If you are thinking about selling your funeral home, you should start by determining how much it’s truly worth. This process will likely involve a realistic appraisal of your preneed program by independent sources. It may not seem like it matters much, but your preneed strategy absolutely impacts the overall value of your business and should be managed with care.
One of the main reasons funeral home owners and potential buyers value preneed sales is the market share effect. A preneed backlog indicates that your firm has already secured future business, which improves its position against other competitors. Prospects favor strong market share when considering a purchase, and a business’s ability to compete effectively several years into the future can often make or break the deal at the bargaining table.
Why Preneed Matters when Selling your Business
A good way to illustrate the benefits of a preneed program is through a simple comparison. Let’s say that Funeral Home A and Funeral Home B are both up for sale. In terms of their individual business valuation matrix, both firms have a similar market size, a loyal customer base, and a good location. They also have the same call volume, a reliable staff, as well as sound facilities and assets.
However, after a closer look at the financials of Funeral Home A, it appears that their preneed program has not been managed well. Perhaps the pipeline for incoming preneed sales isn’t as full as it could be due to a lack of marketing research—maybe Funeral Home A hasn’t reached out to the community to find out what type of advance arrangements work best for their families. Alternatively, it could be that customer service has been declining at Funeral Home A, leading to negative reviews and few referrals for preneed business.
Meanwhile, Funeral Home B has invested heavily in marketing their preneed program online via their website and social media platforms, and in-person using well-trained sales agents and a user-friendly sign up procedure. Funeral Home B also has a strong aftercare program that ties into their preneed offerings, and this helps build brand loyalty and bring in return business through positive word-of-mouth reviews.
Faced with this scenario, which firm would you say is more attractive to a buyer? Well, Funeral Home B clearly has the advantage based on the strength of their preneed program and the future value it brings to the business. A successful preneed strategy makes for a compelling sales story, and this is what elevates Funeral Home B over Funeral Home A with potential prospects.
How Preneed Sales Impact Overall Value
The funeral home comparison above shows how important preneed sales are when it comes to the selling process. Preneed contracts really do impact the overall valuation of your firm and it’s not just about the future market share aspect.
Brand Loyalty
Your preneed program can affect your funeral home’s brand. Offering preneed services allows funeral professionals an opportunity to build lasting relationships with the community they serve, based on a true understanding of each individual family’s personal preferences. Recent findings from the Johnson Consulting Group Performance Tracker tool show that 85% of families are likely to recommend their funeral home to a relative or friend based on their customer experience, which shows that nurturing a preneed program is key to building brand loyalty. As long as client families are satisfied with your pre-arrangement products and services, they will reward you with a steady referral business and remain loyal to your company.
Future Earnings Potential
A balanced mix between preneed agreements and at need sales is an essential component of your funeral home’s future growth plan. Funds from preneed funeral contracts must be available at the time of need, hence the strict rules that a specific percentage of the monies be deposited in a regulated trust governed by independent trustees and managed by qualified investment professionals.
With careful financial supervision, funeral home owners can benefit from preneed investment earnings once funeral service duties are completed and/or merchandise is delivered per the contract terms. These earnings can have a significant impact on the future financial performance of the business and it’s overall valuation.
Selling a funeral home can be a complex process and it’s best to start early. To learn more about how to evaluate your preneed program and determine the true worth of your company, please contact Johnson Consulting Group for a free business valuation quote today.