When selling a funeral business, it’s essential to understand the concept of multiples. Represented as a numerical value, a multiple can be used to compare the values of similar businesses, and it’s also a key factor in determining the right price for a sale.
Multiples are based on a number of factors, including the specific industry as well as a business’s size and profitability. When you are considering what multiple to pay, it is the same as considering how many years of cash flow you feel confident you will receive from your purchase. It’s the number of years of cash flow you are buying.
In this guide, we’ll review the importance of multiples, how they’re assessed, and what’s considered a “good” multiple for the death care profession.
What’s a Good Multiple When Selling a Funeral Business?
When planning to sell your funeral business, you’ll need to obtain a valuation, and during this process, the appraiser will determine a multiple range for your business.
Multiples vary greatly by industry. In the death care industry, a multiple of six to ten is considered a good range for mid-to-large size businesses. However, this multiple will vary based on factors such as the current economy, lending rates, as well as the business’s case volume, market share, and historical trends. A business’s value is dictated by the level of opportunity and risk. The higher the opportunity and the lower the risk, the higher the multiple. How you demonstrate the opportunity and the risk depends on how well your marketing package and presentation is put together.
How Can You Improve Your Multiple?
For many funeral business owners, improving multiples will be an essential step to take before putting a business up for sale. There are several proven ways to increase one’s multiple, and many of them dovetail with boosting a business’s valuation.
Getting Regular Valuations
Getting regular valuations is an important step for any funeral business looking to improve its multiple. Valuations not only provide you with a top-down assessment of current performance, but they can also help identify areas of weakness in the business, which can then be addressed.
When performed annually, valuations can track the progress of a funeral business over time and help establish realistic expectations for the company’s future. We often ask how often clients look at their investments in stocks/bonds/cash, most likely they are looking on a monthly or annual basis. Funeral business owners rarely look at their own business’ value, which is ironically the most valuable asset they own.
Understand Your Financials
While some funeral business owners can tell you how profitable their company is, fewer can readily report the deeper financial picture.
To increase a funeral home’s multiple, it’s essential for leadership to have a comprehensive understanding of the company’s current financial position and to be able to accurately interpret financial trends and performance. This includes clear and concise profit & loss/income statements, and balance sheets.
Set Goals for Growth
Setting goals for growth is also critical for improving a business’s multiple. By creating goals and executing a budget and plan to achieve them, your business can begin addressing any issues that caused it to obtain a less-than-ideal valuation.
A good place to start this process is with a JCG performance analysis. Gathering key stakeholders and discussing the funeral home’s strengths and weaknesses in its 4 pillars of success is critical. By doing this, you can create a strategic plan that sets your business up for greater valuations.
Invest in Your Team
Payroll is the highest expense within your company, and it’s gone up at least 5-10% of net sales in comparison to recent years. Is your labor pool an asset or liability to the business’s success in the future? Bottom line: invest in your team.
Furthermore, higher turnover rates and employee dissatisfaction can hurt your valuation. You should implement strategies to recruit and retain top talent. In many cases, to optimize the performance of your teams, leadership may create incentive compensation plans that reward top performers within your organization.
Lean on Funeral Home Consultants
Improving the multiples of your funeral business will require extensive planning and years of execution. Your time is best suited to being active within the community and with the families you serve.
We like to say an owner’s time is worth $1000/hour….Where are you best spending your time? What are the things you should be doing, and what are the things you should be outsourcing to the experts? In these cases, it’s logical to rely on the expertise of funeral home consultants.
Johnson Consulting Group (JCG) is a leading firm specializing in the death care industry. By partnering with your leadership team, we can help you through every step of the way to improve your multiples, assist with exit strategy planning, conduct valuations, and provide brokerage services.
The JCG team provides the outside perspective and industry expertise that allow funeral businesses to boost their multiples. Reach out today to learn how we can help.