Selling a business is never simple. Debts, assets, liabilities, employees, and market trends all play into the complicated process of finding a buyer and sealing the deal. In the funeral profession, you’ll find some peculiarities that further complicate the process.
In our experience consulting, we’ve seen some common mistakes when selling a funeral home that ultimately impacted their bottom line in a sale. Here are some frequent errors and how to avoid them.
Mistake #1: Skipping Your Own Valuation
A valuation is an analytical process of discerning a company’s current or projected value. Most likely, when planning to sell your funeral home, you’ll want to conduct a valuation of your company to determine an asking price for potential buyers.
Before you begin the sales process, it’s imperative to know how much your business is worth so that you neither walk away from a great offer nor accept something too low. Often, funeral home owners assume that valuation is simply adding yearly revenue to liquid assets; however, the process is a bit more complicated. Only using these metrics leaves you at risk for undervaluing your business.
To establish an accurate valuation of your business, you’ll want to consider the following methods:
- Comparing to Competition: The easiest way to determine the value of your funeral home is to find out the value of similarly sized businesses. Especially if you can find funeral homes in your area, this will give you an accurate range of where your business could stand in terms of value.
- Assessing Cash Flow: Another tried and tested method is to consider the actual revenue of your funeral home. By calculating how much revenue you make and multiplying it by 2.25 (the current industry standard), you’ll be able to express to potential buyers how much revenue they’re likely to earn.
- Considering the Buyer: Depending on where you’re located, the number of potential buyers might be limited. In these cases, it might behoove you to figure out what the buyer can afford by looking at how much they can borrow and how much debt can be offset by the funeral home’s profits.
Lean on Your CPA
For all of these methods, you’ll want to rely on an accountant who specializes in these sorts of transactions. A CPA with experience in the funeral industry, like those at Johnson Consulting Group, not only helps you consider your cash flow and understand your minimum debt ratio but also brings technical, numerical, and industry-specific expertise to the table.
Mistake #2: Neglecting Market Consideration
You want your company to sell when it’s worth the highest amount possible to increase profit. The market is going to play a huge role in that. For example, during 2020, many funeral homes suffered their lowest profit margins in decades due to bans on in-person gatherings. During this time, those who sold their businesses made far less than they could have if they’d sold during busier period.
When considering the market and its trends as they relate to the funeral industry, you should ask yourself the following questions:
- Which buyers will be interested in buying your funeral home, and what prices can they afford to pay?This will depend on both the size of your business, its location, and its profitability.
- How many calls do you get per year? Large corporations rarely buy funeral homes with under 250 yearly calls. If your business receives less than 100, you’ll likely only appeal to individuals.
- What kind of prices are people offering for funeral homes in your area? This will depend heavily on current interest rates. If they’re lower, then buyers will be able to take on more debt.
Mistake #3: Not Considering Your Reputation
While reputation is hard to quantify, especially in the eyes of a CPA, it’s important nonetheless. More so than other types of business, successful funeral homes are woven into the fabric of the communities they serve. If local families have trusted in your services, they will likely continue to do so, even if they haven’t called on your assistance in a couple of years.
Additionally, local partnerships with florists, senior centers, and churches will be tied to your business’s name. If the market is taking a dip holistically, these connections will help your business rebound. For these reasons, reputation is an intangible asset that should always be considered.
Mistake #4: Passing on Help
The process of selling any business is complex, but this is especially true for a business that is reliant on its community and reputation. While the funeral home and facilities play a huge role, it’s really the people that provide the heart of your service through their emotional care and connections to your families. Because of this, it’s important you seek out the proper help when beginning the selling process.
It’s important to have partners by your side who have been in the industry for decades. As the largest broker in the funeral industry, Johnson Consulting Group has the experience necessary to get you the most value from the sale of your funeral home. Not only do we understand the industry and its potential buyers, but we’ve also the experienced financial professionals to make the process go seamlessly ensuring your funeral home’s legacy and helping protect the interests of those connected.