The Process of Selling a Funeral Home
The process of selling a funeral home is like any other sale: You must understand your product, find buyers who are interested and qualified to buy, show the product to buyers in the best possible light, and pursue sales opportunities actively and diligently.
There are no shortcuts. Preparation, diligence and attention to the needs of the buyer are the criteria to succeed at selling a funeral home business.
Some owners take a more casual approach. Serious buyers quickly see that they are unprepared and uncommitted, and these buyers move on to better opportunities. If you aren’t ready to sell, if you can’t commit to the time and energy required, then it is best to wait.
Once you are ready, the steps in the process are straightforward. Establish your goals, prepare the business, find qualified buyers, and actively promote the quality and value of your business to these buyers.
Preparing for a Funeral Home Sale
Selling your funeral home can be the single most important event of a funeral director’s career. Regardless of what is prompting the sale, it should be handled correctly as it will have far-reaching financial and emotional consequences.
In the best scenario, the business owner begins to prepare for the sale at least one year in advance. The owner should start by working with his or her accountant to create clear-cut financial statements that illustrate the company’s revenues, expenses and growth potential.
Owners typically try to minimize taxes during their careers. When it’s time to sell, owners need to “lean-up” their operations to ensure they can show the best possible cash flow to prospective buyers. Their records should clearly document all transactions so that potential buyers can easily evaluate the company. This will also give the new owner the ability to take over with minimal training.
Following are some additional recommendations for making your company more attractive to potential buyers:
- Eliminate any potentially difficult situations when possible. The new owner will not want to face customers expecting special treatment or, worse yet, be the one that cancels a long-standing verbal agreement with the company’s oldest customer.
- Examine all supplier and customer contracts. Make sure terms and conditions will not expire or require re-negotiation just as a new owner steps in. Terminate contracts that might be trouble for a potential buyer, or that drain the company financially and serve little purpose.
- Start recording company policies and procedures that exist as unwritten rules. If necessary, create a procedure manual that documents exactly how to best run the business, and be sure to include your unspoken, undocumented techniques. Your payroll service may be able to prepare a comprehensive procedure manual for you at very little cost to you.
- Review real estate leases, especially if your business is tied to its location. Make sure the lease does not expire or require re-negotiation at the same time you plan to sell the company. If the company’s location will discourage buyers, consider moving the location before you place the business up for sale.
- Analyze equipment leases and other material contracts from the buyer’s perspective. Evaluate and catalog your company assets, from property to inventory to employees. If you delayed investing in computer upgrades to help with operations, now may be the time to modernize.
- Address any employee issues. The loss of key employees during a sale can kill a transaction. Key employees may be crucial to the new owner’s success, so it’s important to determine which employees are prepared to stay with the company during and after the transition. It is also important that employees don’t hear about the pending sale of the company from a third party.
- Once you begin the process with a potential buyer, be sure to make a complete disclosure of all aspects of your business. Open up your books for inspection. Show all of your leases and other relevant contracts. Let the buyer see everything, good and bad. Business sales most often go awry if the buyer feels the seller is failing to disclose an important aspect of the operation – an act that may constitute fraud. By making a full disclosure, you ensure that no one can accuse you of anything down the road.
- Discuss tax consequences of the pending sale with your accountant as soon as you can. After you sell your business, the amount of tax you owe will depend on the internal structure of your company and how you structure the sale. If you plan wisely, you can minimize your tax liability. (Your tax advisor or accountant will determine what’s best for your company.)
Establish your goals
You might be surprised to be told that it’s necessary to establish your goals. Isn’t the goal to sell the funeral home business? Yes, but within that broader goal lie many others. A prioritized list of all your goals will help you to form your selling strategy and will inform many of your decisions along the way.
Some of the questions to consider are:
- What are your main reasons for considering a sale? What do you want personally from a sale? What do you want for your company?
- What characteristics are you looking for in a buyer?
- How quickly do you want to transition away from the company? How long are you willing to consult or be available after the sale?
- What deal structure will enable you to achieve your financial goals? Are you willing to accept terms in exchange for a higher price? Are you willing to finance part of the sale?
- Do you feel an financial or other obligations to your management team? Employees?
- How important is confidentiality to you? How vital is it that your employees and customers not know that you are for sale?
Different funeral home owners have different priorities. Some want to maximize the price they get for their business, regardless of who the buyer is. Other funeral home owners place a high importance on finding the “right buyer” and will make concessions in price and terms for the buyer they believe is the best fit to continue to run their business.
The reality is that most sellers believe that multiple priorities are important: price, the buyer, the local community. By identifying and prioritizing your goals, you’ll have a better sense of what’s important to you and be able to approach your selling with a clearer strategy.
Once goals are set, you can create a strategy to achieve them. A haphazard approach rarely produces a successful transaction. A well-conceived plan will inform which types buyers you should approach, what kind of deal you want to structure, and the schedule for moving forward.
Set up a timetable at the beginning and track your progress against the schedule. Six months is a rule of thumb to sell a funeral home, though it can take as long as a year.
Prepare presentation materials
Most funeral home buyers will look at multiple opportunities. They are only going to take seriously sellers who provide a complete and understandable description of the business. Your advisor can work with you to prepare a complete descriptive memorandum before you go to market. This memorandum will show your business in the best light and highlight the aspects of your company that are most likely to impress buyers.
Identify prospective buyers
You may have some prospective buyers already in mind. Perhaps an employee or a nearby funeral home owner would like to expand. More than likely, you will need to cast a wider net and look for buyers more broadly.
Although corporate funeral home businesses made many purchases in the 1990s, those days are over. They overpaid and found that the operational efficiencies they hoped to gain were not possible.
Who is buying today? Mainly individuals who are looking for funeral homes that are doing 75 to 100 calls per year.
It’s impossible for you to avoid looking like you want it too badly if you approach a potential buyer directly. It’s always better to have a third party, preferably a skilled professional, approach the buyer for you. This lets you discover the buyer’s interest in a purchase, it maintains your confidentiality until you know there is interest, and finally, it lets you continue to run your business while the third party makes the time-consuming efforts to approach potential buyers.
Get Potential Buyers Excited About Your Business
Once you have a potential buyer, the best action you can take is to get them excited about your business. The facts of the acquisition can only say so much. It’s your ability to personally influence the buyer that will increase the probability of a successful sale.
- Learn about the buyer and the buyer’s criteria for purchase.
- Structure your meeting with the buyer so that you cover all topics that the buyer needs to become confident about your offer.
- Answer the buyer’s questions openly and honestly. The buyer doesn’t expect everything to be perfect, but the buyer will want to know the full story in order to make an informed decision.
If you can help the buyer become excited and can answer all questions about your business, you are on the way to receiving an offer. From that point, the process is straightforward: work with your intermediary to negotiate terms of sale, respond to all due diligence requests, and complete a contract.