Buying or selling, this is YOUR market

Why 2021 is the year to buy a new funeral home or sell yours

2021 is shaping up to be a robust economic year. The pent-up consumer desire from the pandemic is driving the market.

Throughout 2020, the pandemic wreaked havoc on our lives and livelihoods, creating unprecedented conditions in the stock market, food production, the housing market, the medical establishment — and the funeral business. Now we’ve moved into the next stage of the pandemic — containment. So what does that mean for the market?

Some business owners are looking back at 2020 and deciding that this arduous year makes an opportune time to retire. Those sellers leaving the market create a golden opportunity for business owners in a growth phase.

To be sure, this presents two-fold opportunities for business owners. Market conditions make this scenario a win-win for the seller and the buyer.

Point-by-point, here is how the market appears to be looking in 2021:

Business values are high

This year is a lucrative time to sell your business in a growth phase. You can ask for more, especially if you’ve done your homework.

High business value also means your business is worth more when you go for an expansion loan. A number of factors are working to increase the value of your business right now and this is a solid time to expand. But only expand if you are prepared. You need to have a strategic plan in place that directs your growth. Have you considered what markets fit your business model? Do you know where you want your business growth areas to be — pre-need, cremation?

Small Business Administration lending programs are very attractive for buyers

The federal government is trying to ensure there are buyers for all of those sellers. If you think you want to grow your business, this is a smart time to act. The SBA lending program has two powerful incentives that make buying better for you:

  • No lending fees
  • Six months' loan payments paid by the government

These programs won’t last forever and, in fact, are designed to help spur the economy. If you pass them up, you’re also passing up free money to grow your business.

As a seller, this can mean there are MORE buyers but are they the RIGHT buyers? Johnson Consulting Group maintains the largest database of qualified buyers. Having multiple buyers at the table helps you get the highest value for your business. At JCG, we’ve negotiated more than $2 billion in divestiture deals, so we’ve been around the block on this process. We’ve seen the horror stories from transactions that have gone wrong. We have expert questions that smooth out a transaction.

Interest rates are low

Smart buyers know the value of a low rate over a longterm investment. While the SBA incentives offer shortterm incentives, this low interest rate can benefit you for the entirety of your loan.

Plus, low interest rates make this a great time to buy new equipment and make other improvements to a growing business. You could even refinance existing, higher-interest loans into a new loan with your purchase of new property, saving money there as well. You can also consider using accelerated deprecation to free up more cash (more on that below).

Capital Gains rates ARE going to increase under the Biden administration

An increase in capital gains taxes is not an if, it’s a when. What does this mean for you as a seller? If you are considering selling or planning for it in the next few years, you may want the ink to dry before rates increase and you receive less of your hard-earned equity.

If you’re going to wait and sell in the next couple of years — and I don’t recommend that you do — I hope you can grow your business enough to account for the increased taxes you're going to owe — otherwise you're losing money waiting. You will most assuredly owe more in taxes when you sell in a couple of years.

A high case count year in the books with a continued upward trend is good for your value

Selling when you’ve had an increase in call volume shows value for your business when you are at the table! Last year, and likely 2021, are high case count years that may taper off in the coming years. One consideration is if the high case count now means a lower case count in the next few years.

Depreciation and depreciation recapture

Depreciation is a bookkeeping tool that can help free up capital for growth and improvements. This allows you to reduce taxes now so you have more money to buy new equipment or make other upgrades. If you’ve already used this tool for your business, then keep the recapture in mind as taxes rise. Recapture Tax essentially means you will owe a sum of those tax savings (depreciation savings) back when you sell your asset down the road “Depreciation Recapture Tax." Look this tax up so you aren’t blindsided with taxes down the road. Selling now could save you buckets-full due to the rising income tax rate that will impact this tax rule.

Finding buyers

There's no better way to maximize value for your business than having a well-formulated marketing package and strategy coming off a high-case year like 2020. The fact is, the best time to sell is when you don’t have to. That allows you to seek out and wait for the best buyer. You want the process to work like an auction. You want multiple offers, structured in different ways, so that you can pick the one that is best for your future. At JCG, we have a tailored marketing strategy that seeks the perfect match for your business.

Just because the market is ready doesn’t mean you are

Even though the market is ripe, it may not be time for you personally to sell your business. Additional considerations affect your selling decision, such as staff succession, retirement income needs, age, etc.

It’s never too early to plan your exit strategy, and we can help you lay the groundwork for top results. We can start by reviewing your performance in the areas of customer service, workplace, marketplace and financials to see where you are and what you can do to get the most value from your business.

Jake JohnsonJake Johnson, president and chief executive officer, is known as an innovator, change agent and thought leader. His strong foundation in accounting, financial analysis and EBITDA forecasting is complemented by technology savvy and broad general management qualifications in business development and operations.

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