Editor’s Note: We’ve seen some movement in the acquisition market so Funeral Director Daily asked one of the experts in the industry, Jake Johnson, to comment on what he has seen so far in 2021 and what may lie ahead. His comments follow:
Jake Johnson:
The demand for buyers was on the rise in 2021. More businesses considered selling due to the tax implications and high valuations. Business owners started seeing sizable valuations which led them to sell their businesses, resulting in savings due to income tax rates and depreciation recapture (paying back all tax benefits from depreciating).
As suspected with COVID-19, funeral homes were very busy. They were prepared as much as they could have been, but were largely slammed depending on where they were located around the US. Because the pandemic drew such a question mark for the world, the thought of succession planning, buying, and selling a funeral home and cemetery business was put on hold. While there were some divestitures, the trend slowed, and the curve grew. So now that we’re coming out of 2021, there seems to be a pent-up demand from buyers asking, “Where are the sellers?”
The funeral profession started digesting what was happening at the beginning of the pandemic and had little to no time to make shifts in their business. The change in taxes was a big implication as well. We are seeing more businesses considering selling and/or succession planning, the interest in valuations has been on the rise, and business owners are finding their businesses values to be higher than expected. People are calling Johnson Consulting Group curious about what they might be able to get for their business, and we are here to help.
Considering how sizable the recent transactions have been, if you’re looking to sell in the next 1-3 years, it’s a good time to do so. Owners who are deciding to sell this year-assuming taxes won’t kick in until the next year-are saving a great deal of money for two reasons:
- Capital gain rates are going to increase
- Ordinary income tax rate will increase, impacting businesses that sell their real estate and have depreciation recapture tax
Valuations are higher, especially for Johnson Consulting Group clients. For clients who have used our services, we’ve put them in a good position to have a sound strategy that not only gets them to their desired retirement finish line but increases the value of their biggest asset. Unfortunately, for some, 2020 distracted people from using these types of services.
What we can predict for the next few months and into the new year is that if people do not sell soon, they will just be faced with more taxes. Your business is your most valuable asset so if you’re planning your exit strategy, you need to take tax implications into account.
Selling a business is never simple. Debts, assets, liabilities, employees, and market trends all play into the complicated process of finding a buyer and sealing the deal. In the funeral profession, you’ll find some peculiarities that further complicate the process.
This article was originally featured on Funeral Director Daily.