by Brooks Cowles (JCG Field Representative)
As we predicted last year, 2010 has been a good year for those owners who felt they were close to succession to bump up their timing and go to market. First, and most likely, it continues to look as though capital gains rates will rise after December 31, 2010. Although many on both sides of the aisle have urged continuation of the “Bush Tax Cuts,” Congress has proven with the Estate Tax debacle that even when a failure to act will bring disastrous consequences, political gridlock can still cause inaction.
In addition, a quick return to prosperity looks increasingly questionable, as more economists admit that a double dip recession is more likely than previously thought. The combination of a slow economy and lower mortality rates have slowed many firms that previously enjoyed revenue growth year after year.
We repeat our advice, that any owner who believes there is a good chance he will transfer his business in the next five years, should begin now. Even if you do not put your firm on the market, completing the hard work to be ready to do so, with an understanding of value, management succession in place, good records, and other preliminary steps, will keep you nimble as these critical stories play out.
To summarize some background, the first risk factor is the likelihood of higher capital gains taxes based on legislation already in place. As the “Bush Tax Cuts” automatically expire on December 31, 2010, federal capital gains tax rates are set to go up 5% for most sellers. Whether that happens, whether the rates go even higher or whether the cuts are extended seem equally possible at this point. The battle will be between those who believe extending the cuts will help further the recovery and job creation, and those who feel higher rates on the job creators are necessary to close the exploding deficit and fund more government spending.
It now appears that the Boomer – led explosion in the death rate is also further away than predicted previously. The current declining or flat death rates may go on for another five years or more before we see an increase. Finally, lending continues to be tight for many individual purchasers, further reducing the options for selling owners. As the acquirers who can get credit find and acquire their targets, some will stop buying and focus on reducing that debt before going back into the market.
In short, most of our fears for an increasingly unsettled and difficult market for funeral home and cemetery sellers continue to look possible or even probable. If you are concerned about these factors and wish to be in position to move quickly as we get a better feel for 2011, you should consider starting immediately. (Click to contact)