Why a Bird in the Hand is Worth More

Selling Your Funeral Home: Why a Bird in the Hand is Worth More in Today’s Market

As the famous saying goes, A bird in the hand is worth two in the bush. This wisdom is particularly relevant when it comes to selling your funeral home in today’s market. Unlike in the 1990s, when large corporations were actively acquiring small and medium-sized funeral homes, the landscape has significantly changed. Understanding these changes is crucial for anyone considering selling their funeral business.

The Changing Landscape of Funeral Home Sales

In the past, large corporations dominated the market, often purchasing funeral homes with 250-plus calls per year. They banked on economies of scale and assumed that they could achieve higher operating margins than independent firms, justifying their willingness to pay premium prices. However, this strategy often backfired. Corporations soon realized the critical role of personal service and owner presence, which led to lost call volume and decreased revenue. As a result, many of these corporations were divested from smaller firms, and today, they are no longer the premium buyers they once were.

Current Buyers in the Funeral Home Market

So, who are the primary buyers in today’s funeral home market? The answer is clear: individuals and small regional firms. These buyers are now offering the most competitive prices, with a strong focus on smaller operations that align with their business models.

• Individuals: Typically, individuals are looking to buy funeral homes that handle 75 to 150 calls per year. More experienced buyers may be interested in larger operations, but the focus remains on manageable, profitable businesses.
• Small Regional Firms: These firms are interested in acquiring funeral homes that handle 100 or more calls per year, especially if they are located within a reasonable distance from their existing operations. In some cases, the distance requirement can be waived if a local manager can partner with the regional firm and take on an ownership role.

What Prices Are Buyers Willing to Pay?

Current market prices for funeral homes range from four to six times adjusted cash flow or up to 2.25 times net revenue. However, it’s important to understand that the final sale price is most closely correlated with adjusted cash flow rather than net revenue. Adjusted cash flow represents the money available to the new owner to service debt after the sale, making it a key factor for lenders when determining loan amounts.

• Competitive Financing: The ability of a buyer to secure competitive financing is crucial in determining the final sale price. Lower interest rates allow buyers to finance more debt, similar to how lower mortgage rates enable homebuyers to purchase more expensive properties. Competitive financing can come from traditional lenders or, in some cases, the seller. Offering seller financing at competitive rates is an effective way for sellers to secure a higher sale price.

Avoid Common Pitfalls

In today’s market, it’s essential for sellers to be realistic about their expectations. The days of large corporations offering three times revenue are gone. Instead, sellers should focus on maximizing their business’s cash flow and ensuring that buyers have access to competitive financing. Be cautious of anyone who overpromises or tries to sell you unnecessary services, such as expensive business appraisals or exclusive listing agreements.

• Red Flags: Beware of advisors who claim they can sell your business for more than 2.25 times revenue, push expensive appraisals, or encourage you to sign restrictive contracts. These tactics can lead to unrealistic expectations and wasted time.

The Importance of Acting at the Right Time

One of the biggest mistakes sellers can make is holding out too long for a premium buyer that may never materialize. In today’s market, it is better to secure a fair and realistic offer from a qualified buyer than to wait indefinitely for a deal that is unlikely to come.

• Maximize Cash Flow: Work closely with your accountant to streamline operations and maximize cash flow before listing your business. This will make your funeral home more attractive to buyers and increase your chances of securing a favorable sale price.
• Consider Seller Financing: If you’re seeking a premium price, be prepared to offer some level of seller financing. This can make your business more appealing to buyers and help you achieve the price you desire.

Conclusion: Take Advantage of Current Market Conditions

Selling your funeral home is a significant decision that requires careful consideration of the current market conditions. By understanding who the active buyers are and what they’re looking for, you can position your business to attract the best possible offers. Remember, in today’s market, a bird in the hand a realistic, competitive offer is worth more than holding out for a deal that may never happen.

Considering selling your funeral home?

Don’t wait for the perfect buyer to secure a competitive offer today. Contact us to discuss your options and learn how to maximize your business’s value in the current market.

For expert guidance on selling your funeral home, contact Matt Manske, Member of BSF LLC, at (913) 343-2357 or via email at [email protected]. Visit www.4BSF.com for more information.

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