Business Reality Check: ‘Better a Certainty than an Uncertainty’
Featured in American Funeral Director by Kates-Boylston Publications
When selling a funeral home, timing matters.
Owners spend decades building reputation, market share, staffing relationships, and operational consistency. That lifetime investment often creates a sentimental perception of value that buyers may not fully support. Sellers sometimes become anchored to a target number and convince themselves that if they wait just a little longer, the “right buyer” will eventually appear.
What many owners underestimate, however, is how quickly business value can deteriorate once they mentally decide they are ready to sell.
Most importantly, the decline in value was not caused by one catastrophic event. Instead, several factors compounded together over time.
The Decision to Sell
Steve Braden owned a three-location funeral home and cemetery combination operation in the Midwest. The company had experienced exceptional financial performance during the pandemic years as elevated death rates increased call volume and revenue.
By the end of 2021, the business generated approximately $6 million in revenue and $2.2 million in earnings before interest, taxes, depreciation, and amortization – a financial metric used to measure a company’s foundational profitability by stripping out finance costs (interest), income tax obligations, and non-cash accounting expenses (depreciation and amortization).
Importantly, not only was the company performing well financially, but buyer sentiment across the profession was also extremely strong at this time. Low interest rates and aggressive acquisition strategies from consolidators, regional operators, and private buyers created a highly competitive acquisition environment for quality funeral operations.
At 67 years old, Steve had been considering retirement for several years and decided the timing finally felt right. The business was formally brought to market in early 2022. Buyer interest was immediate.
Several groups viewed the company as an attractive acquisition due to its scale, geographic footprint, and recent growth trend. Buyers understood that COVID-related mortality likely contributed to the recent financial performance, but most still believed the operation represented a strong long-term platform.
Multiple offers were submitted, with the highest reaching $18 million, representing roughly an 8.2x EBITDA multiple. At the time, this was considered a premium valuation.
However, Steve believed the company was worth more. Because revenue and cash flow had grown rapidly over the prior several years, he became convinced the business could ultimately justify a $20 million valuation if another strong year of financial performance could be demonstrated.
Rather than accepting the offer, Steve requested additional time from buyers so the business could produce another year of financial statements.
In hindsight, the company was likely at or near peak value.
Unfortunately, neither Steve nor the buyers fully appreciated how quickly conditions would begin changing.
The First Signs of Decline
As 2022 progressed, operational performance began softening.
The “COVID pull-forward effect” that many large funeral operators discussed publicly throughout the profession began materializing across the industry. Call volume and revenue normalized as mortality rates returned closer to historical averages.
When 2022 year-end financials were completed, revenue had declined from $6 million to $5.5 million, while EBITDA fell from $2.2 million to $2 million.
At first glance, the business still appeared healthy and highly profitable. Under most circumstances, the company would have remained an attractive acquisition candidate.
The problem was not simply that earnings declined. The problem was that uncertainty increased.
Only one year earlier, buyers believed they were acquiring a rapidly growing business with momentum. Now the trendline had reversed, and buyers began questioning whether pandemic-era earnings had artificially inflated the company’s true long-term cash flow.
As buyer concerns increased, enthusiasm faded.
Several buyers revised their prior offers downward to reflect the reduced earnings and greater uncertainty surrounding future performance. Steve rejected the revised offers.
Believing the decline was temporary, he chose to wait another year in hopes the business would rebound.
Operational Fatigue Begins
At the same time, another issue quietly started developing behind the scenes.
Once Steve mentally committed to retiring, his operational engagement gradually began to weaken. This dynamic is one of the most overlooked risks in succession planning.
Owners often assume they can continue operating with the same intensity while simultaneously navigating an extended sale process. In reality, many owners slowly begin “checking out” emotionally once they decide they are ready to leave the business.
In Steve’s case, several smaller operational problems began compounding over time:
• Oversight weakened and margins slowly compressed
• Certain facility and equipment investments were delayed
• Long-term strategic planning slowed
• Staffing challenges were not addressed appropriately
• Day-to-day operational discipline deteriorated gradually
None of these issues created an immediate crisis. Instead, they slowly reduced the operational momentum that previously made the company attractive to buyers.
Another Year of Decline
Unfortunately, the hoped-for rebound never arrived. By the end of 2023, revenue declined further to $4.8 million while EBITDA fell sharply to $1.5 million.
At this point, buyers no longer viewed the company as experiencing a temporary slowdown. The narrative surrounding the business had fundamentally changed. Two years earlier, buyers saw growth, momentum, and opportunity. Now they saw decline, instability, and elevated risk.
This distinction mattered enormously because business valuation is not based solely on historical earnings. Buyers also determine value based on confidence in future performance.
As confidence deteriorates, valuation multiples typically compress.
Concerned that value might continue falling, Steve decided to relaunch the sale of the business aggressively. This time, the market responded very differently.
Buyer interest was noticeably weaker than during the initial process. Fewer offers were submitted, and the highest valuation reached only $10 million. The reduction shocked Steve.
Only two years earlier, buyers had been willing to pay $18 million. Now the market was valuing the company at only more than half that amount.
From Steve’s perspective, the revised pricing felt irrational. From the buyers’ perspective, however, the adjustment was entirely logical. The business was now producing materially less cash flow while simultaneously appearing significantly riskier.
The Compounding Effect
This case illustrates one of the most important principles in business valuation: declining businesses often suffer from two forms of value destruction simultaneously:
1) Declining cash flow. The first issue is straightforward. Lower earnings directly reduce enterprise value.
As EBITDA declined from $2.2 million to $1.5 million, buyers naturally adjusted pricing downward.
2) Multiple compression. The second issue can often be even more damaging. As buyer confidence weakens, the valuation multiple buyers are willing to pay frequently declines as well.
Originally, buyers viewed Steve’s company as a premium growth-oriented acquisition worthy of an 8.2x EBITDA multiple. However, after several years of deteriorating performance, buyers no longer viewed the operation as a premium asset.
Instead, they viewed it as a business with uncertain future earnings, operational deterioration, and elevated downside risk. That perception caused the valuation multiple itself to contract.
This compounding effect is what transformed a moderate decline in earnings into severe value destruction.
Buyer Fatigue
Another major issue hurting the process was buyer fatigue. The acquisition market had been watching this company closely for several years.
Initially, many buyers were enthusiastic about the opportunity. However, after repeatedly watching the seller delay decisions while financial performance weakened year after year, buyers gradually became psychologically exhausted by the transaction.
This phenomenon is extremely common in closely held business sales. When a business remains on the market too long – or repeatedly returns to market over several years – buyers often begin assuming:
• The seller has unrealistic expectations
• The business may have hidden operational problems
• Financial performance could continue deteriorating
• Transaction closing risk is elevated
Even buyers who once strongly desired the acquisition often lose emotional excitement over time. Eventually, the business develops a reputation as a difficult or problematic asset.
That is exactly what happened here.
The Final Stage of Value Erosion
By late 2025, the business remained operationally challenged and lacked an actively engaged leader.
Revenue appeared to stabilize around $4.5 million, while EBITDA declined further to $1.35 million. The exceptional operational leverage and margins produced during the pandemic years had disappeared.
At this point, buyers no longer viewed the business as a growth opportunity. Instead, they viewed it as a turnaround situation requiring reinvestment, operational restructuring, and leadership stabilization.
The same buyers who years earlier were prepared to pay $18 million now offered only $7.5 million for the business – representing a 5.6x EBITDA multiple.
The contrast was dramatic:
Peak Valuation (2022)
EBITDA: $2.2 million
Enterprise Value: $18 million (8.2x multiple)
Final Valuation (2025)
EBITDA: $1.35 million
Enterprise Value: $7.5 million (5.6x multiple)
EBITDA declined by approximately 39%. At the same time, the valuation multiple compressed by approximately 32%. Together, these factors compounded, ultimately eroding away nearly 60% of the company’s value.
Main Lessons for Funeral Home Owners
This case study highlights several important lessons for funeral home owners considering succession planning or a future sale.
First, sellers must balance optimistic goals with realistic market expectations. A business is ultimately worth what qualified buyers are willing to pay, not simply the value an owner hopes to achieve. Objective financial advisors can help owners evaluate offers rationally and avoid emotional decision-making. Sometimes the old proverb remains true: “a bird in the hand is worth two in the bush.”
Second, once an owner mentally exits the business, operational decline often follows. Even gradual disengagement can negatively affect oversight, staffing, strategic planning, and long-term performance.
Third, buyers pay for future confidence, not just historical earnings. The same cash flow can command very different valuations depending on whether buyers believe the business is growing, stable, or declining.
Fourth, extended time on the market damages buyer psychology. Repeated delays create skepticism, reduce enthusiasm, and can cause buyers to view the business as a higher-risk opportunity.
Finally, declining earnings and multiple compression often occur simultaneously. Owners frequently focus only on reduced cash flow, while overlooking how quickly buyer confidence, as well as valuation multiples, can deteriorate at the same time.
The Bottom Line
This case study demonstrates how quickly value can erode once operational momentum weakens and buyer confidence fades. The business itself remained profitable throughout the process, but unrealistic expectations prevented the owner from accepting a strong offer when value peaked.
Achieving a successful succession outcome requires realistic expectations, proactive planning, and decisive action. If owners choose not to sell, they must fully recommit operationally and execute a plan to restore momentum and long-term value before further erosion occurs.