Creedy Commentary

19
Jun

What Would You Pay?

Big Question!! How much should the value of a funeral home be discounted if the facility is being sold for other use?

A funeral home in your area has accepted an offer for their real estate that is much greater than the business is worth. How much would you discount the value of the business if you were able to buy the name, phone number and files as well as any other equipment?

Let’s say the business WITH the real estate is valued at $1,500,000. Their business is steady and the owner is willing to help in transition but plans on retiring as soon as possible.  What would you be willing to pay?

Hint:

  • Assuming a market with average competition I believe closing a facility and transitioning to new ownership could impact 30% to 50% of volume
    • If it is in a two competitor small town I would lean toward 50% if it wasn’t sold to the competitor

I know “IT DEPENDS” but let’s get some collective opinion going here. Give me your ideas in the comments section. I will answer all questions and publish my “mathematical” approach (if someone else doesn’t” in two weeks.

War Stories welcome!

2 Responses

  1. It doesn’t matter what the business is valued at. I’d pay the owner no more than 5% of the value of pre-arrangements over 5 years at no interest. If they have $1,000,000 in Pre-Need that would be $10,000 a year for 5 years. I would also tie in a non-compete clause to that amount for the 5 years.

    This is my reasoning; If they sell to you and put in the good word to the public then 50% of the PA’s will most likely stay with you, at least for the first 5 years. A generous number of 10% profit on those calls is what you might get and passing that profit along to the former owner would be about $10,000 a year. The at need business is up for grabs the moment the former owner retires and stops working and isn’t worth paying a dime for. Especially if the facility and the name cease to exist.

  2. The business is worth a factor of net income. If there is no competition, you may be able to approach the “normal” 6x net income valuation. But losing the building takes on risk in every market. Having the former owner on staff would be a necessary part of the deal. It would be difficult to put a number on the value, I would only be comfortable paying an amount that ties the number to future retention of the business. If the former owner is out, the number needs to be low – such as Dale Clock stated.

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