Industry Spotlight: Business Succession Metrics

In this industry spotlight, we want to highlight key insights into business succession.

Every business will be sold or liquidated someday.  Given the choice, sold is usually much better.  Today there are about 19,000 funeral homes in the United States.   This is down from about 21,000, only 20 years ago.  To understand business succession metrics, you need to understand the following:

• How we lost 2,000 funeral homes?
• When did the total population has increased by about 20,000,000 Americans?
• What is the Average Age of American’s increased slightly?
• When did the mortality rate increase?

We lost these businesses as active businesses because three dynamics:

1. The business real estate was more valuable for general commercial purposes than it was as a funeral home
2. The profitability of funeral homes is limited and as expenses increase, especially for staff and benefits, the profit decreases
3. During the period from 2008 to today, the low interest rates made the death benefit crediting rate of insurance companies be nominal. This kept the profit down on prearranged funeral accounts, which reduced profit overall.

Of the remaining 19,000 funeral homes they serve about 2.8 million death calls in a non-pandemic year meaning the average funeral home serves about 150 families a year.  This group is divided up between (approximately):

• 3,000 funeral home locations owned by Public Companies or Private Equity Investors
• 16,000 funeral home locations owned by private individuals
• 9,500 private individuals own funeral homes

The marketplace is quite dysfunctional with this many various owners.  The average age of a funeral homeowner is assumed to be between 55 and 60 years old.  The average funeral home is valued (business and real estate) at about $1.8 million.  That totals about $28.8 Billion in total enterprise value of the privately owned locations. Based upon the age means that 100% of the $28.8 Billion will change hands over the next 20 years or about $1 billion of value a year.

Who is going to buy these businesses?

• About 35% will be bought by Public or Private Equity Investors
• About 33% will be next family generational buyers
• About 25% will be key people
• About 8% will be shut down and liquidated for their real estate value.

What is certain is that current owners, regardless of whether they have identified their buyers or not, need:

• A valuation
• A game plan to maximize value
• A contingency plan if they die or become disabled before retirement

What is equally certain is that the people assuming they are going to be the succession need:

• Stop assuming anything and get everything in writing
• Know the source and needs of their financing as this is the key component to completing the plan

We can help. Give us a call today to get started! Our team is ready to be of service.