How Much Does It Cost to Own a Funeral Home?

How Much Does It Cost to Own a Funeral Home?

There are more than two and a half million funerals in America every year. Prices for funerals vary from one region of the country to another, but with average funeral costs ranging from $8,000 to $10,000, it is a lucrative business. The largest population group in America at present is the baby boomers, who alone guarantee that a brisk funeral home business outlook for the next several decades. 

The Business Model of Death

The business model of death is continuous. People have life cycles. They are born, they live, and they die. Just as people go to the hospital to be born, they go to the funeral home for help when a loved one passes from this world to the next. A funeral home’s business model is the working plan it lays out for how it plans to make a profit. Business models vary, depending upon the service or product offered. 

Business models selling consumer goods have the option of running sales to increase their client base, but it doesn’t work that way in the funeral business. Funeral home employees, morticians and funeral directors all know that death is unpredictable. Even so, death is an inevitable part of living, which means there will always be a need for funeral services. 

How to Own a Funeral Home Business

Many people gain ownership of a funeral homes through inheritance. In the funeral industry, many families work together and pass their businesses down. There are two other ways to own a funeral home business. One is to start one from scratch. The other is to purchase an already established funeral business. 

Starting a funeral home from scratch is far more difficult, takes more time, and is more prone to expensive errors. Many existing funeral home businesses began with little more than a dream and dreams still come true today. 

Purchasing the funeral home business where one works is also common. Purchasing a funeral home franchise is another option. Funeral home franchises are not yet the norm because many communities are loyal to funeral businesses that have served them well for generations. Private individuals own most funeral homes. Funeral home brokers arrange many sales of funeral homes.

What Are the Requirements to Open a Funeral Home?

The requirements to open a funeral home are straight-forward and readily obtained from each state’s board of funeral directors. Each state sets rules and regulations to govern the conduct of the funeral home profession. This benefits the public, who are more vulnerable to manipulation by shysters at a time of grief. 


Funeral home facilities, morticians and undertakers, and funeral home directors all require state licenses. State code sets standard funeral home requirements. Like restaurants, funeral home businesses must be regularly inspected.  


Concern for one’s fellow man is an undisputed requirement of running a successful funeral home operation. Those without a passion for others are unsuited for bereavement work. If an individual’s grief makes you want to cry, the chances are good that that profession is not a good fit for you. However, someone who recognizes the inevitability of death and is comfortable with it is apt to be of great value to those who have just suffered a loss.

Is the Funeral Business Attractive?

The funeral business is an attractive business model, but beauty is in the beholder’s eye. It is not for everyone, but for most of those who serve their community in this unique way it has benefits unlike any other. There is more to operating a funeral businesses than is immediately apparent. Funeral home businesses are about caring for people. What sells a funeral business is its reputation for service. 

People with compassionate hearts will find the funeral industry an attractive one. The needs of grieving people require people with a special talent for rendering comfort when all seems bleak. Funeral homes fill an essential community need.  It speaks well of the funeral business industry that surveys of funeral home owners illustrate high career satisfaction industry wide. 

What Do Funeral Directors and Funeral Homes Do?

People wonder what funeral directors and funeral homes do. Put aside any macabre thoughts and instead focus on this: Funeral home directors and funeral homes bring comfort and order to people who are potentially enduring the worst days of their lives. There is a reason funeral homes are so often seen in older, established houses in the historic part of towns. It is because they are a pillar of the community, as much as the hospital and the church.

Funeral home directors help the bereaved make arrangements for the burial, cremation, and final services for their loved ones. It is uncharted territory for many, and few greater sources of strength are available than a funeral director who knows what you’re supposed to do next. 

Average Salary of a Funeral Home Director

How much does a funeral home owner make a year? According to the Bureau of Labor Statistics, the mean wage earned by funeral home directors in the U.S. ranges between $32,830 in rural eastern Kentucky and $131,450 in the metro area of Lincoln, Neb. Rather than ask what is the average salary of a funeral home director, perhaps instead we should ask how much does a funeral home made per funeral? 


What Are Recent Developments in the Funeral Business

Recent developments in the funeral business add further encouragement. Popular trends within the funeral business include environmentally friendly cardboard coffins, cremation necklaces, and tattoo ink. The distribution of many families is widespread today, and not everyone can get home for a funeral without advance notice. As a result, it is more popular for families to cremate or bury their loved one privately and then hold a formal memorial service some time later to accommodate the largest number of mourners. 


Funeral homes in small towns know their clients. Some must provide all popular services for their clients because they are the only provider in town. Other funeral home directors have the option of providing services for a certain distinct clientele. Often, these will be the same people with whom the funeral director shops, dines out, and goes to church. No ethical undertaker looks forward to seeing their clients come through the door, but they commit to providing all they can at a difficult time to ease their pain and sorrow all the same. 


Discover New Marketing Opportunities by Watching How People Save Money on Funeral Costs

Grieving people tend to feel emotional, and some are prone to guilt spending. According to Joshua Slocum, executive director of the Funeral Consumers Alliance, a nonprofit consumer-rights organization based in South Burlington, Vermont, “When a loved one dies, his/her relatives, friends or estate often pay upward of $10,000 for a full-service funeral, without considering alternatives. There are other options you could instruct your heirs to select if you would prefer a more distinctive exit strategy and/or lower cost.” 


A general business principle, true for profitable funeral home businesses, is that those who adapt with the times are the ones who continue to thrive. All businesses must adapt to the changing desires of the clientele it serves. Funeral home directors who don’t understand this directive are more likely to fall behind as their former clientele marches away to other, nearby funeral homes that are less stubborn about accepting change. It is dangerous to the future of any funeral home business when those in leadership cannot accommodate the needs and desires of their clients.  


family in front of new home

The best way for a funeral director to identify new markets in the funeral industry is to pay attention to the things that people do to save money on funeral costs. Suggestions to save money include cremation, modest coffin purchases, and simplified floral arrangements. Many opt for direct burials, which all funeral homes offer, eliminate the cost of the embalming, the viewing, and the service, and are far less expensive. Suggestions offered by Slocum for a more flamboyant exit include:

  • Donation to science–Donate the body to science via the closest teaching hospital. Although some hospitals charge transportation costs, usually this option is free.
  • Cryonic freezing–Have your body cryonically frozen upon death. The idea is to wait until science has made sufficient progress and then reinvigorate the body. Options include whole body freezing, or, if preferred, just one’s head. The second option when the individual hopes to find a new body later on.
  • Sea Burial–This option is free to those who have served in any branch of the US military. Sea burials require advanced planning and have rules. One is a requirement for attached weights on bodies buried at sea. A second is that all sea burials be a minimum of three miles from shore.
  • Backyard burial–Another popular option for those with enough land is a backyard, or home burial.
  • Rocket launch–The most adventurous have the option to send their ashes into space. Not all of them, but a portion. Versatile funeral homes are happy to help make such arrangements.

Many funeral home owners pride themselves on offering services that are sober, reverent, solemn, and serious. Community funeral home provides those without a church the secular equivalent. These quiet services aren’t going out of style soon just because some people make alternative decisions. 

Funerals are like weddings in the sense that more people have begun to “do their own thing” and it is a wise funeral home director that avails himself to them as one able to make their end-of-life desires come to fruition. Funerals and memorial services are an important part of the grieving process and serve a purpose not just for the person who passed but for their families, and entire communities.  

The Funeral Business Model Explained

That the funeral home business is profitable nearly anywhere one goes, anywhere in the country, says much about society’s universal need for compassionate funeral care for community members in their time of need. It isn’t possible for a funeral home to increase its clientele organically. But prepaid options, in which clients play and pay for their funerals ahead of time, is one way to even out the business’s cash flow. 


People interested in becoming funeral directors or owning funeral homes should know in advance that people die at inconvenient times and they should be prepared to respond as the need dictates. The needs of the bereaved take precedence over everything else at such times. Advance payment for funerals is the norm unless there is an alternative payment arrangement. Those experiencing loss may expect their funeral director to provide help with things such as contacting the departed individual’s life insurance company, obituary wording and placement, clothing selection, and other important details.


Cost of Starting a Funeral Business in the United States

The cost of starting a funeral business in the United States depends upon variables such as location and the current cost of real estate, and whether the business is being built from the ground up or bought as a functioning entity. In the latter case it includes the fees for relevant licenses. Dedicated software is essential for any computerized funeral home establishment. Many municipalities require permits for things like pollution control, signage, fire department, and possibly others depending upon local codes. 


After calculating the cost of the facility, a business consultant, marketing and advertising, insurance, staff, overhead, and inventory and you’re likely looking at an investment that ranges somewhere between $150,000 on the low end, ultimately to end up with a facility that can service several families, and upwards of $2.5 million on the high end, which would purchase a large-scale establishment simultaneously able to accommodate fifteen or more families.



Ideal Funeral Home Buyer Profile

That the funeral home business model is sound, productive, and thriving isn’t in question. It is a working formula: Invest in a funeral home and you’ll make money. The best reason for investing in a funeral home isn’t the money you’ll make, though, but the quality of life that accompanies the profession. Many funeral home owners confirm the pleasure they take in raising their children in view of the full spectrum of life, giving them the gifts of acceptance, compassion, and understanding. They enjoy filling a necessary role in their communities. They don’t see their business as merely a business, but rather, a way of life.


Perhaps the primary consideration when considering the purchase of a funeral home isn’t the amount of sure money available for making, but the size of the contribution one can make to their community. The truest reward is being present in another person’s time of need for the purpose of alleviating their suffering.

Contact the experienced team at BSF today for more information.



How Do I Start a Funeral Business?

How Do I Start a Funeral Business?

More than 2.8 million people in the United States transition from the earthly realm to the afterlife each year, according to recent reports from the Centers for Disease Control and Prevention. Those left behind by lost loved ones turn to funeral homes for help with memorial, burial and cremation services.
Some entrepreneurs tend to shy away from the funeral industry, but this sector certainly needs a continual infusion of new members. Experts believe the need for death care services will only grow during the years to come. Considering these factors, some would-be business owners are taking a closer look at the prospect of starting a funeral home. If you fall into this category, it’s important to fully understand what’s involved in such an endeavor.

How to Get Started in the Funeral Industry?

Getting started in the funeral industry entails a certain amount of education and experience. After all, it’s impossible to run a successful business without the right background. Just how much experience and which type of knowledge you need depends largely on how involved you plan to be in the daily operations of your funeral parlor.
If you intend to hire a complete staff to run the business on your behalf, you may need nothing more than a degree in business management or administration. Courses in these fields give you the tools and knowledge necessary to effectively get a business off the ground and keep it going.

Obtaining a Funeral Director’s License

​In the mortuary industry, most funeral home owners prefer a more hands-on approach, such as filling the role of funeral director or mortician. In the past, these positions were considered one and the same, but they’ve branched out into two distinct skillsets over the years.
According to the American Board of Funeral Service Education, becoming a licensed funeral service director takes a few specific steps. These vary a bit by state, but the process generally begins with earning an associate degree through a two-year accredited funeral service program. About 45 credits of such a program are dedicated specifically to funeral services.
After receiving an associate degree in funeral services, you’re required to pass a national licensing exam. You’ll most likely need to pass a state exam as well. Most states also require funeral directors to complete an internship at some point during the process.
Each state has its own requirements. Don’t hesitate to reach out to the licensing board in the state in which you’ll be operating for details. Speaking with local funeral directors will also help give you a better understanding of statewide requirements. Also keep in mind, you may need additional education if you plan to take on more responsibilities once your mortuary is up and running.

Finding the Right Location for a Funeral Home

Once you’ve obtained the proper licensure to legally operate a mortuary, you’ll need to find a space from which to offer services. Though it’s possible to find a funeral home for sale or lease that already has all the integral facets in place, this isn’t likely. You’ll likely need to either purchase a building and customize it to fit your needs or build one from the ground up.
Industry experts recommend keeping a few considerations in mind when deciding where to open a funeral home. Some advise newcomers to seek out a city with a sizable aging population; others say it’s best to find an area with minimal competition. In truth, both are significant factors because they indicate a substantial need for funeral services.
Though small towns certainly need the services you have to offer, they often pose more hurdles for mortuary start-ups than larger, more populated cities. In most cases, long-running, locally owned and operated funeral homes dominate the market in these areas. If you prefer to set up shop in a small town, be sure to choose one in which an established mortuary hasn’t already gained residents’ unfailing trust and devotion.

What Does a Funeral Home Need?

Several factors need to be in place before a funeral home opens its doors to the public. Less than a century ago, funeral directors commonly operated out of people’s homes according to Caleb Wilde, a sixth-generation funeral director from Pennsylvania. In an interview with Forbes, Wilde explained bodies were often embalmed in the deceased’s kitchen, and viewings and memorial services were held in the parlor. (1)

That’s not the case these days. State and national health agencies would quickly shut down any morticians caught storing or embalming bodies in a non-approved facility. Fines, penalties and legal issues would also likely ensue.
At present, viewing rooms are essential for allowing families and friends of the deceased to gather and pay their respects to their lost loved ones. It’s also a good idea to have an on-site chapel for memorial services. Reception areas for speaking with families and making funeral and financial arrangements are necessary. That’s why a complete repertoire of office equipment is crucial.
Storing bodies requires refrigeration. Equipment for embalming and safely draining and holding bodily fluids for disposal is a must. You’ll need space for further preparing bodies for viewing. All these areas must be separate from viewing rooms. You’ll have to purchase furniture for offices and viewing areas as well.
You’ll also need a separate area for displaying the various caskets, protective liners, urns, memorial jewelry, registry books and other supplies available to clients. Restrooms for staff members and guests are fundamental. If you offer cremation, you’ll need a dedicated, well-ventilated space set aside for the furnace, processor and additional equipment.
These are only a few of the basic elements. Your needs may vary based on the products and services you offer. A fleet of vehicles is important as well. At the very least, you’ll need a van for transporting bodies from hospital morgues to your facility and a hearse for carrying bodies to families’ chosen funeral service locales and cemeteries.

Legal and Technical Factors for Opening a Funeral Home

Along with deciding on location, services to offer, interior décor and other aspects of your funeral home, certain legal and technical factors enter the mix. You must come up with a name for your mortuary, form a business entity and register the business for tax purposes. Legal documents, like employment agreements and service contracts, are also key for your protection as well as that of your staff and clients.
Before opening your doors and offering services to the public, a variety of inspections must take place. State and national organizations are involved in this phase of the process. During inspections, those agencies examine your embalming equipment, refrigeration and biohazard containment measures as well as numerous other elements. They also ensure all staff members are adequately trained and certified and any potential dangers are clearly conveyed to employees.
On top of all that, you’ll need documentation confirming your business complies with all building, safety, and zoning codes. Business liability, worker’s compensation, fleet vehicle and other types of insurance coverage are likewise required. While you’ll learn about all those factors and more via the funeral service program, it’s also a good idea to speak with an attorney and insurance agent along the way.

How Much Does It Cost to Start a Funeral Home?

All those fundamental aspects and extra elements you’ll need for any special products and services you offer come with a price tag. Leasing, purchasing or building a facility and equipping it with all the necessary tools is a significant expense. An embalming machine alone may cost $3,000 or more. Acquiring all the vital permits and certifications isn’t free, either.

Supplying your showroom with caskets, urns and additional products costs quite a bit, and keeping your selection updated is an ongoing expense. Cash required for a single casket ranges from $2,000 to more than $10,000. Utilities, staff payroll, marketing, having brochures and price lists printed also come into play.
All those components and many others will factor into your funeral home start-up cost. You could be looking at an upfront investment of around $200,000 for a small or medium facility. For a larger funeral home offering an extensive list of services and products, you may need a million dollars or more.

It’s also fair to mention the option of becoming a mortuary franchise owner. At an initial cost of around $30,000, total start-up expenses for this alternative are a great deal lower than building a funeral home business from scratch. This could be a significant advantage if funds are limited and you’re looking for a simpler way to transition into the industry.

Still, funeral home franchises are relatively new alternatives, and these opportunities are limited at present. This route is also more restrictive as far as branding and being able to tailor your services to local clients.

How Much Profit Can a Funeral Home Generate?

Based on the national average, the Cremation Association of North America notes cremations cost around $3,000. Basic funerals come in at a little more than twice that price, but many families are willing to pay much more to ensure their lost loved ones have the best of everything. Funeral homes make their profits on products and services surrounding both those options.
You can make money by marking up the caskets, urns and other products offered to clients. It’s also possible to ramp up profits by charging for extra services, such as obtaining copies of death certificates for families or writing obituaries and having them printed on your website and in local newspapers.
You’re essentially allowed to name your own prices for the products and services you provide. Still, the Federal Trade Commission has rules and regulations in place to protect consumers from price gouging and similar practices. Because of this, you should look at the prices other mortuaries in your area are charging and try to keep your rates comparable to theirs.
Location, services and client volume are the determining factors when it comes to how much profit you can expect to make. In a high-demand area with little competition, even a small funeral home can bring in tens of thousands of dollars in profits each year. Larger operations and those that have made a name for themselves among local residents may generate hundreds of thousands of dollars.

Other Considerations for Starting a Funeral Home

Having an associate degree and being licensed is crucial for those who want to open and operate a funeral home. Still, understanding the finer points of the industry is only part of the process. Other considerations also apply.

When people come to you for funeral services, they’re stricken with grief. Most are also often a bit confused. Dozens of questions come into play when planning memorial services and funerals, and clients aren’t always going to immediately know the answers. If you’re going to enter this field, you’ll need to have ample patience, compassion and leadership skills.

People from all walks of life will come to you in their times of greatest need and despair. Funeral customs vary greatly from one culture or religion to the next. In order to serve all your clients well, it’s important to have at least a basic understanding of a wide range of funeral and memorial practices.

At the same time, traditional funeral services are becoming increasingly rare. Many people now prefer to customize loved ones’ memorial services, and they have countless options for doing so. Tailor your services to meet their expectations.
Also consider purchasing an additional plot of land to use as a cemetery. Not everyone has the desire or opportunity to be buried near a religious place of worship or in a military cemetery. Being able to offer burial plots in addition to your other options better serves the public and gives you another source of profit. This will add to the initial investment and total requirements of opening a mortuary, but it’s sure to pay off in the long run.

All Things Considered

Starting a funeral home requires quite a bit of preparation, thought and funding. Having a solid business plan in place and researching prices, funeral trends and demand in the area you’re thinking of operating can go a long way toward improving your chances of success.

Becoming part of the death care industry may seem morbid to some. Still, it’s a service people are always going to require. Being able to fill their needs and meet their expectations is a rewarding experience and a potentially lucrative business venture.

Are you looking at owning a funeral home?

Are You Ready to Own a Funeral Home?

Many funeral directors talk about owning their own funeral home, but what traits are shared by those that become funeral home owners?

First, they realize they have the aptitude, dedication and desire to own a funeral home. They’re willing to sacrifice long hours and time away from family to achieve ownership. They’re willing to be the last one each night responsible for anything left undone during the workday. They know that if they are making these types of sacrifices already, they may as well be doing it for their own retirement.

Second, they have an entrepreneurial nature. They focus on daily priorities, not the hours of nine-to-five. They have a deep feeling of obligation to serve each family and to protect the reputation of the business. Their personal interactions with families, employees and people in the community drive their daily activities.

Answering the following questions honestly will help you determine if you are cut out for owning a funeral home. It will also help you prepare for the questions of a seller or a lender should you decide to go forward.

Do I have the experience to own a funeral home?

Many wonder if they have the experience to own a funeral home. It takes more than being a licensed funeral director and embalmer to be a funeral home owner. Management experience is critical because owners are responsible for the entire business. Owners manage the flow of first calls, embalming, cremations, arrangements, visitations, funerals, clergy, inventory, supplies, staffing, filings and the other administrative paperwork. Owners also manage relationships with the community, employees, suppliers and clergy. Owners track cash flow while keeping expenses low and successfully collecting receivables. Having solid management experience is often the first requirement for achieving ownership.


Am I entrepreneurial?

Funeral directors are an entrepreneurial group. They focus on daily priorities. They will put administrative duties on hold in order to respond to a death call or a family in need. Funeral directors learn quickly that it is not just another job; they learn that their work requires a high level of personal interaction. These personal interactions drive everything they do and they quickly feel an obligation to serve families in their community.

How much does it cost to own a funeral home?

You may wonder how it costs to own a funeral home. When you buy a funeral home, the purchase is financed with debt. Lenders will look at the funeral home you buy and its ability to service the debt you borrow. They will also see if you have a consistent history of making payments on time: credit cards, utilities, house payments. They will want to see that you have money saved for a down payment.

Not all funeral directors with an entrepreneurial dream are cut out for business ownership. Those who are destined for the path of ownership have a detectable enthusiasm, a sparkle. They are not going to dwell on challenges and problems, their focus is on solutions. They can be quiet but confident, they have a firm determination.
At this point you may have realized you’re not ready yet. If this is the case, and you still think ownership is in your future, continue to prepare yourself and invest in getting the right experience.
Or perhaps you are ready to move forward now. If so, take the next step of looking for an intermediary to work with and begin the process.

If You Plan on Selling a Funeral home, What is the Business Worth?

If You Plan on Selling a Funeral home, What is the Business Worth?

Do you know what your funeral home is worth? Most business owners think they have a good idea. Some will guess at their value and others might apply a multiple to revenue they’ve heard is an accurate measurement of value. Guessing and applying multiples to revenue typically do not produce accurate estimates of value.
Estimating the value of your funeral home can be difficult because values can vary greatly from one business to the next – even in the same industry. Why is this so?
The first reason is that every business is operated and managed differently. Some businesses are managed with discipline and achieve higher profit margins. Others are managed off the cuff and achieve lower profit margins. All else being equal, higher profit margins equate to higher business values per dollar of revenue. Thus, the way a business is operated can greatly influence its value.

The second reason business values can vary in the same industry is that every business operates in a different market environment. Market factors will vary by location and can significantly influence business value. One business may operate with no competition and another may have five competitors in the market. Obviously, the business with no competition would be less risky and on average have a higher value per dollar of revenue than the business with five competitors.


Market Factors Affect the Funeral Industry

Other market factors affecting the funeral home industry include the threat of new competition, general market trends such as decreases in revenue per call associated with cremation, increases in interest rates which decrease loan amounts for borrowers, population shifts or demographic changes affecting the customer base, the availability of dependable employees to operate the business and the amount of goodwill associated with the business.

Experts will tell you that the market is the final arbiter of the worth of your company. This is true, but not helpful. Isn’t there some method of estimating the value of your business that is a good predictor of the price a buyer will be willing to pay?
BSF will show you some simple methods that are good predictors of the price a buyer will be willing to pay, so don’t run out and pay for an expensive valuation if you’re planning on selling a funeral home. It’s a waste of your time and money. Your potential buyer is going to do a valuation anyway.

Who is buying a funeral home today? It’s mostly individuals and small regional firms. Large corporations learned the hard way during the feeding frenzy of the 1990s not to overpay for acquisitions in the hopes of economies of scale and lower expenses to achieve better operating margins.

Comparing the Size of Your Funeral Home to Others

The simplest method of determining the funeral home valuation is to compare the size of your business to others in your industry and the valuation of those businesses.

Although corporations in the past have paid three times revenue for large funeral homes, those days are over. Today, the strongest market is for individuals who are buying smaller funeral homes doing 75 to 100 calls per year. These buyers will pay up to 2.25 times net revenue.
Here is an example of a funeral home that is doing about 90 calls a year and producing $630,000 in revenue, which translates into an estimate of $1.2 million.

Multiples of cash flow or seller’s discretionary earnings

From a financial point of view, a business is a set of assets that are organized to produce a stream of earnings or cash flow.
The right to this stream of earnings has a value. The way to think about this method of valuation is to ask yourself: “If an investor would be willing to purchase an asset that produced a given stream of cash flow, how much would that investor be willing to pay?”
Note: For this method you may need to ask your CPA to do an analysis of your cash flow.
In the funeral industry, most businesses sell in a price range between four to six times Seller’s Discretionary Earnings (SDE). This price range typically includes all operating assets of the business. SDE or cash flow available to the owner is also expressed in terms such as adjusted cash flow and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Here’s an example:

How Much Can the Buyer Afford to Pay?

Another way to look at valuation is to ask how much the buyer can afford to pay. Individuals buying a funeral home are limited by how much they can borrow. Their ability to borrow is directly a function of the cash flow that the funeral home produces. This is the cash that will be used to service the debt.
Following are the easiest ways to find out how much debt your business can pay for
  • Ask your CPA to prepare an analysis of your cash flow to determine how much cash is available to service debt on an annual basis.
  • Most lenders calculate a minimum debt coverage ratio. It’s basically the cushion required by the lender for a given transaction. Let’s say that ratio is 1.25.
  • If your business produces an annual cash flow of $125,000 and the buyer’s bank has a minimum debt coverage of 1.25, then the maximum debt payments that the buyer can afford to pay is $100,000, or $8,333/month.
  • At an interest rate of 7% and a term of 16 years, the buyer could borrow $960,938 and cover the debt.
  • If you assume 20% down payment, then the total price for the business based on debt coverage is $1,201,173.
Additional Resources
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Success Factors When Buying a Funeral Home

Success Factors When Buying a Funeral Home

After working with funeral home transactions for a long time — on both the buy side and the sell side — some characteristics of successful purchases stand out. If you pay attention to these critical factors, you’ll improve the probability of successfully buying a funeral home.

Do You Have What it Takes to Own a Funeral Home?

Not all potential buyers are cut out for owning a funeral home. Buyers who eventually succeed have a detectable enthusiasm, a sparkle. They don’t dwell on challenges and problems. They have a quiet confidence, the right attention to detail, the determination. Only you can answer the question: “Do I have what it takes?”

Package Yourself and Your Financing for Maximum Effect

You will want to buy the biggest business you can afford for a simple reason. It will give you a bigger base to grow from. Finding a loan with a lower interest rate and a longer term means that with the same payment you can buy a bigger business.

Assume There are Skeletons in the Closet

Look past the seller’s story; they are putting their best foot forward. Dig underneath into the financials and the operation. Fully investigate the business.

It's OK to Pay a Fair Price for a Good Business

This is no time to gloss over defects and look for bargains. You are going to live with the business for a long time, so buy one that is healthy and thriving. It’s like the proverb says: “If you buy quality, you only cry once.”

Find the Right Ally to Get Your Financing

The market for funeral home business loans is thin. Banks that are inexperienced with funeral home business loans may not understand your business and structure debt that the business can’t support. Banks or non-bank lenders may take advantage of your inexperience and burden you with above-market rates or terms. In either case, this is a time to have someone sophisticated in lending practices on your side.

You are Buying a Stream of Earnings

Financially, a funeral home is an asset that can generate a stream of earnings and cash. The earnings that the funeral home produces determine the size of your loan and to a great extent the price of the business you will buy.

Manage Your Attorney's Involvement

Your commercial law attorney has an important role in advising and preparing the legal structure of the business purchase and sale transaction. But problems arise if the attorneys see themselves as business negotiators whose goal is to get the “best deal” for their clients. They may forget that the “best deal” is one that both the buyer and the seller can live with, a deal that will enable the business to survive and thrive after the transaction. In their enthusiasm they may not remember that deals are forged in compromise. Keep in mind, if a deal becomes too lopsided, it will likely result in no deal at all.

House in human hand over blue sky

Closing the Deal is Hard

It should be easy, but it’s not. After all, the hard work is done — valuations, investigations, and negotiations are complete. Now it’s just a matter of getting it all written down in a form that everyone can live with. Closing is the shortest part of the process. But someone will get cold feet when it’s time close. Be ready! Anticipate and be prepared with your attorney and consultant to work through the issues in a logical and reasonable way.

Resist the Urge to Change the Business Right Away

This company has been working successfully, or you wouldn’t have purchased it. Get to know the company and how it works before you start making changes.
Cheerful people holding speech bubble icon

Selling a Funeral Home

Guide to Selling a Funeral Home

You’ve been running your funeral home business for a long time. Perhaps you’ve thought about selling the business—to retire, to move on to another phase of your life, or to diversify your assets.

Whatever the reason, it’s a big decision selling a funeral home and an event to navigate knowledgeably and confidently.

The question is not whether you can sell your funeral business. There will always be buyers for well-run funeral homes for sale. The question is how you get there and what result you produce. Will you will be able to control the process? Will you get the best price and terms from the asset you’ve worked so hard to create?

Like any complex situation that you enter for the first time, many traps and pitfalls await the inexperienced traveler selling a funeral home.

Are You Considering a Sale of Your Funeral Home?

A lead time of at least two years is often needed for tax planning because appraising your funeral home may identify certain areas that need adjusted to increase profitability. Remember, all else being equal, higher profits translate into higher business values.

If adjustments to revenues or expenses are necessary to increase profitability, it will take some time for those adjustments to be realized on your financial statements and tax returns. Potential buyers need to see proof of your historical profitability via your financials and tax returns. Buyers and their lenders will use this historical data to determine the amount debt service the buyer can afford in the future. Thus, more profitability results in more cash flow available to pay debt service, which results in a higher sales price for you.

Estimating the value of a funeral home can be difficult because values can vary greatly from one business to the next – even in the same industry. Every business is operated and managed differently, and that can affect the value.

Review Market Conditions

If you are considering a funeral home sale, you need to know what’s happening in the market. You need to know who is buying; which buyers will be interested in buying your business; how desirable your business is; what prices buyers can afford to pay, what financing options are available to buyers, and if any seller financing will be required of you. Knowing the current market and addressing these factors will help determine the right selling strategy for you.

Large corporations rarely buy small- and medium-size funeral homes. Normally they are looking for 250-plus calls per year or more. After the feeding frenzy of the 1990s, corporations learned the importance of an owner’s personal touch and the importance of not overpaying for acquisitions.
This means the days of a corporation offering an owner three times revenue are gone and not coming back. Right now, individuals and small regional firms are offering the best prices to sellers in the market.
Most individuals are looking to buy a funeral home doing 75 to 150 calls per year. (A more experienced individual may go for a larger volume.) Small regional firms are looking to buy funeral homes doing 100 plus calls per year if they are within a reasonable distance from their other firms.

What kind of prices are individuals and small regional firms are offering for a funeral home? Current selling prices range from four to six times adjusted cash flow or up to 2.25 times net revenue. The final price is not dependent or correlated with net revenue, but is sometimes expressed that way. The final price is directly correlated with the adjusted cash flow because that is what shows lenders how much debt service the business can afford. In simple terms, the adjusted cash flow is the amount of money the new owner will have available to pay debt service after the sale. This is where competitive financing comes into play because lower interest rates translate into the ability to finance more debt.

Cheerful people holding speech bubble icon
Sellers in today’s market will often seek the advice of an expert, and they are often told their business is worth more than it really is. Be cautious of anyone telling you they can sell your business for over 2.25 times revenue, anyone trying to sell you an expensive business appraisal, anyone trying to sell you an outside management contract, anyone trying to sell you accounting services without the direct services of a Certified Public Accountant or anyone trying to get you to sign an exclusive listing agreement.

No ‘Secret Formula' for Selling a Funeral Home

There is no “secret formula” that will allow you to glide through a funeral home sale with little or no effort. From start to finish, the process of selling a business is detailed and time-consuming. But there are several things you can do to help navigate your way through the process.

Be Prepared to Answer a lot of Questions

Why are you selling? Are you ready to retire? Assuming you are ready to retire, are you ready to let go of the income, control and relationships you have worked hard to maintain? How will your employees handle the transition? Will a new owner keep your employees? Will the new owner be a good fit with your customers? Will the new owner maintain your reputation in the community? What is the accurate value of your business? Who should you get to value your business? Can you get enough from the sale to meet your needs? Who can you trust to negotiate with potential buyers? How many potential buyers will have to visit your business for you to find the right one? How much is selling your business going to cost you? How long will the selling process take? Have you prepared for the sale? Are your records maintained and organized properly? Can confidentiality be maintained during the process? These are the common questions.

Be Ready for Review of Your Records

The “Due Diligence” checklist of a buyer can be very long and detailed. As a seller, you will be required to provide the buyer with full access to your records, financials and tax returns. During the buyer’s review, the buyer will want to review your revenues and expenses by examining the supporting documents for the numbers listed on your financials and tax returns. You will need to provide copies of documents such as tax returns, financials, receivables, liabilities, signed contracts with customers, suppliers, employees, inventory listings, asset listings, tax bills, appraisals, surveys, operating licenses, insurance policies, benefit plans, advertising programs, price lists, payment policies, and vehicle titles just to name a few.

Find Out How Much Debt Your Business Can Pay For

Have your CPA prepare an analysis of your cash flow to determine how much cash is available to pay debt service on an annual basis. Once you know how much cash is available to pay debt service, you can then estimate how much debt the buyer will be able to service. Most lenders calculate a minimum debt coverage ratio. This ratio is basically the cushion required by the lender for a given transaction. For example, your CPA says your business annually produces approximately $125,000 of cash flow that would be available to service debt. Now let us say the buyer’s lender requires a minimum debt coverage ratio of 1.25. In this example, the buyer’s lender would only finance debt with annual payments up to $100,000. Any debt payments above this level would not meet the lenders minimum debt coverage requirement.

Hand agent with home in palm and key on finger.

Find Out How Much Your Business is Worth

Since valuing your business too high or too low can be a costly mistake, using a rule of thumb or multiple to guess at your funeral home valuation is not a good plan. Many business owners decide to have a formal business appraisal or “valuation” done to help determine their asking price. But what happens if the appraisal is not accurate? This often happens and the business owner is stuck with an expensive appraisal that cannot be used.

Business owners, beware. There are a lot of companies out there selling expensive business appraisals that may not produce an accurate estimate of value. In addition, most lenders that require a business appraisal will not accept appraisals or valuations ordered by another party – the lender has to engage the appraisal or valuation company.
A safer bet than ordering an expensive appraisal is to estimate the amount of debt the buyer can afford to pay for. Using the cash flow available for debt service along with a reasonable term, interest rate and down payment, you should be able to reasonably estimate the amount of debt the buyer can afford. This debt amount plus a reasonable down payment should be close to the estimated value of your business.

Selecting a Financing Intermediary

Selecting a Financing Intermediary

Whether financing a funeral home purchase or refinancing current debt, borrowers are determined to finance with terms their business can support.  Although many borrowers go it on their own to arrange financing, they soon encounter challenges they hadn’t anticipated and likely will need a financing intermediary.

For banks, lending to funeral homes is a niche business. Many banks are unfamiliar with the funeral home industry. Non-bank lenders have arisen to fill this gap in the lending market, but not all of them are reliable. Some non-bank lenders have good business practices, some do not. Some have a clear fee structure; others are less forthcoming about what they will charge you.
Under these conditions, lenders tend to have the upper hand in the negotiation. Borrowers often find themselves conceding to high interest rates and onerous terms.
In this market it’s valuable to have someone on your side. A competent intermediary will be familiar with lending to funeral homes, will steer you to reliable lenders and negotiate a package that your business can cover.

The right loan can be the difference between success and failure in the funeral home business. Once a funeral home owner came to us who had arranged his own financing in the past. He had owned his funeral home for about five years and had gotten his financing from a specialty financing company. The debt load was threatening to put him out of business. We were able to help this owner refinance and get a very good deal compared to what he had before.


What is the Function of Financial Intermediaries?

  • Determines the size and term of loan you need based on the amount of cash flow your business has available to service debt.
  • Evaluates your background, credit history, and available collateral. Works with you and your CPA to prepare your financial projections. Helps you assemble your loan documents.
  • Finds and contacts potential lenders, introduces your package to them.
  • Negotiates interest rate, length of loan and other terms.
  • Works with all parties to prepare and close the loan.

How an Intermediary is Paid

The standard industry fee charged by an intermediary for brokering a loan is 1 percent of the loan amount paid at closing. This is a success-based fee and if your loan doesn’t close then you should not owe anything to the intermediary. In some cases, the borrower pays the fee and in other cases the lender pays the intermediary in the form of a referral fee.

It’s possible that the lender won’t disclose to you that they are paying a referral fee. In this situation, the intermediary may try to charge a fee both to you and the lender. Beware this “double dipping.” Direct lenders don’t like it and neither will you since it could put you in a short cash position after closing. Ask enough questions when you interview an intermediary to fully understand how the fees will be paid.

Reasons to Use an Intermediary for Funeral Home Financing

You may be questioning the need for an intermediary. “Can’t I do this myself?” “Is it necessary to pay a percentage of the loan to a consultant or broker?”
Competent intermediaries will more than make up for the fee you pay by getting you a better loan with a lower interest rate and favorable terms. Reasons to use an intermediary include:
  • Experience - Like you, competent intermediaries have invested years to become a specialist in their field. A professional intermediary brings an understanding of the lending process and the market for funeral home business loans. Your intermediary can help you package your application, work with you on the technical aspects of the loan, and resolve accounting, legal and tax issues.
  • Objectivity - You have a big emotional stake in the success of your business. It’s hard to separate issues from emotions when you are close to a situation. An intermediary can maintain this separation and stay focused on resolving the issues that arise in the course of applying for a loan.
  • Knowledge of lenders - Just as you are an expert in the needs of your local funeral home customers, an intermediary that specializes in funeral industry financing knows who the best lenders are and how to package your application for the best possible results.
  • Skill at negotiations - It’s often difficult to negotiate a deal for yourself when you are not used to negotiating. Intermediaries negotiate deals regularly and know what types of responses to expect and how to read them. It is in the best interest of borrowers to have someone negotiating on their behalf that is experienced at negotiating the best terms and rates. And because the intermediary can’t legally commit for you, you will have more flexibility because the intermediary has to check with you before agreeing to anything.

What to look for in an intermediary

While a professional, experienced intermediary can add tremendous value to the loan transaction, an ill-informed, inexperienced advisor can do more harm than good. 

Look for these qualities when seeking an intermediary: 

  • Professionalism - An intermediary’s reputation can have a profound impact on your ability to qualify for the best loan. Be certain that your intermediary has the required education and experience. The intermediary also must have a solid reputation within the funeral industry.
  • Experience - Your intermediary should have a track record of successful funeral home loan transactions.
  • Focused effort - This transaction is important to you. You want an intermediary that also takes it seriously.
  • Senior level attention – Avoid an intermediary who will hand off your work to a junior person on the staff. Find an intermediary who is anxious enough for your business to devote a senior person to the project.
  • Sensitivity to your objectives - A competent intermediary will bring a wealth of experience to the table. A good intermediary will also listen to the client’s specific goals. If the person is truly capable, this careful listening will translate into a customized approach that produces the right loan.

Additional Resources


Securing a Funeral Home Loan

Securing a Funeral Home Loan

Banks are in the business of renting money by lending it to you at interest. Before they provide you a loan, they want to be confident that you’ll be able to pay it back. They use multiple ways to determine their confidence, some financial and some non-financial.

Meeting the bank’s financial requirements is not enough if you’re thinking of securing a funeral home loan. The bank wants to see other signs that you are a good risk for their capital. Just keep asking yourself as you work with your consultant, put your package together and meet with bankers: “Will these actions increase the bank’s confidence in me?”

A solid financial history, a reasonable purchase price, and projections that are doable are the beginning of the story. But just as important to your banker is a positive attitude and determination.


Good Character is Necessary

Your character is a necessary condition. Lenders look for a clean credit report and a consistent record of paying your bills on time. They also want to see if you have the education, experience and emotional resilience to run a business. A positive personal attitude and a constructive business plan is a surefire way to impress all financial lenders and investors.

Capacity to Produce Cash

Determine the capacity of the funeral home you are buying to produce cash. Lenders only use historical tax returns and financial statements to determine your ability to repay the loan and still have adequate funds to run your business.

Are You Willing to Invest Your Own Capital?

How much of your own capital are you willing to invest? Lenders will not lend you the entire purchase price of the funeral home. They expect you to provide some of the capital, typically a down payment of 20%. The down payment reduces the bank’s risk and it shows the bank that you are confident enough in the business to invest your own capital.

Seller Lowers Bank’s Risk

The seller is part of the equation. Lenders often want to see the seller provide some of the capital in the form of a loan to you. This is another way for the bank to lower its risk. Their thinking is, if the seller is willing to finance some of the purchase, then the seller must be confident that the new owner will be able to run the business profitably.

Real Estate Provides the Collateral

Your purchase includes two components: the real estate and the business. The business provides the cash flow. The real estate provides the collateral. The bank looks at your cash flow to determine how much you can borrow. It secures the loan with the real estate that comes with the funeral home.

Term of the Loan

The mix of the value of the business and the real estate determine the term of the loan. If it was all real estate, the term could be as long as 25 years. If there was no real estate, the maximum business loans are about 10 years. If the mix of the value of the business and the real estate are 50:50 (which is typical), then the term of the loan will be around 16 years.

Calculate How Much You can Borrow

Decide how much you need to borrow. The amount you can borrow is directly linked to the amount of cash flow the business produces each year. Contact us and we’ll walk you through how to calculate the amount you can borrow based on the cash flow of the company you are planning to buy.

Tell the Truth

Be truthful to your banker and your business consultant. You may have a flawed credit record. No one is perfect. Better to lay all your cards out on the table with your financial intermediary so that the two of you can figure out the right strategy for approaching the lender.

Packaging Your Proposal

Prepare the documents you need to support your proposal. Your loan officer or business consultant will know what you need to prepare and how to package it.

Shopping Your Loan

Prepare the documents you need to support your proposal. Your loan officer or business consultant will know what you need to prepare and how to package it.

Additional Resource


The Process of Selling a Funeral Home

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.


The Process of Buying a Funeral Home

The Process of Buying a Funeral Home

Buying a funeral home business is a two-pronged process. On the one hand, you are looking for an asset you can afford to buy and grow over time. On the other hand, you are selling yourself to the business owner and lender—your credit worthiness, your capacity as a borrower and your ability to operate the business.

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.

Be honest with yourself about your ability to buy a funeral home business. You not only need to be prepared to operate your own funeral home, you will most likely need financing to make the purchase. Do you have a positive credit history? Have you saved enough for a down payment?

Search for a seller and a lender

Good funeral home businesses for sale are not easy to find. Most sellers do not advertise they are for sale and prefer to go through the transaction confidentially without the staff or community knowing the business is being sold. Sellers also know that most prospective buyers may not be prepared financially to get a loan to make the purchase. Given this, many sellers will be skeptical of a buyer until the buyer can demonstrate his or her financial ability to make the purchase.

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.

Negotiations are a process of give and take. You and the seller will approach the table from different positions on price and terms. You are more likely to secure a deal if you keep your eyes on the goals, understand the seller’s needs and look for a win-win solution.

Do Your Due Diligence

Your negotiations will conclude with a letter of intent to purchase the funeral home business and real estate. The letter of intent is commonly called the LOI and it is your purchase offer based on the information you’ve received from the seller.
Unlike buying a house or a car, buying a business is a process of determining the true value of the business while uncovering any issues that may enhance or detract from the future operation of the business. The process of analyzing the business prior to the purchase is referred to as “due diligence” and the time period for performing these actions is referred to as the “due diligence period.” The due diligence process begins when a buyer identifies a target business to buy. The length of the due diligence period is determined by the complexity of the acquisition.
In reviewing the financial operations, the buyer will examine the financial records and accounting methods to determine the company’s historical cash flows, receivables will be analyzed to determine collectability, payables and debt will be reviewed to determine the quality of vendor and lender relationships and product pricing and service mix will be reviewed to determine consistency with industry norms.
The personnel of the target business will be reviewed to determine the necessity and pay level of each employee. In small business acquisitions, most employees are rehired at the same pay rate if their services are necessary.
Property and equipment owned by the target business will be reviewed to determine the useful life and appropriate fair value of each. Appraisals are conducted and the values will be used in the allocation of the purchase price to establish the depreciable values of the assets and equipment. Leases, rental agreements and property deeds are also reviewed.

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.

A female hand operating a calculator in front of a Villa house model
Marketing practices, advertising campaigns and public relations programs are reviewed to determine their effectiveness. Is the company using an appropriate marketing and sales strategy? How does the competition market their business and products? Could any of these practices be enhanced or changed to produce a better return on investment.
When commercial real estate is involved in a purchase, environmental due diligence refers to site assessments performed to uncover any potential liabilities associated with the property. These assessments are called Phase One and Phase Two Environmental Reports. A Phase One is almost always ordered by the lender for commercial real estate transactions. A Phase Two is not normally required unless a potential liability issue is uncovered by the Phase One.

Formalize the Purchase Agreement

Once you’ve completed due diligence, it’s time to formalize the purchase agreement. This agreement covers the price, terms and structure of the deal. Unlike the letter of intent, the purchase agreement is legally binding. The purchase agreement is often drafted by the buyer. This is for your protection and gives you opportunity to make sure the appropriate seller reps and warranties are included in the language.
The purchase agreements may take several rounds of review by you and the seller before the final draft is ready for execution. This is normal and you need to be patient during this process as the final agreements need to be drafted with care since they are the only binding source of commitment between buyer and seller.

The closing

The closing is the actual event where the transaction is concluded. It usually occurs at the office of an escrow or title company but can also be held at an attorney’s office. All documents are executed, the title, deed, stock, etc. are exchanged, the mortgage is signed and funds are transferred.
At closing, the seller and lender will be there along with the attorneys for both sides. As the buyer, you are generally responsible for coordinating the documentation and the sequence of events. Be sure that all closing documents are negotiated, reviewed and approved prior to the close. The seller’s attorney will make sure the seller brings all the necessary records, including stock certificates, articles of incorporation, corporate minute book and tax records.

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.

You will likely find this to be a very stressful day. It’s the culmination of a long and arduous process. But you are also likely to experience an exhilaration of finally reaching your goal to own a business. Congratulations!