Funeral Home Business Valuation Benchmarks

Business owners, prospective buyers, and industry investors rely on a diverse set of financial benchmarks to assess the value of a business. We have compiled data from comparable sold businesses to provide insight into the business for sale market and important benchmarks for pricing and evaluating funeral home businesses relative to industry standards.

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Overview of Funeral Home & Mortuary Businesses Sold on BizBuySell

Funeral home and mortuary businesses listed and sold on BizBuySell are independently owned small businesses that offer services to families during the end-of-life process, including the transportation, preparation, and embalming of the deceased; coordination of viewings, wakes, and memorial services; and selection of caskets, urns, and floral arrangements.

Funeral Home & Mortuary Business Transaction Prices

Funeral homes and mortuaries vary widely in sale prices, ranging from less than $300k to well over $3MM. Lower and upper quartiles are $900k and $1.8MM, respectively, with the average selling price at $1.56MM. Generally speaking, mortuary businesses offer a narrower range of services compared to funeral homes, and so tend to be on the smaller end of the range.

Compared to most other industries, sale prices tend to fall significantly short of asking prices, with the average sale-to-ask ratio of just 0.82. This disparity in value between buyers and sellers is typical in niche markets with relatively low inventory, such as is the case with funeral home businesses, making pricing and valuation more difficult.

Funeral Home & Mortuary Business Valuation Multiples

Valuation, or pricing, multiples are financial tools that allow for comparisons between businesses that have different levels of sales and financial performance. They represent the sales price of a business relative to its revenue or earnings, and given enough individual business sales data, they represent what the market is willing to pay for a business given its revenue and earnings.

Valuation Ranges

Business values and associated multiples are influenced by a variety of macroeconomic factors such as interest rates, inflation, consumer spending, and overall economic growth. However, among businesses in a particular industry, size often matters most, with larger businesses fetching higher valuation multiples. Valuation multiples of funeral home and mortuary businesses typically range from 3.3- to 4.9-times annual owner's earnings, and 1.2- to 1.9-times annual revenue.

Revenue & Earnings Multiples

Earnings multiples represent the value of a business relative to its owner's discretionary earnings or "cash flow". Arguably the most important valuation tool - as seller's discretionary earnings will often dictate how much a buyer is able to borrow to finance the business acquisition - business valuations tend to hinge on a reasonable earnings multiple.

Revenue multiples represent the value of a business relative to its overall sales or revenue. In conjunction with an earnings analysis, revenue multiples are often used as a secondary calculation to validate a valuation.

How to Interpret These Multiples

We calculate and provide valuation multiples from our database of "comparable" businesses sold on BizBuySell. Multiples based on comparable businesses - "comps" in business broker parlance - are useful for valuing businesses for sale. They represent the values at which similar businesses sold, and provide a way to calculate prices based on market values. Business brokers and valuation professionals will always turn to local comps when pricing businesses for sale or evaluating businesses for acquisition. We provide national level data for general purposes.

Quartiles, Median, and Average

No two businesses are identical, and as such, valuation multiples exist in a range. We have carved out four common values within this range: Bottom 25% is the lower quartile, and represents the value under which the lowest 25% of valuation multiples fell. Top 25% is the upper quartile, and represents the value above which the highest 25% of multiples fell. Median is the middle of the range, and average is the mean of the set. Mean is usually higher than the median, because a small number of high value businesses sold at multiples above the upper quartile will skew the average up.

Businesses with consistent financial performance, above average revenue and earnings, demonstrable growth potential, low owner involvement, unique competitive advantages, and a seller willing to finance will command a multiple at or above the upper quartile. Lower volume businesses with lower profit margins, full-time owner involvement, and many direct competitors will trade at or below the lower quartile. Most businesses will fall somewhere in the middle.

Based on this data, half of funeral home and mortuary businesses are valued and sold between 3.33- and 4.91-times their annual seller discretionary earnings, with 25% of well-run, larger firms trading above this range, and 25% of smaller, less desirable businesses trading below.

Financial Benchmarks

To determine how a business compares in terms of sales volume and financial performance relative to industry peers, it's necessary to have some insight into industry standards. "Benchmarking" describes the practice of comparing a business's financial performance to typical industry standards to determine where a business falls relative to other businesses in the same industry. These benchmarks can help guide business owners and buyers towards appropriate valuation multiples from the range above.

To that end, we have aggregated financial performance of funeral home businesses sold on BizBuySell that can be useful for comparing a given business to the market.

Discretionary earnings (used interchangeably with the terms "cash flow" and seller's discretionary earnings or SDE) is often the crux of business valuations, so it is important to benchmark it relative to other similar businesses traded on the business for sale market. Revenue volume plays a large role in business valuation, as it measures the size of the potential income opportunity for new ownership. It's not uncommon for buyers to select an earnings multiple range based on overall revenue volume.

The table and chart below include revenue and earnings ranges of funeral home and mortuary businesses sold on BizBuySell over the past five years.

How Revenue and Earnings Level Affects Business Values

Obviously, higher levels of earnings lead to higher valuations, even given the same multiple. However, valuation multiples also tend to rise with business sales volume. Businesses that consistently generate higher revenue (and maintain benchmark profit margins) tend to sell for earnings multiples on the higher end. So, a funeral home generating over $1MM in annual revenue may sell for an earnings multiple approaching 5, while a smaller mortuary with revenue below $500k may trade closer to 3-times its owner's discretionary earnings.

This tendency for higher revenue businesses to fetch higher valuation multiples is largely driven by the economics of business acquisition financing. Businesses with greater revenue and earnings give buyers more cushion to cover debt service obligations and still have enough left over to pay the new owner a reasonable income.

Sector Comparisons

For a more complete understanding of the business-for-sale market and valuation standards, consider comparisons within the broader services sector when benchmarking funeral home and mortuary businesses. The chart and table below include key metrics from sales of select service businesses on BizBuySell.

Funeral home and mortuary businesses tend to drive more revenue compared to other "main street" service businesses, primarily due to the smaller number of competitors. As a result, they tend to generate higher average profits and receive higher valuation multiples when they sell. Like most businesses, revenue volume is the main driver of their above average valuation statistics.

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