Funeral Home Loan Application Process

by with No Comment Uncategorized

Funeral Home Loan Application Process

What are the Steps in a Funeral Home Loan Application Process?

Death is the only certainty in life, and when that time comes, families need a space to mourn the loss of their loved one. For the entrepreneurial mind, owning a funeral home may have crossed your mind as an opportunity to get into a “recession-proof” business.

Starting a funeral home from scratch is expensive. If you are entering the market to acquire an already-established funeral home business, then you will need to find a specialized loan to help you purchase the business.

The experts at BSF understand that this can be confusing for a new buyer, so we have put together a step-by-step list of the typical steps in a funeral home loan application process to help guide you:

Are You in the Market for a Funeral Home Loan?

As a prospective funeral director, you need to decide what type of loan you are in the market for. Are you trying to acquire a loan to start your own funeral home from the ground up, or are you looking to acquire a pre-existing business?

Of course, money isn’t the only reason to go into the funeral home business. (1) Most funeral directors find personal satisfaction in helping families ease into their new life without a loved one, and helping them focus on mourning, rather than the logistical stresses of arranging a funeral.

““You guys are like family to us” means a lot to me. It’s important to know that what you’re doing is meaningful for the person you’re doing it for.”

– Caleb Wilde, 10 Reasons I’m a Funeral Director

Acquiring a business is generally the best way to go to enter the market, buy out competition or expand your current practice.

An established home has a historical record of its clientele, profits, demographics and popular services. Starting a funeral home may have a few years of trial and error before it starts turning a real profit, and you will be putting your personal money into the home’s success, rather than the bank’s assets and backing. With a bank behind you, your financial safety net is larger. That peace of mind can increase your odds of success and encourage innovation.

For this reason, many funeral directors choose to go through the bank to acquire an established funeral home, rather than put their personal finances at risk.

You will typically want to find a seller while you are working on acquiring a funeral home loan so that the total timeline is shortened. Some funeral home lenders, depending on your history with the lender, may not extend a loan unless you have a seller in mind. There may be required paperwork from the seller to even begin the application process.

Once you have made the offer, the funeral home loan application process can begin.

The Funeral Home Loan Process

  1. Developing a Plan In this initial stage, you will need to think about how you will run a funeral home once you purchase it. This is important information for your loan application process, as will help the lending agency determine if your business plan can hold up under the pressures of an economy that is always in flux
    It will also help you strategize with your agent and determine where any revenue breakdowns are, how to fix them, and how they hold up against predicted market trends.
  2. The Application In this application phase, your lending agency will help you gather all the information you need to pre-qualify your loan. You will need to discuss your business plan with the loan officer, including any services you plan to provide, methods for preventing revenue loss, and where you plan to bring in revenue through the business.
    You will need other items to prove you are financially responsible, such as previous tax returns, contact information, resume, and other personal financial records.

    “many funeral directors choose to go through the bank to acquire an established funeral home, rather than put their personal finances at risk.”

    Keep in mind what line of credit you are requesting in the application process. If you are putting your personal assets on the loan for collateral, remember that this is a form of personal wealth, and puts the assets at risk.
    If you currently own another funeral home, you may also need to provide proof that the funeral home you own is stable by providing corporate tax returns, call volume logs or profit sheets. The upside to this is that you can put any assets from the previous home on the loan instead of personal assets, and your loan application process will significantly shorten.
    Once this process is complete, you will receive a loan proposal, which will tell you the credit your agency is willing to extend to you based on the documents provided.
  3. The Underwriting During the underwriting process, you work closely with the underwriter to verify and analyze the documents you have submitted during the application process. This helps the lending agency verify the amount of credit they have offered in the proposal. Many new funeral home buyers can receive 100% coverage of the purchase cost if their previous history is clear and they choose a reputable funeral home lender.
    If you have questions about the contract, your underwriter is an excellent resource to have any questions clarified. They specialize in the finer points of the contract and can give you the clearest view of what your agreement is, in plain-speak, if needed.
  4. The Closing Once the lending agency has negotiated a deal with you, and you know how much of your purchase will be covered, you need to have a final meeting with the agency to review and sign several papers to finalize the deal. You may need to schedule a consultation to go over every part of this paperwork in detail, verifying the contents of the security agreement, loan terms, deed of trust, and other documents that may be critical in the success of your loan.

How Soon Before Closing is a Loan Approved?

Overall, the typical funeral home loan application process takes 30 days from when your initial application is submitted.

The process can be much slower, or faster, depending on the materials necessary, whether you have already found a seller, or if there are any discrepancies in the documentation provided to the bank.

One of the most common reasons an application may slow down is that the bank needs additional documentation to prove that certain transactions have occurred in a previous business, or they may need more information from the prospective seller. If this is the case, your loan advisor will contact you to request the necessary documents.

A prompt response is best, but any missing details may further delay the process, so it is always advised to review the documents with a professional funeral home advisor or lender before submitting any new documents.

If you have clear documentation and provide more than the bank requires for the application process, you may see the loan approved from application to underwriting and closing in less than 30 days. While this is more common for funeral directors who have previously owned one or more funeral homes and maintained a proven track record of success, it is still possible for a new and unproven funeral director.

Funeral Home Business Loans with BSF

The U.S. Small Business Administration has acknowledged that lender relations specialists can help keep funeral home loans and deals running. (2)

For your next (or first) funeral home loan application process, put your trust in BSF, the leading funeral home lending service connecting buyers to sellers and other resources in your area. BSF specializes in funeral home financing and maintains a track record of success with up to 100% financing available. BSF will help connect you to sellers in your local area, make the funeral home loan application process seamless, and maintain confidentiality.

References

  1. Huffington Post https://www.huffpost.com/entry/funeral-director_b_4911943
  2. Small Business Administration https://www.sba.gov/offices/district/ne/omaha/success-stories/lender-relations-specialists-help-keep-funeral-home-deal-alive

Questions to Ask When Buying A Funeral Home

by with No Comment Uncategorized

Questions to Ask When Buying A Funeral Home

Acquiring another – or your first – funeral home can be confusing waters to navigate. At BSF, we are dedicated to helping buyers and sellers alike, making the business transaction as smooth as possible.

“Since death doesn’t stop in a bad economy, funeral services is what they call a recession-proof industry.”

Shane Ferro, Huffington Post

In this article, we will cover several questions buyers should ask when they enter the market for a funeral home, and how they should prepare for acquiring a new funeral home business.

What to Know Before Buying a Funeral Home?

Before you buy a funeral home, you should know that every state has different regulations about how a funeral home should be operated, and every practice is run differently. You should always make sure the funeral home you want to acquire meets all regulatory standards and that their practices are ethical. This includes ensuring they have the necessary state-required equipment.

If you are in a state that requires inspection on any of the equipment, you should also find out when the equipment was last inspected and cleared for use.

Without ethical practices that meet regulatory standards, you may be liable for repairs, new equipment costs or violations incurred after you acquire the business, so it is important to get to know every detail of the business before committing to a purchase.

What Questions Should I Ask if I Want to Buy a Funeral Home?

When you start a conversation with a seller, you want to learn more about the business. It is also important to come to the table with specific questions. Every buyer will look at different things, and other questions may come up during the conversation, but it can be difficult to prepare specific questions when you’re lost in a sea of details.

Maybe you’re selling your previous practice, in the process of finding a funeral home lending service or just feeling a little overwhelmed at all the information you might be missing.

Following is a list of common questions you should ask the seller before committing to a purchase:

  • What is Included in the Purchase Price? It’s important to find out what exactly is included in the purchase price. For example, you need to know how much of your purchase is going to the building, if utility contracts are included, if all of the equipment and furnishings inside are included, and so on.If you can, get an itemized list of things included in the contract so you can reference this later with your funeral home lending service.
  • Is the Local Population Growing? The local population plays an important role in how much business you’ll see in the near-term. Population growth ultimately means more business. If the local population is declining, you may want to look at other factors that might cause this and decide whether you want to proceed with purchasing a funeral home in that location.
  • What is Your Current Pre-Planning Model? Many funeral homes have a pre-planning model, where their clients can arrange funeral services ahead of time and help save their families money. If the current funeral homes’ business practices are included in the sale, be sure to ask about a pre-planning model. This may be important to bring to your funeral home lending service, as that will help form your business plan going forward, shaping future financial growth.
  • What is the Cremation Rate? Is it Rising or Falling? Cremation rates are always in flux and learning about how the cremation rate has risen or fallen in the last few years will tell you more about the trends of the local population.If the cremation rate is rising, but the funeral home you are purchasing does not have space or equipment for cremation, you may want to consider purchasing another funeral home in the area. Likewise, if the cremation rate is falling, and the funeral home is based around cremation, then it may not be the right time to purchase unless you want to invest in adding a crematory to the facility.
  • What is Your Clientele Demographic? It is important to learn more about the demographic your funeral home will service. This will provide valuable insight into the traditions and customs you will encounter and may change the services you need to provide for mourning families. Your clientele’s demographic can also tell you a lot about the cost structure of the business currently, as well as how much you can expect to make on an average month running the business in the future.
  • Are Any Inspections Due Soon? If your state requires an inspection on any equipment or parts of the facility, make sure all inspections are up to date before your purchase a funeral home. Sellers may not be aware certain inspections are due, or they may be due soon after the estimated purchase date. This helps you plan for “surprise” expenses when you first start running the home.It is also important to acquire previous inspection papers. This can tip you off to future equipment maintenance or repairs that may be needed.

Where do I Find Out What Funeral Homes are For Sale?

Several resources are available online to connect you with a seller, such as BSF. We recommend always getting in contact with sellers through an approved broker service. Your specialized funeral home lending agent is also a great resource in finding reputable agents, sellers, or other services to help guide you through the process.

How Much Does It Cost to Buy a Funeral Home?

A funeral home will cost enough to cover expenses and projected profit over a certain period, with many other considerations such as how long it has been in business, current clientele and equipment. Many homes cost up to $300,000

Each client who walks through the doors of a funeral home will spend an average of $7,000 on full funeral services, or an average of $2,000 for direct cremation. (1) Learning more about the clientele will give you an excellent opportunity to deduce how much profit a specific funeral home is making:

“Cremation rates are always in flux and learning about how the cremation rate has risen or fallen in the last few years will tell you more about the trends of the local population.”

Find a Funeral Home Lending Agent

BSF is the leading resource for funeral home financing, providing services as a funeral home lending agent, specializing in funeral home financing, and connecting you with experienced, specialized bankers. You can also find what funeral homes are for sale and get consultations with specialized professionals

Reference

  1. Huffington Post https://www.huffpost.com/entry/things-to-know-before-you-die_n_568fd2cde4b0cad15e646a20

What Steps Should I Take to Prepare for Funeral Home Ownership?

by with No Comment Uncategorized

What Steps Should I Take to Prepare for Funeral Home Ownership?

Opening and operating a funeral home requires knowledge of and experience in the mortuary field. To work with families at the worst time in their lives, good customer service skills and compassion are a must.
Along with marketing and business expertise, a funeral home owner must also know about different religions’ burial and funeral customs. Here, you’ll learn what to do when preparing to open a funeral home.

Why Open a Funeral Home?

Death is the final stage of our existence. Everyone will require funeral services at some point, but the importance of a good funeral home is often overlooked.
New funeral home owners should understand that the business is mentally and physically challenging. Death keeps operators busy, and there’s little downtime during the average day. Because running a funeral home leaves an operator with less family and personal time, selflessness is an important quality to have.

How Does a Funeral Home Owner Become Licensed?

Most US states require aspiring funeral directors to have mortuary science degrees. In most cases, owners must have a funeral service education degree. Many states also require owners to take a board exam to get a funeral home license, and most also ask owners to serve one-year apprenticeships under licensed funeral directors. Some states require embalmers and funeral directors to participate in continuing education courses.

Naming the Business

There’s a great deal of power in a name, and the funeral home industry is no exception. Consider checking if your chosen name can be purchased as a web domain, and if it is, buy it before someone else claims it.

Finding a Private, Safe Space and Assessing the Cost

As a new owner searches for a place for their funeral home, they should remember to include room for refrigeration, embalming, body preparation and crematory areas. Other necessities are rooms for services and receptions. If there are plans to sell urns and caskets, showroom space is crucial. Some funeral home owners even offer children’s playrooms and meeting rooms for use during wakes and memorials.
In a funeral business’ planning stages, the building itself is one of the most important considerations. Depending on the availability of funds, an owner may choose to buy or lease their space. Leasing is an affordable option for those who can’t afford to offer a sizable down payment on a building. Statistics show that the average lease, not including utilities, for a funeral home is about $5,000 per month. (1)
As a new owner searches for a place for their funeral home, they should remember to include room for refrigeration, embalming, body preparation and crematory areas. Other necessities are rooms for services and receptions. If there are plans to sell urns and caskets, showroom space is crucial. Some funeral home owners even offer children’s playrooms and meeting rooms for use during wakes and memorials.

Hiring Certified, Experienced Staff

Funeral directors handle a variety of activities, including arranging the transportation of the deceased, working with family members, and daily administrative tasks. Those who plan to offer cremation and embalming services should hire experienced team members. A skilled receptionist can greet families and direct them during funeral services, freeing the director to focus on other last-minute jobs.

How Much Do Furnishings and Equipment Cost?

Funeral home operators need a lot of equipment to get started. For instance, an embalming machine is a crucial component that costs about $4,000. A steel body preparation table comes at a similar cost, and you’ll also need embalming supplies, professional cosmetics, caskets and urns. When starting a funeral home, these items may cost upwards of $15,000.

Creating a Price List

The Federal Trade Commission’s Funeral Rule states that owners must create and provide a general price list of the products and services they sell. They must list the prices of individual products and services, such as body transportation, memorial arrangements, and embalming fees. (2)
The Federal Trade Commission also requires the inclusion of certain disclosures, like mentioning that cardboard boxes and other containers may be used during cremation. Finally, owners must tell their customers that they aren’t obligated to buy funeral packages and can choose services individually.

Pre-Arrangements

Many new funeral home owners offer pre-arranged services, which provide the cash flow needed for continued growth. Before selling these packages, though, an owner must review their state’s regulations. For instance, the state of Tennessee requires the owner to register with the Department of Commerce and Insurance Burial Services. It may also be necessary to get lenders’ approval for any pre-need contract.

Planning the Business

As an entrepreneur, a funeral business owner needs a clear plan to ensure success. With proper planning, funeral home directors can outline a company’s specifics and get questions answered. In the sections below, we’ll cover topics such as:
  • Startup and ongoing expenses
  • Defining the funeral home’s target market
  • Setting the break-even point

The Costs of Running a Funeral Home

Funeral homes require equipment for body preparation, embalming and cremation. Tables, hydraulic lifts, refrigerated rooms, computer equipment and filing systems are all necessary. Caskets, clothing and convenience items are also essential. To run a successful business, owners need operating space, parking areas, a labor force and insurance. Viewing areas need furniture, and you’ll need vehicles to transport caskets from the funeral home to the gravesite. These necessities come at a cost, which should be carefully considered beforehand.

Ongoing Expenses

Funeral home operators must pay for labor, utilities, operating space, marketing, equipment and caskets. Like all other machines, embalming equipment has a finite lifespan, and a single machine may cost upwards of $3,000. When the costs of refrigerated storage, embalming tables, hydraulic lifts, embalming fluid, makeup, clothing, caskets and urns are considered, it’s best to set a yearly budget of $5,000 to $10,000 for equipment.
Consider working with a local real estate agent to find a suitable rental property. Depending on the building’s location and size, rent may cost several thousand dollars per month. Set aside a few hundred dollars for each month’s marketing efforts and include utilities such as high-speed internet.
A business manager’s salary ranges from about $35,000 to $65,000 annually. Marketing experts command similar salaries, and accountants can make up to $75,000 each year. Receptionists earn approximately $12 per hour, and support staff is paid similarly.

Do Funeral Homes Need Certain Vehicles?

At the least, a funeral home needs a lead car and a hearse for processions. Because these are business-use vehicles, it may be more affordable to lease than to buy. Leases allow users to trade their vehicles in for new models, which gives the business a professional, updated appearance. Leasing a lead car and a hearse may cost $1,500 per month, but an operator can save money if they already have a suitable lead car.

How Do Funeral Homes Make Money?

Funeral home owners make money by selling flowers, urns, funeral services, embalming, cremation services and other things related to a loved one’s passing. The average funeral costs about $7,000, including embalming, body preparation, viewings, transportation, and professional fees. (3) However, extra services can be sold at a higher cost.

Defining the Funeral Home’s Target Market

As in other areas, the right customer will likely spend top dollar for services a funeral home provides. But the death of a loved one is a trying time, and compassion is a crucial quality. By understanding families’ needs and working within their budgets, funeral home owners can build a loyal client base.

How Profitable Can a Funeral Home Be?

If the target market is well-defined and the location is chosen properly, a funeral home may make hundreds of thousands of dollars each year. Even so, it might take a few years for the business to pass the break-even point and start turning a profit.
Funeral home operators can increase their profits by offering additional services such as obituary announcements, graveside services, online memorials and cremation services. In some cases, it is possible to assess fees for the provision of death certificates, burial permits and other paperwork.
The bereavement services field is a fast-growing one, and it can be rewarding for a compassionate, caring funeral home operator. The average burial costs up to $7,000, which means that it’s possible to make a substantial profit even with high startup costs.

The Importance of Marketing

As with other businesses, marketing is a key cost to consider. To make the community aware of the funeral home’s opening, as well as any available offers, an operator must advertise their business. Most funeral homes have websites, and many buy radio, television and print ads. The average funeral home’s advertising budget may reach $100,000 per year, but it’s easy to cut costs with social media advertising and other creative marketing techniques.

Mistakes to Avoid When Running a Funeral Home

Like all other businesses, it takes experience, dedication, and skill to run a funeral home. Many directors are honest about the slip-ups they’ve had along the way, and wish they’d avoided them.
Here are some of the biggest mistakes to avoid as a funeral home operator:
  • Being unwilling to say no. Though funeral directors are there to help families through some of the toughest times in their lives, the drive to please every customer can be harmful to a growing business. It’s impossible to please everyone, not every demand can be met and budgets must be adhered to. Some funeral home operators find it hard to say no to grieving families, even where finances are concerned. To run a successful funeral home, you’ll have to get used to saying no, because it’s the only viable option in some situations. Don’t cut costs to accommodate families, or the business may not be able to survive.
  • Failing to value your time. Funeral directors that don’t value the time they spend will struggle. Though it’s understandable for an operator to want to respond to every call or inquiry, their time is better spent on other tasks. By hiring a receptionist or outsourcing those duties to a call center, a funeral home owner can understand how important their time is and how it can be effectively used to grow the business.
  • Not networking. Professional networking is a frequently overlooked aspect of funeral home operations. Owners work with many people within the industry, from florists to crematorium operators and embalmers, and these connections can form the foundation of a solid network. Collaborating with companies that are a natural fit for a funeral home will improve service quality, so don’t avoid networking. It makes a significant difference.
Opening a funeral home comes with its share of pitfalls, but the most serious mistakes are preventable. By avoiding these common errors, an operator can reach profitability much sooner.

Contact Us Today if You’re Interested in Operating a Funeral Home

Running a funeral home isn’t for everyone. To be successful, you’ll need focus, dedication, persistence, and above all else, compassion. Once you’ve found the right business idea, it’s only natural to want to take it to the next level. However, there’s more to opening a funeral home than choosing a name and registering with the state. By avoiding mistakes and following the steps outlined in this guide, a new funeral home operator can ensure the continued growth and prosperity of their business.
Contact the experienced team at BSF today to discuss funeral home financing.

References

  1. Biz Fluent

    https://bizfluent.com/how-4475068-start-funeral-home.html

  2. Federal Trade Commission

    https://www.consumer.ftc.gov/articles/0300-ftc-funeral-rule

  3. Parting

    https://www.parting.com/blog/funeral-costs-how-much-does-an-average-funeral-cost/

Can You Get an SBA Loan for a Funeral Home?

by with No Comment Uncategorized

Can You Get an SBA Loan for a Funeral Home?

Funeral homes employ over 100,000 people throughout the United States and generate billions of dollars in revenue. It is critical to the health of the economy that these vital businesses have access to financing that will help them open and continue operations. Small Business Administration loans, also known as SBA loans, are an excellent option for individuals looking for financing in the funeral home industry.

What is an SBA Loan?

SBA loans are one of the best options available for small-business funding. SBA loans are not issued by the SBA itself, but are partially guaranteed by this federal agency, making the risk for lenders much lower than traditional loans. (1) The SBA works with a vast network of approved lenders that frequently lend to small businesses and offer better loan rates than other loan options.

Essentially, if a business owner cannot pay back their loan, the lender will be able to recover most of their debt from the SBA. The SBA guarantees up to 85% of a loan, which encourages lenders to work with small businesses that would otherwise be seen as a risky investment.

Types of SBA Loans

There are several types of SBA loans for business owners, depending on their needs. Funeral home business owners may be able to receive one of the several SBA 7(a) loans, a Microloan, an SBA disaster relief loan, or an SBA 504 loan. Each funeral home will have different needs, so it is important to understand each loan option before choosing.

Here is a summary of several of the loans available:

  • Standard 7(a) Loan. The standard SBA 7(a) loan is the SBA’s most popular loan option. It offers borrowers up to $5 million in funds. The SBA guarantees 85% of loans under $150,000 and 75% of loans over $150,000. Eligibility is determined by the SBA and there is a maximum amount of interest the lender is allowed to charge.
  • 7(a) Small Loan. Through the 7(a) small loan, the SBA works with lenders to offer up to $350,000 in funds. This loan is nearly identical to the standard 7(a) loan, with the main difference being the interest rate. The maximum interest that a lender can charge on a 7(a) small loan is much higher than on a standard 7(a) loan.
  • SBA Express. The SBA Express loan is an excellent option for funeral home owners who need access to funds faster than the typical amount of time it takes to be approved for a standard 7(a) loan. In exchange for the faster turnaround, the SBA only guarantees 50% of this loan. Typically, interest rates are much higher and the eligibility decision is made by the lender rather than the SBA. The maximum amount of funds available through this loan is $350,000.
  • SBA 504. SBA 504 loans are an excellent option for funeral home owners who want to expand their business by purchasing new real estate, expanding on existing real estate, or purchasing an existing funeral home. SBA 504 loans work differently than the 7(a) and SBA Express loan because these are long-term loans with a fixed rate that are meant to be paid off over decades, rather than in 10 years or fewer.
  • Microloans. Microloans are an option for funeral home owners who need less than $50,000 for their business. These loans are often used to start new businesses, to purchase inventory or equipment, and as working capital.

Whereas most of the loans available through the SBA are funded through banks and credit unions, microloans are processed through community-based non-profit agencies. Because of this, these loans are most often granted to new startups and businesses run by veterans, women, or minorities.

Business owners who apply for microloans must have good credit and a good, proven business plan. This is because the money is provided to the nonprofit lender by the SBA at a highly discounted rate. The SBA is much less involved in the approval and processing of these loan applications, and lenders are allowed to be much more selective about who they approve.

SBA Disaster Loans. SBA disaster loans are meant to assist small businesses affected by major natural disasters or other unforeseen events. These low-interest loans are meant for businesses that are not in the agricultural industry and are not limited to small businesses. Funeral home owners can apply for up to $2 million to repair or replace real estate, machinery, equipment, personal property and business assets.

  • SBA Disaster Loans.SBA disaster loans are meant to assist small businesses affected by major natural disasters or other unforeseen events. These low-interest loans are meant for businesses that are not in the agricultural industry and are not limited to small businesses. Funeral home owners can apply for up to $2 million to repair or replace real estate, machinery, equipment, personal property and business assets.

To be eligible for a disaster relief loan, the funeral home must be located within an SBA-designated disaster area. The SBA keeps an active list of disaster areas for individuals and small business owners to review before applying. (2) This loan is different from those being offered as a response to the Covid-19 pandemic.

SBA Loan Terms

The interest rates for SBA loans change depending on the terms of the loan. For example, as of March 2020, SBA 7(a) loans under $25,000 that are paid back in under 7 years have a maximum interest rate of 7.5%. If the loan is paid back in over 7 years, the interest rate goes up to 8%.

 

The terms of an SBA loan are determined by how the borrower intends to use the funds. Loans used for working capital will need to be repaid within seven years, while loans used for new equipment will need to be repaid within 10 years. Borrowers have up to 25 years to repay SBA 504 loans used for real estate purchases.

Can You Get an SBA Loan for a Funeral Home?

The SBA details several businesses that are ineligible for SBA loans, but funeral homes are not on that list. Funeral homes are eligible to receive SBA loans if they meet all the SBA’s requirements and fill out the necessary forms. (3)

How Difficult is it to be Approved for an SBA Loan?

Like with many government interactions, bureaucracy can make applying for an SBA loan difficult. The SBA has several guidelines for determining a business’s eligibility and will request a hefty stack of paperwork to make their determination.

Those looking for funeral home financing through an SBA loan will need to provide documentation that includes personal tax returns and financial statements for the previous three years, a business certificate or license, their business lease, their loan application history, the SBA’s borrower information form, and a statement of personal history. Even after all of that paperwork, the SBA is likely to request more information before approving an application.

How Long Does the SBA Loan Process Take?

Applying for an SBA loan is notoriously time-consuming. Even the express loans can take several weeks to be approved due to the amount of information requested. Funeral home owners who are experiencing financial stress and need funds immediately should not apply for an SBA loan.

Do SBA Loans Need to be Paid Back?

The SBA guarantees a large portion of each loan that is approved, but that does not mean that the borrower is off the hook. In fact, with the exception of loans under $25,000, the SBA requires the lender to collect collateral that is equal to the amount of money that is being borrowed.

If the borrower does not have enough collateral to secure the loan in full, then the lender is allowed to use personal real estate and investments as collateral. The lender can also accept certain business assets as collateral, such as 10% of the business’s book value at the time of the application.

Like with any other loan, if the loan enters default, standard collection actions will be taken by the lender and the lender will receive the amount of money that was guaranteed by the SBA. (4) At this point, the lender can seize the collateral used in the loan process and have debt collection representatives call borrowers to attempt to collect the debt. Laws restricting when debt collection representatives can contact a person do not apply to business loans, so the borrower can expect to receive phone calls at any time.

Contact BSF Today to Learn About Funeral Home Financing Options

Generally, the SBA will not lend to a business that has not exhausted all other loan options first. The SBA is an excellent asset, but one that is meant to be used as a final stop for financial assistance. However, if a business meets all the stringent requirements set forth by the SBA, then SBA loans are one of the best and least expensive loan options available.

Funeral homes are an essential business that everyone will require at some point in their lives. The Small Business Administration offers several loan options that can help both new and existing funeral home businesses thrive and expand. Though the process can seem intimidating, it is worth the effort for businesses to work with SBA approved lenders. Individuals interested in funeral home loans should speak with a banker that specializes in funeral home financing.

If you’d like to know more about funeral home financing options, contact the experienced team at BSF today.

References

  1. Wikipedia

    https://en.wikipedia.org/wiki/Loan_guarantee

  2. U.S. Small Business Administration

    https://disasterloan.sba.gov/ela/Declarations/Index

  3. U.S. Small Business Administration

    https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility#section-header-19

  4. Debt.org

    https://www.debt.org/credit/collection-agencies/debt-collectors/

How to Start a Funeral Home Business

by with No Comment Uncategorized

How to Start a Funeral Home Business

Death is one of the only certainties in life. For those who are looking for a business venture, it makes sense to consider the funeral home industry. It’s a good choice for someone with a strong business acumen who is at peace with their own mortality.

Running a funeral home could be a lucrative business in the right market. Nearly everyone will use one or more of the products a funeral home offers, so there is a lot of competition. In some cities, there are funeral homes on nearly every block. Fortunately, it’s not hard for a new funeral business to differentiate itself from the others with the help of technology.

As a prospective funeral director, you’ll first have to decide whether you want to start from scratch, franchise or purchase an established business. You’ll also need to understand the customer-centric laws related to the funeral industry.

After you’ve answered the basic questions, you’ll need solid business and marketing plans to ensure starting a business in this industry is worth your time and money.

Buy, Start from Scratch or Franchise?

The first question you’ll have to answer when you decide you want to own a funeral home is if you’ll buy an existing business, open a franchise or start your business from scratch. There are advantages and disadvantages to each option.

Franchises have established marketing and advertising. But they may not have name recognition in your community. Franchising comes with a lot of support from the franchise. You might choose this option if your strengths lie in sales but not marketing.

Existing businesses already have a reputation. Those with a good reputation may have a steady flow of clients but it could be challenging to personalize your new business. Former customers may be hesitant to work with a new owner, so you’ll have to show your target market you are trustworthy as well. In an ideal situation, the former owner assists with the transition.

Funeral home owners may sell their businesses for a variety of reasons. For some, selling has always been their exit plan. In other cases, the owner is no longer able to manage the daily operations, or they want to pursue other interests. As a prospective buyer, it’s important to consider how much interest the seller has in the business and if they will be available to answer questions or even to recommend you to their existing client families.

Starting a funeral business from scratch has its own set of challenges. New owners will need to market their own business to attract clients. Because people don’t typically think about funeral homes until they need one, it’s important to reach as many people as possible with your advertising. This could require a huge investment, but your business will be completely your own if you choose this option.

While it may take some time for your community to think of your business first when their loved ones pass away, the effort you put into marketing will let them know who you are and how you can be of service to them. If you purchase an existing funeral parlor and want to change the branding, this could be more of a challenge.

Legal Issues Related to Funeral Home Operations

Before you open your doors to grieving families, it’s important to understand the laws related to the industry. State and federal laws regulate funeral homes. Every state has laws that govern operation of businesses.

Before opening a funeral home, a you’ll need a license in the state where you plan to do business. You’ll also need a degree in mortuary science or a partner who has a degree.

The Funeral Rule of the Federal Trade Commission requires funeral homes to be transparent when it comes to pricing. (1) As a funeral parlor owner, you will need to inform your clients about pricing and options. You’ll have to provide pricing information over the phone and have a price list on hand for funeral services, caskets and burial containers.

The structure you choose for your business can affect taxes as well as your liability if a dissatisfied customer sues your business. As a new business owner, it’s essential to carefully consider whether you want to operate your business as a sole proprietorship, a partnership, a limited liability company or a corporation.

What Services Do Funeral Homes Offer?

All funeral homes provide transportation and preparation, including embalming. Some offer cremation as well as burial. Loved ones of the deceased can consult with a funeral director to get guidance and assistance with planning the service. You will likely also sell caskets and urns.

Modern funeral homes offer more than traditional funeral services and customers are beginning to expect them. Many offer hair and makeup services by licensed technicians. They are also more likely than ever before to be interactive, using technology to bring the memorial service to people who are unable to attend.

Memorial services could take place at the funeral home’s facilities or a location chosen by the survivors. Families might be interested in choosing their own music and décor. As the director, you should help the grieving loved ones by ensuring the memorial service meets their needs.

According to Forbes, green burials are increasing in popularity. The process involves burying an unembalmed body and allowing nature to complete the process. (2) If you offer green burials, you are likely to appeal to millennials and those who want to decrease their carbon footprint. Many people preplan green burials.

Offering preplanning to help people who want to have more control over their final arrangements can give you a steady flow of income. Offering these consultative services could also contribute to goodwill because your satisfied clients will refer you to others.

Is Owning a Funeral Home Profitable?

The profit you generate from a funeral home will depend a lot on the market where it’s located. Those in communities with an aging population typically earn 7% or more in profit. However, if the people who live in the area are likely to choose alternatives like cremation and private memorials, the funeral home industry won’t be as profitable. Funeral homes located in areas with a more youthful population may struggle if they have competition for the limited number of funerals that take place there every year.

Another factor that will play a role in determining whether you earn money in this industry is your experience. If you have a degree in mortuary science, you won’t need to hire someone who does. While you won’t want to do all of the work yourself, payroll will play a role in how much of the profit you take as a personal salary.

The most successful funeral directors are compassionate but also prolific salespeople. They get referrals because they don’t take advantage of people in their time of need. Instead, they help their clients find solutions.

It’s Important to Research Local Market

In order to succeed in a market that is more likely to choose alternatives to funerals, you’ll need to offer services that will help them make these kinds of decisions. They may want to combine aspects of a traditional funeral and a modern celebration of life.

Before you decide to start your own business, it’s important to research the market. This research will give you the information you need to determine if it will be profitable to purchase an existing business right now.

Where do I Get the Money to Open a Funeral Home?

Starting a funeral home business means incurring a lot of upfront expenses. For example, if you start your business from scratch, you’ll need a physical office location as well as a place to hold services. You’ll need to invest in inventory.

Marketing is another expense that could require a significant amount of money. Some of these expenses, such as the funeral home building, may be included in the cost of the business if you buy it from another owner.

Financing for a funeral home business depends on whether you buy an existing funeral home, franchise,
or start from scratch. If you start from scratch, the most affordable type of financial is a business loan
backed by the SBA. Business loans have low interest rates, but they aren’t easy to qualify for. Lenders
typically require strong financials and years of industry experience.

Because it’s difficult for a brand-new funeral home to qualify for a commercial business loan, people who start their businesses this way may use their own money. The fund could come from personal savings, personal credit card or equity in their home. Of course, using personal funds to start a business is risky.

That particular risk could be reduced by purchasing an existing profitable funeral home. Banks and private lenders are more likely to take a risk on a business that has a proven model and demonstrated profitability.

References

  1. Forbes https://www.forbes.com/sites/bernhardschroeder/2019/04/15/baby-boomers-are-fueling-an-industry-that-is-ripe-for-disruption-the-rise-of-the-death-concierge/#3540d4b870d2
  2. Federal Trade Commission https://www.ftc.gov/tips-advice/business-center/guidance/complying-funeral-rule

How Do You Calculate the Value of a Funeral Home?

by with No Comment Uncategorized

How Do You Calculate the Value of a Funeral Home?

How do you calculate the value of a funeral home? A funeral home is only worth as much as a buyer will pay for it. This means there are no ironclad rules that can be used to pin down the exact value of a funeral home before selling it, although there are plenty of well-established guidelines.

Becoming familiar with the most common valuation strategies and contributing factors will make funeral home valuation less mysterious. The market always has the ultimate say when it comes to determining the value of a funeral home, but there are some rules of thumb that can be used for estimating it.

Compare Other Funeral Homes in the Same Market

The easiest way to get a rough idea about the value of a funeral home will be to compare it to others in the same area that have recently changed hands at known prices. Since no two funeral homes are the same, factors including the following will then need to be accounted for to arrive at a valuation:

  • Size. Most often expressed in terms of calls handled per year, the size of a funeral home business will always be one of its most important characteristics. Smaller funeral homes that receive under 100 calls in the average year tend to be of greatest interest to funeral directors who plan to run them personally. Larger, busier funeral homes are more likely to appeal to corporations or business-minded buyers who wish to focus more on management than personal interaction and provision of funeral services. In addition to suggesting certain sorts of buyers, the size of a funeral home will also have a fundamental influence on its financials, of course.
  • Revenue per call. Funeral homes vary widely about how much revenue they average per call they receive. A home that has a history of catering to a relatively well-heeled client base might generate much more revenue per call than one that focuses on serving people who are less well off, even if only because of the average price of a funeral. Once again, the revenue a funeral home produces with each call will impact both the types of buyers who will be interested in it and the financial case it will make to each.
  • Gross annual revenue minus cash advances. Multiplying a funeral home's annual call volume by its average revenue per call will produce its gross revenue. Depending upon the reporting, though, it may be necessary to deduct advances clients have made to pay third-party vendors. A funeral's gross revenue net of cash advances is often used as a starting point by buyers interested in making offers. (1)

Ideally, the best way to these figures will be to find funeral homes in the area that have sold fairly recently and are relatively close matches. Looking at several such transactions will make it possible to get an idea regarding what sort of multiple of revenue buyers are currently offering for local funeral homes of the same general class.

Of course, it will often be necessary to cast the net more widely just to have enough candidates to assess. In many cases, though, locally dominant trends will become apparent. If smaller homes have been selling to buyers at multiples of well over twice gross revenues, and larger ones command significantly less, then a home that slots in between with regard to size would likely do the same on the market.

Taking Additional Factors into Account

Even having a general idea about what a funeral home will be worth on the market can be helpful. In practice, though, it will almost always be necessary to go beyond basics like call volume and gross revenue to arrive at a remotely reliable estimate.

Some of the other factors that will almost always help better define a funeral home’s price are:

  • Real estate. The piece of land that a funeral home sits on can impact its market value more than almost anything else. In some cases, a particularly desirable property can draw buyers who have no interest in the funeral services industry at all. More often, particularly valuable real estate will alter the transactional or operational implications of a contemplated purchase. Valuable real estate can make it easier for a buyer to obtain a loan, for instance, or affect related details like interest rate or term. On the other hand, a high assessed value for a piece of real estate can also inflate the cost of running a funeral home, thanks to increased property taxes, insurance costs, or maintenance requirements.
  • Cash flow or EBITDA. Although call volumes and gross revenues are often used as convenient starting points, many experts prefer to focus on cash flows when conducting funeral home valuations. Cash flow is more complicated to report and analyze, but it provides more insight into the day-to-day realities of running a funeral home as a business. It has also become more common to adjust observed, historical cash flows to account for income taxes paid by a funeral home's owner. As one funeral home valuation expert wrote in a note to clients "The value of a funeral home is based on its tax-effected cash flow. Period." (2) Measures like EBITDA can just as well be used to arrive at a more financially informed valuation of a funeral home's worth, with the same sorts of caveats. Either figure can be plugged into a funeral home valuation calculator to provide another perspective.
  • Intangibles. Funeral homes of apparently similar sizes and financial situations sometimes end up selling for wildly different sums. If one funeral home has kept its burial rate fairly steady while another has been increasingly losing revenue to cremation, that can affect selling prices significantly. A funeral home in a declining neighborhood might be worth a lot less than one on the other side of town, despite posting competitive figures at the moment. How intangibles impact the value of a funeral home can be difficult to pin down, but even simply identifying those that are most relevant should help.

As with the fundamentals discussed earlier, these factors can only ever be taken as suggestive of a funeral
home’s value, not determinative. Delving into details like these and learning as much as possible about the
local market, though, should make it possible to estimate a funeral home’s value fairly accurately.

Contact the experts at BSF today.

References

  1. Investopedia https://www.investopedia.com/terms/t/times-revenue-method.asp
  2. Mark Pierce http://piercecfo.com/resources/understanding_Funeral_Home_Values.pdf
252939-P46MAJ-462

How Much Does It Cost to Own a Funeral Home?

by with No Comment Uncategorized

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.  

252939-P46MAJ-462

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.

 

13571

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.

 

252939-P46MAJ-462

How Do I Start a Funeral Business?

by with No Comment Uncategorized

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.
252939-P46MAJ-462

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.
405618-PCVOH2-958

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.

84
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.

Resource

  1. Forbes Magazine
    https://www.forbes.com/sites/perianneboring/2014/04/25/the-death-of-the-death-care-industry-and-eternal-life-online/#4bacb7f31c1a
questions

Are you looking at owning a funeral home?

by with No Comment Uncategorized

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.

questions

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.
Contact BSF today
homeworth

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

by with No Comment Uncategorized

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.

homeworth

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:
earnings

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