Valuation Multiples for a Funeral Home
The funeral home industry is projected to grow over the coming years. As such, there is never a better time to buy or sell a funeral home. With more than 28,000 businesses across the United States, this industry generates over $16 billion in revenue. As such, understanding the value of a funeral home is important whether you plan on buying or selling a funeral home. Looking at valuation multiples for a funeral home can give you a better understanding of the value. Below we discuss market multiples and how a valuation expert uses them when valuing a funeral home.
Valuing a Funeral Home
Through a business valuation, a valuation expert can help you understand the fair market value of a funeral home. By understanding the value, you can take steps to maximize it. This is helpful if you are preparing to sell a funeral home, or you plan to buy a funeral home. A business appraisal can help you feel confident in the transaction of a funeral home whether you are buying or selling. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser. Be sure to also check out Valuing a Funeral Home, Value Drivers for a Funeral Home, and How to Value a Funeral Home.
A business appraisal not only determines a value but also identifies key value drivers. Key value drivers are important factors that impact the value of a business. As such, these factors determine the valuation multiple of a funeral home. Funeral homes often transact using an SDE or EBITDA multiple. Below is a brief overview of average valuation multiples for a funeral home. Keep in mind these numbers are only a guide. For specific information about a funeral home you want to value, schedule a free consultation.
Valuation Multiples for a Funeral Home
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
A valuation expert uses various valuation methods to determine the value of a funeral home. This includes using a valuation multiple. A valuation multiple is similar to a ratio in that it compares to factors to each other. For example, a common ratio in business valuation is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings with the implied value of the business. In most cases, the valuation expert weights the applicable multiples. As such, there is a range of value for the business.
For instance, a funeral home has $270,000 in seller’s discretionary earnings. The valuation expert applies a 2.13x SDE multiple. In this case, the business is worth approximately $ 575,100. ($270,000 times 2.13x) On the contrary, a 3.04x multiple would imply the value of the company is $820,800. ($270,000 times 3.04x)
Peak Business Valuation, business appraiser, works with many individuals who were looking to buy, sell, or grow a funeral home. Here is an average range of multiples that funeral homes transact at and are valued at. Keep in mind each funeral home is different. As such, the range of value can be substantial. Below we discuss average SDE, EBITDA, and REV multiples for a funeral home.
SDE Multiple
Average SDE Multiple range: 1.99x – 3.22x
According to our data, funeral homes transact on average between a 1.99x – 3.22x SDE multiple. To get an implied value of a funeral home, apply the multiple by the most recent 12-month period of revenue. This is the 12 months prior to the value date. The calculation is as follows:
SDE X Multiple = Value of the Business
For instance, a funeral home generates $612,000 in sellers’ discretionary earnings. It transacts at a 2.57x SDE multiple. The business in this case is worth approximately $1,572,840.
$612,000 X 2.57x = $1,572,840
Seller’s discretionary earnings is a common cash flow multiple. A valuation expert often uses it when valuing small businesses specifically funeral homes. They calculate SDE by adding back potential expenses a new owner may not incur to the company’s operating profit. These expenses can include owner’s compensation, personal expenses, non-recurring, or non-related business expenses.
EBITDA Multiple
Average EBITDA Multiple range: 2.77x – 4.08x
According to data, the average EBITDA multiples for a funeral home range between 2.77x – 4.08x. Applying this multiple to EBITDA derives an implied value of the business. The calculation is as follows:
EBITDA X Multiple = Value of the Business
For example, a funeral home has an EBITDA of $355,000 and transacts at an EBITDA multiple of 3.42x. Using the above calculation, the business is worth approximately $1,214,100.
$355,000 X 3.42x = $1,214,100
An EBITDA multiple measures the return on investment (ROI). This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. In addition, they also more accurately represent the future earnings a buyer can expect from the business.
REV Multiple
Average REV Multiple range: 0.57x – 0.99x
According to our data, funeral homes sell for an average of 0.57x – 0.99x revenue multiple. A valuation expert calculates the implied value of the business by multiplying revenue or sales the funeral home makes by the valuation multiple.
Revenue X Multiple = Value of the Business
For instance, a funeral home makes $1,100,000 in revenue and transacts at a 0.87x multiple. Then the business is worth approximately $957,000.
$1,100,000 X 0.87x = $957,000
A valuation expert will determine what multiples are most applicable when valuing a funeral home. Most often cash flow multiples are most applicable. Cash flow multiples – SDE and EBITDA – consider expenses that impact cash flow. Such as COGS, salaries, rent, expenses, etc… Whereas a revenue multiple does not consider the operations of the business.
Summary
When looking at valuation multiples, many factors impact the value of the business and the multiple a valuation analyst uses. As such, Peak Business Valuation, business appraiser, would love to chat with you about factors that may impact the value of your funeral home. For more information see Valuing a Funeral Home and Value Drivers for a Funeral Home.
Peak Business Valuation, business appraiser, values funeral homes across the country. We enjoy working with small business owners to maximize the value of a funeral home. Questions are always welcome! Start today by scheduling a free consultation below!
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