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B U Y
What to Keep in Mind as a Funeral Home Buyer
As a funeral home buyer, you may find that acquiring an established funeral home is less risky than starting a new one. Taking over a proven business with an existing customer base provides a safer foundation. Count on BSF, LLC. to make the process smooth and easy.
One important aspect to note is that, typically, the funeral home seller is responsible for paying the taxes on the sale. However, if you proceed with a stock purchase, there are specific tax concerns you should be aware of:
1. Outstanding Tax Liabilities That Might Come with the Business Acquisition
2. Potential Tax Audits and Bills for the Years Preceding Your Ownership
Understanding the potential tax issues and thoroughly investigating any undisclosed tax matters is crucial to protecting yourself. Seeking professional advice is a key step in this process.
Get Expert Counsel
Business Appraisals
If you plan to borrow money from a bank to purchase a funeral home, your lender will order a business appraisal. If you are self-financing or obtaining funds from a private source, it’s advisable to consult with a qualified business appraiser experienced in valuing funeral homes.
Attorneys
For all but the smallest funeral home acquisitions, it’s recommended to work with a knowledgeable business attorney. An attorney can serve as your representative, act as an escrow agent, or even suggest a reputable company to ensure a smooth exchange of money for the funeral home you’re purchasing. Their expertise can assist you with potential hurdles like pending lawsuits, undisclosed debts, and contaminated land.
CPAs
In certain instances, attorneys may not be well-versed in all the tax intricacies surrounding a funeral home transfer. That’s why involving a Certified Public Accountant (CPA) in the deal is wise. They can ensure your business formation aligns with appropriate entities and help you set up accurate and practical statements of accounts. Moreover, a CPA can provide guidance on accounting software and bookkeeping issues, saving you valuable time.
When buying a funeral home, there are several factors to consider, such as undisclosed debts, overvalued inventory, pending lawsuits, contaminated land, uncollectible accounts receivable, and defective or outdated inventory. By diligently examining these aspects, you will safeguard your interests as a funeral home buyer and make an informed decision.
Things to Remember
As a funeral home buyer, it’s important to consider the following:
- Value Assessment: Assign a value to all business assets sold and report it to the IRS.
- Tax Considerations: Intangible assets can be written off over 15 years. Check for tax liens and include provisions for unpaid tax debts in the agreement.
- Transfer Taxes: Some states impose transfer taxes on the purchase, so ensure they are accounted for in the agreement.
Due Diligence
Thoroughly research the business you’re buying to avoid pitfalls:
- Gather Information: Conduct due diligence on the business and market before signing a purchase agreement.
- Avoid Overpayment: Good due diligence prevents paying too much for the business or misunderstanding its condition.
- Financial and Management Situations: Assess the financial health and management situation of the business to make an informed decision.
Documents Required
Important documents to secure during the buying process:
- Tax Returns
- Financial Statements
- Supplier Contracts
- Customer Lists
- Employment Agreements
- Corporate Documents
- Litigation-Related Documents
- Licenses and Permits
Buying Issues
Consider these factors when buying a funeral home:
1. Asset or Stock Purchase: Determine if you are buying assets only or the entire stock of the business.
2. Confidentiality: You will need to sign a Confidentiality Agreement to have access to the seller’s financial statements, customer lists, and more.
3. Letter of Intent: Before you invest your time and money, ask yourself if signing a letter of intent makes sense.
4. Thorough Due Diligence: Use a checklist to conduct a comprehensive examination of the business, its contracts, employees, and more.
5. Review the Purchase Agreement: Have a qualified attorney review the agreement to ensure all terms are set forth correctly.
For assistance with funeral home purchases, consult with a funeral loan officer.
Choosing Between Asset Purchase and Stock Purchase
When deciding to purchase an existing business, it is important to consider whether to purchase an asset or stock. Here are the advantages of each:
Advantages of an Asset Purchase:
- Specify Liabilities: With an asset purchase, the buyer can choose which liabilities they are willing to assume and leave others behind, minimizing potential risks from unknown liabilities.
- Depreciation and Tax Benefits: An asset purchase allows the buyer to establish a new depreciation basis in the assets equal to the purchase price. It also enables the buyer to amortize Goodwill over a fifteen-year period, resulting in potential tax savings.
- Simplified Process: Buying funeral home assets is typically less complex, as there is no need to comply with state and federal securities laws and regulations. It also avoids challenges that may arise from minority shareholders who refuse to sell their shares.
Advantages of a Stock Purchase:
- Avoid Asset Re-Titling: In a stock purchase, the buyer does not need to go through the process of re-titling the funeral home’s assets, saving time and administrative work.
- Tax Advantages for the Seller: Sellers can often receive long-term capital gain treatment on the sale of stock, potentially resulting in significant tax savings, particularly if their assets are fully depreciated.
Mergers
A merger is a special type of stock acquisition where two entities come together and operate out of one entity. It can have tax advantages but is a more complex process that requires the assistance of an attorney and CPA experienced in mergers.
Broker
While purchasing a funeral home without a broker is possible, having one can be beneficial, especially for buyers new to the industry or those lacking the time to handle details. A seasoned broker can guide buyers through the process and aid in making well-informed decisions.
Remember that it’s important to consult with professionals, such as attorneys and accountants, to fully understand the implications of each type of purchase and make the best decision for your specific situation.
Making the Decision
During the due diligence period, funeral home buyers should thoroughly examine personnel, financial operations, marketing, property and equipment, and other factors specific to the funeral home industry. This comprehensive evaluation ensures all necessary information is obtained to make an informed decision.