is paramount. However, overall value always comes up when they get to the negotiating process. On the other hand, we’ve seen sellers tell us that an offer is most important but have backed away from premium, above-market offers, as they say, “my grandfather/father would be rolling over in his grave if he knew I sold the business to XYZ.” As you know, a sale is often the most important decision in the career of a funeral home owner and is not to be taken lightly.

Talk with Advisors

Working with a CPA, financial advisor, insurance agent, and an attorney can be very beneficial, especially if you consider these professionals as trusted advisors. A CPA can help analyze potential tax implications and help prepare financial statements that make the sale process move along much more smoothly. Sometimes, however, advisors can present a roadblock, as they know they are losing a client. If you understand your motivations and have made up your mind to sell, you should relay your sentiments to your trusted advisor, telling them that you know you’d be happy not having the pressures of ownership and would like them to be part of the sale process with you. NewBridge often works with CPAs and attorneys to advise on various transac­tion structures to mitigate sellers’ taxes.

Research your Suitors

Understanding why a buyer may be interested in your funeral home can help pre­pare you to make your business more attractive. Is it something unique about your business? Your location? Your market dynamics? Your family name and man­agement team? You may think you know why your business is attractive based on why customers choose to come to your funeral home. However, sometimes the reasons a buyer is interested can differ from why customers choose you. Also, different buyers have different motivations. Understanding these motivations will help you better position your business and negotiate during the sale process.

The NewBridge Group works with several active private buyers who pay market value premiums when the situation is right. They’re all highly confiden­tial, make very few (most often none) staff changes, and do not modify the names of any businesses after a purchase. They all left public company settings to get away from “corporate life” but are bringing best practices…and a war chest of capital.

If you are interested in a free valuation or learning more about our active buyers, please get in touch with us.