If you’re getting ready to sell your funeral home, or you find yourself in the early stages of exploring a sale, it’s important to consider the challenges you might face. Appraising the value of your business, finding the appropriate buyer, and sealing the deal can all cause quite the headache.
Luckily, the issues that arise can be dealt with through proper planning. Let’s take a closer look at some of the more common issues.
1. Poor Market Conditions
Above all else, your decision to sell your funeral business should hinge on the state of the market. Much like real estate, the market for funeral homes is subject to fluctuation, and you’ll want to be sure your business is primed to garner a maximum return in a seller’s market.
To spot poor market conditions, you should look for the following:
- High interest rates: The more debt buyers have to take on, the less they’ll be willing to pay to purchase your funeral home.
- Low number of buyers: If there aren’t many people out there looking to purchase funeral businesses, then the market is likely in a slowdown, and offers will be lower.
- Periods of decreased revenue: If your business has experienced a year of lower revenue or slowed growth, then it will appraise for less than it otherwise might. This was particularly common for funeral businesses in the wake of Covid-19.
How to Combat It
The key to dealing with poor market conditions (if waiting isn’t an option) is to make yourself look like the best option out there. The market will eventually hit an upswing, and you’ll want to position your business for success when this occurs.
To accomplish this, you’ll want to make sure your funeral home is in tip-top shape, making it more enticing to a potential buyer. Consider the following:
- Soliciting positive reviews: If your business maintains its good reputation, then more buyers will likely have interest, especially when the market picks back up.
- Cultivating a happy team: As with most human-facing businesses, funeral homes are majorly defined by their personnel. As soon as it’s reasonably possible, communicate your intent to sell the business, and assure them that the business will continue to function.
- Review your financial statements: Having detailed financial statements is essential when selling a business. Be sure to organize your accounting records, particularly the profit and loss, balance sheet, and cash flow statements.
2. Low Valuation
Getting a low valuation can feel devastating especially if it’s much less than expected. Not only can it affect your appeal to potential buyers, but it also likely means you won’t get as much as you want from the sale.
Valuing your business either too high or low can be a costly mistake, so it’s important to make sure you trust the results you find. Additionally, if the assessed value of your business is low, you may wish to change course, increasing your value before initiating a sale.
How to Combat It
In most cases, buyers will want to see three years of financial accounts and asset/liability records. Additionally, you’ll want to be able to furnish legal records, real estate documents, call volume reports, vendor and partner agreements, and a current list of employees and their compensation.
Instead of ordering a private or independent appraisal, you could also consider estimating the amount of debt that a potential buyer can realistically pay for. By calculating an estimate of affordable debt on the buyer’s part, you can value your funeral home based on the buyer’s means.
Another helpful strategy is to present the buyer with a list of owner-related expenses such as salaries, pensions, life insurance policies, and any other expenses that won’t be inherited by the buyer. This will provide additional context surrounding how much they’ll actually spend to operate your business.
3. Unorganized Accounting
Critical to your valuation and any subsequent sale is the story told by your records. Mainly, a buyer will wonder if you’ve been profitable and if there’s room to grow once he or she takes control of your business.
Unless your records are properly organized, it’s nearly impossible to put a value on your funeral business. Sure, you might have tax returns that demonstrate year-over-year profits, but if you don’t present detailed documents that explain how your revenue compares to operating costs, then a potential buyer has no proof of your business’s profitability.
How to Combat It
The best way to ensure organized accounting is to work with an accountant who understands the funeral profession and its idiosyncrasies. Not only can a funeral-specific accountant help you in the planning stages to ensure maximum profitability, but they can also be a key player when you’re selling your funeral business.
Financially speaking, a well-managed business will likely sell for more when the time comes, and an accountant with death care experience––like those from Johnson Consulting Group––will help you through every step of the process, from valuation to sale.
Sell with Ease
When looking to sell your funeral business, your best bet is to start early, organize your finances, get a professional valuation, and communicate with your team. To be sure you’re covering all of your bases, it’s best to seek some outside help.
With over $2 billion in closed transactions, Johnson Consulting Group is uniquely positioned to help you sell your business. Their funeral brokerage team can help guide you through every step of the process––from the valuation and finding a potential buyer to securing and facilitating the loan process.
While selling a business of any size is a complex process, Johnson Consulting Group has the experience and team to help make it seamless and profitable for you.