The Process of Buying a Funeral Home
Prepare by Using Expert Resources
Align yourself with the expert resources you will need. A buyer is always in a stronger position with solid legal, financial and tax advice. Funeral home buyers who go it alone often pay the price in terms of poorly designed legal agreements with inadequate seller reps and warranties, poorly designed transaction structures with heavy tax consequences and overly burdensome financing structures with unfavorable terms.
Search for a seller and a lender
Developing a personal network is one of the best ways to find out which owners may be considering a sale. Remember the importance of confidentiality and be discrete in your communications. Most sales representatives call on several funeral homes and are often a great source of potential leads. BSF cautions you about discussing your lead follow-up openly because the funeral industry tends to be a small community and you don’t want to derail your own opportunity. Remember that if a salesperson is telling you about a potential lead, chances are someone else may also know about it.
When evaluating the business, don’t be afraid to ask why the seller is considering a sale. Make sure the business is priced at a level that will allow you to operate successfully. Make sure the business, customers and community are a good fit for you and your family. This fit will be the key to effectively transferring the current owner’s customer relationships.
Develop a Strategy Before Negotiation
Before entering negotiations to buy a funeral home, define your goals and develop a strategy for achieving those goals. Make sure you can support what you are negotiating for. If you want pay a million dollars for the business and real estate, make sure you can show the seller why that price is what you can afford to pay. Make sure you can show how your financing will be structured and how much cash flow there will be available to service your debt. The general rule is that if you ask for something, you need to be able to back up what you are asking for with valid supporting information.
Do Your Due Diligence
The funeral home’s operations are reviewed to assess the location, inventory, vendors, management, customer relations, insurance policies and any other items specific to the industry of the target business. The main point is to question each item to see where improvements can be made. Is the business located in the right market area, is inventory adequate, are vendors providing quality goods at reasonable prices, has management run operations effectively, are customers satisfied with the services provided and are insurance policies adequately protecting the company from liabilities.
Formalize the Purchase Agreement
At the close, you are not only executing the documents, the seller is transferring the entire business to you. Your attorney will help you become familiar with all of the documents and obligations to complete the close successfully. Most acquisitions are cash transactions along with promissory notes to the seller. The funds from you and your lender will be wired electronically to the seller. In addition, all payments to intermediaries are made at this time. The closing document from the escrow company will specify all of these payments.