When it is time to sell your funeral home, of course you want to make as much money on the sale as you can. To do that, you need to be sure your business is properly valued. There are three commonly used approaches for valuating a funeral home. We will discuss each here in detail.

Income Approach

This approach determines the value of your funeral home based on its ability to generate a desired economic benefit for the owner. The key objective is to measure the cash flow associated with the ownership of the business, and that value is based on the net present value of expected future income streams from the ownership of the business.

Market Approach

This approach establishes the business value of your funeral home in comparison to historical sales involving other funeral homes. This is known as the fair market value: The price that a willing buyer will pay, and a willing seller will accept for the business. Both parties are assumed to act in full knowledge of all the relevant facts in an arms-length transaction, and neither being under compulsion to conclude the sale.

Cost Approach

Also known as the “asset approach”, this method seeks to determine the value of your funeral home based on the value of its underlying assets and associated liabilities. Consideration is given to the cost to replace or recreate an asset that will produce the same economic benefits for its owner. The challenge of this approach is determining what assets and liabilities to include in the valuation, choosing a standard of measuring their value, and actually determining what each asset and liability is worth.

Check with your financial advisors when you are ready to sell your funeral home to get the most practical advice on what will work best for you and your business.

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