Illustrative example: valuing a funeral home with a pet cremation line
By Jason Taken, Business Advisor, HedgeStone Business Advisors · Last reviewed · 7 min read
In this illustrative composite, a 260-call funeral home with a 2,100-case pet crematory was worth about $1.94 million for the two businesses, plus $590,000 for the real estate. The owner first hoped for $2.26 million by applying one multiple to combined earnings. Pricing each line on its own earnings, after allocating shared costs, closed most of that gap.
Key takeaways
- The seller's books showed the pet line earning $164,980; after moving shared office and occupancy costs and paying someone to replace the owner's clinic work, it earned $113,480.
- Applying one funeral-home multiple to combined earnings overstated value by about $350,000 in this example, because the pet line carries more customer concentration and less durable volume.
- The largest veterinary clinic supplied 31% of communal volume on a contract cancelable with 60 days' notice, which is why the pet line's assumed multiple sat well below the funeral home's.
- A $75,000 clinic-retention holdback let the buyer pay for the pet line's volume only after the three largest clinics stayed for a year.
How much is a pet crematory worth when it sits behind a funeral home and shares the same owner, the same office, and the same tax return? This illustrative composite answers that with invented figures; it is not a real client deal, and the owner, firm, and buyer are made up. The business is a 260-call funeral home in a high-cremation Pacific Northwest county, with a 2,100-case pet cremation line in a separate building on the same parcel.
What did the combined business earn?
Together, the two lines produced seller’s discretionary earnings (SDE) of $513,500. The trouble was that the owner’s records did not say how much of that came from pets.
The funeral side served 260 calls last year: 78 traditional burials at an average of $8,700, 99 cremations with services at $4,650, and 83 direct cremations at $2,050. That is $1,309,100 of revenue, excluding cash advances, or about $5,035 per call.
| Service | Cases | Average price | Revenue |
|---|---|---|---|
| Communal cremation (clinic contracts) | 1,340 | $64 | $85,760 |
| Private cremation (sold to families) | 760 | $248 | $188,480 |
| Paw prints, keepsakes, and urn upgrades | n/a | n/a | $31,500 |
| Total | 2,100 | n/a | $305,740 |
Combined SDE started from $298,000 of reported pre-tax income and added back the owner’s $120,000 salary, $58,000 of depreciation, $16,000 of interest, $12,500 of personal auto and insurance, and a one-time $9,000 zoning bill. Each item had a receipt, the standard our guide to funeral home add-backs applies.
How was the P&L split between the two lines?
The pet line’s direct costs were easy to find. Its share of everything else was not, and that is where most of the valuation gap came from.
The owner’s own schedule put pet profit at $164,980: revenue of $305,740 minus a full-time operator-driver ($61,360 with payroll taxes), a part-time after-hours driver ($24,000), fuel ($14,700), urns ($15,200), the van ($11,000), retort maintenance ($8,500), and clinic remembrance programs ($6,000). The buyer’s accountant then moved three items.
| Item | Amount | Reason |
|---|---|---|
| Pet profit on the owner’s schedule | $164,980 | Direct costs only |
| Office staff time on pet calls and billing | −$10,000 | 25% of one $40,000 position |
| Utilities, insurance, and upkeep of the pet building | −$13,500 | Paid by the funeral home |
| Part-time manager to replace the owner’s clinic work | −$28,000 | The owner ran every clinic account unpaid |
| Pet line earnings | $113,480 | 37% margin |
The first two lines simply move costs from funeral to pet, so funeral SDE rose from $348,520 to $372,020. The third is a new cost: seller’s discretionary earnings pays one owner, and this owner was doing two jobs. Combined earnings fell from $513,500 to $485,500.
What range did each line support?
The funeral business supported about $1.49 million to $1.77 million, and the pet line about $227,000 to $340,000, on assumed multiples. Those multiples are illustrations for this composite, not published market figures.
Worked example: one multiple versus two
Seller’s first idea: $513,500 combined SDE × an assumed 4.4x = $2,259,400.
Sum of the parts, assumed ranges:
- Funeral: $372,020 × 4.0x to 4.75x = $1,488,080 to $1,767,095. Midpoint at 4.375x: $1,627,588.
- Pet line: $113,480 × 2.0x to 3.0x = $226,960 to $340,440. Midpoint at 2.5x: $283,700.
- Midpoints combined: $1,911,288.
Gap: $2,259,400 − $1,911,288 = $348,112, from two sources. About $123,000 comes from the $28,000 of owner work that was never on the books (× 4.4x). The rest comes from pricing pet earnings at a lower multiple.
Why the lower multiple? The largest clinic sent 31% of communal volume, and the top three sent 58%, all on contracts either side could cancel with 60 days’ notice. The retort was nine years old. Its air permit was valid, but the regulator had to be notified of a change of owner. A buyer can lose a clinic in one meeting; a funeral home’s families rarely leave that fast. Try other multiples in the funeral home valuation calculator below.
Which rules shaped the buyer’s diligence?
Permits and separation, more than price. The buyer wanted proof that pets and people never shared a chamber and that the pet retort’s air permit would survive the sale.
Some states settle the first question by statute. Minnesota’s crematory law, §149A.95, says a licensed crematory “shall knowingly cremate only dead human bodies or human remains in a cremation chamber.” Air permitting is largely a state matter. In its 2005 Other Solid Waste Incineration rule, EPA excluded animal crematories as a regulated subcategory, and 40 CFR 60.2887 exempts units burning at least 90% pathological waste once the owner notifies the Administrator. The operator also held the IAOPCC/CANA certified pet crematory operator credential, which the buyer counted as evidence of written identification procedures. Our guide to pet cremation in a funeral home covers these checks in full.
How was the deal structured?
A regional family group with no pet line of its own bought everything for $2,530,000: $1,640,000 for the funeral business, $300,000 for the pet line, and $590,000 for the land and both buildings. It financed with cash and a conventional bank loan.
- Funeral business, $1,640,000, paid at closing.
- Pet line, $225,000 at closing plus a $75,000 holdback, released after 12 months if the three largest clinics are still sending cases under signed contracts.
- Real estate, $590,000, at the lender’s appraised value. Our guide to valuing funeral home real estate explains why it is priced apart from earnings.
- Transition: the owner introduces the new manager at every clinic within 90 days and stays on a 12-month consulting agreement.
What if the buyer had not wanted the pet line?
The owner would have had to sell it separately or close it, and both paths were priced before the letter of intent was signed. One of the two other bidders, a consolidator, asked for exactly that.
| Path | Pet line proceeds | Other effects |
|---|---|---|
| Sold with the funeral home | $300,000, of which $75,000 is held back | One closing, one buyer, one transition |
| Sold to a pet aftercare company | $260,000 cash | Pet building leased to that company at $18,000 a year, which lowers the real estate a funeral buyer will pay for |
| Closed before the sale | Retort sold for an assumed $35,000 | Clinic goodwill lost; the funeral buyer gains an empty building |
The separate sale looked close on cash. It was not close on complexity: two purchase agreements, a lease carved out of one parcel, and a funeral buyer who would share a driveway with a pet business it did not control. Shutting the line down was the worst result by more than $200,000. Most sellers in this position do better keeping the pet line in the package and letting the holdback answer the buyer’s concentration concern.
What did the owner net after debt and taxes?
About $1.61 million, including the holdback, on assumed federal and state rates.
| Item | Amount |
|---|---|
| Total price, including the $75,000 holdback | $2,530,000 |
| Mortgage and retort equipment loan payoff | −$274,000 |
| Broker, legal, and accounting fees | −$140,000 |
| Recapture: equipment and vehicles at $260,000, basis $85,000; $175,000 × 37% | −$64,750 |
| Real estate gain $280,000: $120,000 unrecaptured §1250 × 25%, $160,000 × 20% | −$62,000 |
| Goodwill: $1,644,000 less $140,000 fees = $1,504,000 × 20% | −$300,800 |
| Assumed 4% state tax on $1,959,000 of total gain | −$78,360 |
| Estimated net proceeds | $1,610,090 |
Inventory of $36,000 sold at cost. The 20% and 25% rates are the federal maximums described in IRS Topic No. 409; your bracket and state may differ. Holdback timing changes when tax is due, so model it with your CPA, using our guide to taxes on selling a funeral home.
What is the lesson?
An adjacent line is worth what it earns on its own, after it pays its share of the building and someone to do the owner’s job. Three years of separate books, written clinic contracts, and a confirmed permit would have let this owner argue for the top of the pet line’s range instead of the middle.
Before marketing a funeral home with a pet line
- Three years of separate pet revenue and direct costs, tied to cremation logs
- A written allocation of shared office, building, and vehicle costs
- Signed contracts with every referring clinic, with volume by clinic
- The retort’s permit or exemption basis, and what a change of owner requires
- A named person, other than the owner, who already handles clinic accounts
Start that work long before a sale. The rest of our valuation, finance, and tax hub covers how buyers price each part of a funeral home.
Funeral home value estimator
A first-pass range using the Four-Number Funeral Home Valuation Screen logic. Replace every default with your own figures.
Total funeral revenue ÷ calls, excluding cash advances.
Third-party cremation, pet cremation, cemetery, etc.
SDE or adjusted EBITDA ÷ revenue after add-backs.
Educational estimate only. Not an appraisal, valuation opinion, or loan approval.
Frequently asked questions
How do you value a pet crematory attached to a funeral home?
Build a separate profit and loss statement for it, allocate its fair share of office, building, and vehicle costs, and replace any work the owner does for free with a market wage. Then price those earnings with their own risks in view, mainly clinic concentration, contract terms, equipment age, and the air permit.
Why would a pet line get a lower multiple than the funeral home?
Its volume usually rests on a handful of veterinary clinics that can switch providers quickly, often on short notice. Funeral calls come from thousands of local families and tend to follow a firm's reputation for decades. Buyers pay less for earnings that one phone call from a clinic manager could reduce.
Can a buyer refuse to take the pet line?
Yes, and some do. A consolidator focused on human funeral service may ask the seller to close the line, sell it to a pet aftercare company, or keep it under a lease. That is a legitimate preference. The seller should price both paths and compare after-tax proceeds, not headline numbers.
Does the pet retort need its own permit?
Usually it needs some form of state or local air permit or a documented exemption, and some states forbid cremating animals in a chamber licensed for human remains. Rules vary widely. Confirm the permit basis and whether it transfers before signing, because a lapsed permit can stop the line entirely.
Sources cited
- Minnesota Statutes §149A.95, Crematories — Minnesota Office of the Revisor of Statutes
- Other Solid Waste Incineration Units, Final Rule (70 FR 74870, Dec. 16, 2005) — U.S. Environmental Protection Agency via GovInfo
- 40 CFR 60.2887, Exempted units under OSWI — Electronic Code of Federal Regulations
- IAOPCC/CANA Online Certified Pet Crematory Operator Program — Cremation Association of North America
- Topic No. 409, Capital Gains and Losses — Internal Revenue Service