How to Start a Funeral Home Business

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.

How Do You Calculate the Value of a Funeral Home?

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.


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
House in human hand over blue sky

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