By Thomas A. Parmalee
Forty-three years ago, Alan Creedy took over the financially distressed OGR Service Corp., the for-profit arm of what is now the International Order of the Golden Rule.
With a background in accounting and psychology, he had no idea he was about to start his life’s work, which would coincide with his lifelong faith journey – a topic he weaves into the posts you’ll find on The Creedy Commentary, the blog on his website.
After spending five years turning around OGR, he went on to serve as president of Brown-Wynne’s funeral homes and cemeteries, where he built upon the legacy of the respected firm, ultimately orchestrating its sale.
Then, he started his own preneed marketing company, Trust 100, which became a force to be reckoned with before he turned his attention to business consulting, which he has done since 2008 as the managing principal of Creedy & Co.
After all that, you may think that Creedy has accomplished his mission, but in a recent conversation with FuneralVision.com, he suggested he has much more left to do – starting with helping funeral home owners “Finish Well” which is the title of the book he just published.
FuneralVision.com recently caught up with Creedy to learn more about his journey through funeral service, how his walk with God helps him in his professional life and his advice to funeral home owners. Edited excerpts follow.
You have been serving the funeral profession for many years, but some new entrants to the profession may not be familiar with you. Tell us a little bit about yourself.
I am celebrating 43 years as a member of the funeral profession. I am not a practitioner, and I’ve never been a funeral director. I am a former CPA, and I started out in 1980 when the International Order of the Golden Rule was on the verge of bankruptcy, and at the time, I orchestrated its turnaround.
I decided at age 35 that I really wanted to stay in the profession, and I ended up being president of Brown Wynn’s funeral homes and cemeteries, which did about 850 calls and had two cemeteries. Then I started Trust 100 – the preneed marketing company.
I think after 43 years, I have sort of become a repository of both institutional knowledge and information or insights as to what works and what doesn’t work.
You are a man of deep faith. How does that affect how you carry out your business life?
Some years ago, I was at a seminar, and one of the leaders told an apocryphal story of a Russian priest who was very depressed and took a sabbatical. One day, he was walking in the forest, and he encountered a military camp, and he was challenged by a sentry who said, “Who are you and why are you here?” His response was, “How much do you make?”
The sentry was confused and asked, “Why does that matter?”
And the priest said he would pay him double that for the rest of his life to ask him those two questions every day.
I ask myself those questions often – who am I and why am I here – and I really think funeral service makes a substantial contribution to society.
I am very confident in that presumption, but I also believe we have become unmoored from our real purpose because we have gotten stuck on the merchandise and forgotten why it is we are here. The thing that really floats my boat is helping people to be better on their own terms.
I would say I have also reached a point in my faith walk where it is kind of like breathing … and there is a lot of business wisdom in the Bible – and I find myself applying that.
The Bible also helps me define what love really is truly about, and when I work with a client, I feel as obligated to hold the mirror up with those idiosyncrasies that might be harming them as well as showing them the things that might be their strengths.
For instance, I had a client a number of years ago, and I felt compelled to tell him that one of the issues he faced is that he wasn’t likable.
Fortunately, his wife was with us, and she knew exactly what I was talking about.
He was not a bad person or a nasty person, he just wasn’t likable. He did not have social skills.
But I told him he could fix it – he just needed to spend some money and take a Dale Carnegie course, and that really helped him.
My faith walk makes me feel personally obligated to help people fulfill themselves.
Tell us about your consulting business as well as Two Guys and a Question, the podcast you host with Danny Jefferson, the managing leader of Pierce-Jefferson Funeral & Cremation Services who has also spent almost 50 years in funeral service.
Years ago, I met a funeral director and asked him, “How many calls do you do?”
He looked at me with a wry smile and said, “One at a time.”
I really can’t serve 15 or 20 owners looking to sell each year. I get invested in them – I really do. I get invested with people. So, I serve one client at a time, and generally will serve seven or eight people a year looking to exit the business.
My consulting has leaned more and more toward the sale and acquisition process, and I have gotten very skilled at that and am happy with what I can do for people.
What is very complementary to me is that people will tell me that when it comes to buyers, I am just as concerned with the fit as with the money.
I want you to be fairly paid for your business, but I also want you to be happy with who buys your business. So far, I have been pretty successful.
I also feel obligated to help them through the emotional side of selling their business, and if you look at my book, there is a chapter or two on that. Some of those emotions are fairly routine and others are not. Sometimes, it is very situational. I want to keep everything on target.
I do this a lot, and the buyers do it a lot, but I keep in mind that the sellers – they usually only do this one time. So, there is a lot of effort on my part to help them anticiapte what will happen.
On my consulting site, I provide some free resources like a calculator that will give you a rough and dirty estimate of what your funeral home is worth. There is also a myriad of articles on pricing strategy, what motivates employees and other important topics, such as can you afford to pay a licensed funeral director $85,000 per year – or better yet – how can you afford to pay a licensed funeral director $85,000 per year?
As for Two Guys and a Question, it was borne out of my realization that while I have opinions, I have never had my feet at the arrangement table.
But Danny Jefferson has almost 50 years of experience with his feet under the table, so by partnering with him, I am bringing that element of practical to the the theory. We are trying to engage the profession at large to say, “Give us your questions.”
If we don’t have the answer, we can sure find someone who does, and we can bring them on and they can answer the question.
The full title of your book is “Finish Well: An Exit Guide for Funeral Home Owners.” So, why did you write the book?
Baby boomers seem to have this chemical trigger that they have to write a book before they die, so that may be part of it, and I am only being partially facetious.
But there is also a technical and practical side to succession planning as well as an emotional side – and those are often overlooked.
So, the book is an effort to help the funeral practitioner – not the professional. If you have been in M&A for any period, there won’t be anything new here for you, although there may be some things you do not agree with.
But this book is for the practitioner, and it is exclusively focused on funeral service.
All the examples and everything else are geared to funeral homes, although I engaged professional editors who told me it would work in other businesses as well. I’m glad about that, but that was not the intent.
Another thing that the book provides is it offers experiential information: I include a number of case studies, some of which are conglomerates of different experiences. By reading those, you may say, “OK, I kind of relate to this.”
A good example is the family that wants to sell the business to their kids, but the kids don’t want it – that happens a lot more frequently than you may think. Someone is going to read that and say, “Oh my gosh, I never did talk to my kids … maybe they don’t want it.”
I also wanted to provide owners with some tools. For instance, how many times has someone written an article about the due diligence process? So, I included a checklist on that.
I also wanted to emphasize – and I am not open to debate on this – that a lot of the valuation process is subjective. I provide tools that can help get into an accurate area, but those really are only useful in helping us make our subjective choices.
For instance, why do you choose a 5.5 multiple versus a 7.5 multiple? I can look at a firm that has a great reputation and say, “They deserve a 6.5 multiple,” but why am I making that choice? We need to think this through every time.
You generally represent sellers?
That is correct, but I do sometimes represent buyers when they have pretty much come to terms with the seller.
I have found that I can’t represent buyers going out by prospecting.
I think a large part of that is that I may encounter someone ready to sell, but in my opinion, there are other better fits for that seller, so I end up feeling compromised when talking to a seller and representing one buyer because in the back of my mind, I know others would be a better fit. So, I will not solicit.
But if you are selling and you want me to find buyers, well, I am really good at that.
In your book, you observe that the critical element in all transactions is timing … when should a funeral home owner start preparing to sell their business and when is the ideal time to sell?
If I were to give the FuneralVision.com audience advice, the time to start thinking about selling is when you are not ready to sell and don’t want to sell.
Do not wait until you are sick or too old or whatever. That is not fair to you or your family. If you are thinking, “Gee, I am 58 and I want to be out of here by time I am 65” … it is time. That is when you should engage me to do an assessment. By that, I mean I can come and look at your situation and advise you on what you can do to increase your value.
An example is it is not unusual for me to work with a small privately held funeral home – and usually they are smaller – 125 or 175 calls – and for reasons of their own, they have been way too timid in their pricing structure.
So, I will look at the average sale and realize … this is not rocket science … that for their region they are $500 or $2,000 under the regional average. That is something that is easily fixed and not just by price increases.
So, I can within a very short period – and especially with Danny Jefferson’s help – improve your average sale no less than $500 and increase the value of your business by $600,000 or even $1 million. You will also reap the benefits of that financial improvement while you position your business for a sale because a buyer will need to see three years of history to give you credit for the improved performance.
There are an awful lot of private firms that are underperforming. The owners are doing fine and making a living and maybe they are not unhappy, but they are underperforming. And to be honest and to give you some context, the buyers who look at these underperforming firms won’t tell you that they will be able to improve margins dramatically on day one – but they see it and know they have enough experience to do it.
You focus a lot on the fit between buyer and seller. Beyond the obvious – whether the buyer and seller can agree on a price – what do you mean by that?
If a potential buyer is going to make radical changes in the way this person operates on day one and the seller is a person that I’ve discerned is a little sensitive about that, I will probe deeper and figure out what is going on.
I have had several clients, including some of my best clients, who after a sale have actually moved away from their lifelong community because they just didn’t want to know what was going on or to deal with it.
Did the buyer do something wrong or terrible or immoral or illegal? Absolutely not!
But they just did things differently.
A good example may be a seller who insisted on their staff taking night calls and picking up bodies at 3 a.m. – sometimes it may be a staff member or even the owner. But the buyer might say, “I’m not doing that. I have an answering service, and I have a trade service to do the removals. We are not doing that anymore.”
Now, there is nothing wrong with that, but for the seller, it could be something they are not comfortable with.
You say valuation is a subjective business … why is that?
The cost of capital is not subjective, but the qualities of a given acquisition opportunity are subjective.
Case in point: At many small funeral homes, if you take the owner out of the picture, the public may not see them the same way anymore. You have to put weight on that – and it is a subjective measurement. How dependent is this business on the presence of the current owner?
Back to the FuneralVision.com audience: If I am 58 years old, and I want to be retired at age 65, one of my recommendations would be over the next seven years to make yourself unnecessary. A few years from now, you should be able to go to Florida for a month and no one needs to call you.
We are in a turbulent time. Interest rates are going up. Inflation remains hot. Banks are failing. What are you seeing out there in the marketplace?
The interest rate has started going up, and at first, we didn’t see much of an impact, but we are now.
The question now is not can we find a buyer, but will the seller be willing to take that price?
Let’s consider for a moment an owner that wants to sell to an employee: A year ago, that employee would have gotten a Small Business Administration loan more than 300 basis points lower than they would get today. As a result, the maximum they could borrow today based on EBITDA is necessarily lower because the interest rate is 300 basis points higher than it would have been a year ago.
In fact, the amount they are able to borrow might be so much lower that the seller says, “Maybe I need to think about this.”
With that said, banks are lending on historic EBITDA, and in many cases, call volume and sales averages can be improved. And that is the message I want to convey: A lot of this financial stuff, people feel like they have to live with it, but it can be fixed, and it can be fixed without any real burden – you just have to be willing to do a few things differently.
In the book, you estimate that about 40% of all funeral homes have negative goodwill, largely as a result of real estate. Can you expound on that a bit?
It surprises them every single time I say this.
Their real estate used for other purposes like a medical clinic is worth substantially more than the business with the real estate. I have to be the bearer of bad news and say, “Too bad. The business is integral to the facility.”
We all know that if the facility moves, there is a real risk of call volume loss. So, in most instances you have a choice: You can sell the real estate for a lot more, and the buyer will close the business and liquidate it. Or you can take a lower price and sell the business, which will continue on.
The point I make in my book is from an accountant’s perspective, the use of the term “goodwill” is very unfortunate because most people conflate that word with how people feel about them in the community – their reputation, brand and so forth – when in fact, it refers to the difference between the fair market value of the physical assets and the total value of the business. It has nothing to do with how the community feels about you or your brand equity or anything else – it never did.
You note that funeral homes typically sell for EBITDAR multiples (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) between 4.5 for high-risk firms to 8 for low-risk firms – but you note that many operators simply don’t understand how the multiple is calculated. What do they get wrong?
I like to tell people that in 43 years, I have picked up some things about embalming. I know generally where the carotid artery is and what tools you use, what kinds of fluids you use and what the results should be. But you would be ill-advised to ask me to go and embalm a body.
Similarly, a multiple is a lot more sophisticated than people think it is. The word multiple is really a shorthand for return on investment. And ROI has to do with two factors: current market rates of return and risk.
Today, right or wrong, the lowest risk investment the markets believe you can make is in 10-year treasury bonds, although I am starting to doubt the veracity of that, but that is just me.
So, less than two years ago, a 10-year treasury bond was trading at less than 1% interest, and today they are quickly moving to 4%. That is a huge increase. So, it has everything to do with risk.
I illustrate in the book that a 5x multiple is really the equivalent of a 20% return on investment. Right now, I might be able to buy XYZ Funeral Home for a 7x multiple, which would be a 14.3% return on investment. However, I can also buy a triple-A bond with a return of 16%. So, which one do I want to buy?
That is the thinking process that goes into choosing a multiple, and if you go to a convention of valuation experts and tell them that funeral home multiples range from 5 to 7.5, they will look at you and wonder what are you talking about, how can that be – but if you say that includes the real estate, they will say, “Oh, I understand now.” It is all about risk, return and arbitrage.
That last part might mean you are buying something with an EBITDA of $100,000 today but if you make some changes and boost that to $150,000, it will be part of an overall better firm that could sell for a 7x multiple as opposed to the multiple you bought the business at.
Should prepaid funeral investments have a separate value?
No.
To create a separate value, you would have to separate the revenue stream on preneed conversions from the at-need revenue of the funeral home. You would then come up with a value for the at-need portion of the business.
You could go to an actuary and say, “Tell me the present value of the future income stream of the preneed investments” and then you can add the two together and that will be the value, and you would have a separate value for preneed and at need.
But in theory and in practice, sophisticated buyers know it is all baked in. If you have 10 preneed conversions this year and nothing has changed, you will probably have 9, 10 or 11 next year – and the year after that and the following year, etc.
So, to avoid the expense and hardship of trying to figure out a separate value, you operate under the assumption that it is already baked in.
What I tell people is preneed can impact the risk issue – it can push up the multiple a little bit but not a lot. If you have a one-year backlog in your preneed portfolio – say you sell $1 million at need and you have $1 million in preneed, you have a one-year backlog, and that is average and won’t affect anything.
However, if you have a five-year backlog, that lowers the risk and will increase the multiple.
What are the pros and cons of selling to company insiders?
The pros are your legacy will continue with your chosen people who will ostensibly carry out what you were doing.
The risk, however, is that you may find out they don’t want it or can’t do it. Often, you will find your non-owner licensees have credit ratings that are poor or average, and if the rating is poor, it is over. You can overcome that with seller financing, but you will be at risk based on whether they succeed or not.
I am not discouraging selling to company insiders, in fact, I encourage it. There are some tax advantages to selling to insiders that you can deploy that are not available when you sell to a third party.
But I would say half the time, you will find they don’t want the business or are unable to buy it. So, I am a little hard on insiders throughout the process. I kind of look them in the eye and say, “Are you really serious?” Because if we get down to three months and they decide they don’t want to do it, it is fine, but it is not fair.
You talk about important employees versus key employees. What is the difference and why does it matter?
A key employee is someone who if you don’t have them, it will impact the value of the business. An important employee is often the person who will make your life harder if they leave, but their departure won’t impact the value of the business.
I have a seller right now who has told me point blank they want an important employee rewarded, and that is great. But it is the key employee we really need to tune in on, because if a key employee competes against the prospective buyer, it will affect the value of the sale.
The reason I make the distinction is to force clients to think this through … I will always get people on the list of key employees who are actually important employees.
You note in the book that “loose lips sink ships and deals.” Do you want to say more about that?
You need to be aware of two things: As you get closer to closing, it will be difficult to keep it a secret. The reason is behaviors change. People start wondering what is going on.
The second thing I tell people is I do believe that if you tell one person, your secret has about a 50% chance of staying secret, but if you tell two people, there is no chance.
There is no valid reason your pastor or mayor or best friend needs to know what is going on – especially because things become very delicate in those last stages, and if everyone knows, you could lose business. They may say, “Well, George is retiring anyway, and I’ve always liked Jim over there at Smith Mortuary, so I will just go there.” This could be a problem.
The other thing that might happen is employees leave because they don’t know what the future will be. Believe me, when people don’t know what is going on, but they sort of do know … they will fill in the blanks, and it won’t be positive.
Editor’s note: Alan Creedy has very generously offered to send a free copy of his new book to the first 20 FuneralVision.com readers who send him an email requesting a copy. You won’t even have to pay for postage! In your email, be sure to note that you read the article about his book on FuneralVision.com and are responding to his special offer. Get your free book by emailing Mr. Creedy.
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