By: Melissa Drake
At some point in time, many funeral directors who have spent years working as an employee decide to pursue ownership. While it once was common for owners to work well into old age, and upon their death to transfer the business to their heirs, this is rare in funeral service today. Instead, it has become more common for owners to retire earlier to enjoy life, travel, or pursue a second career. In most cases, their business is their largest asset, and their “retirement” is funded by its sale. Is the owner of your funeral home nearing retirement and wanting to step back from the responsibilities of ownership?
If so, you may be viewed as a desirable successor, and this could be the ideal opportunity to purchase the firm. However, sometimes being a trusted employee isn’t enough to guarantee that you will be the successor – often, for various reasons, there is no opportunity or it isn’t feasible to buy the firm you work for. If that’s your situation, it’s better to know by having that conversation with your employer. But it doesn’t mean you have to hang up your dreams of ownership – rather, it is an opportunity to start the process of searching for a different firm to buy.
Are You Suited For Ownership? Explore your motivations for becoming a funeral director. Is funeral service a calling? What do you love most about it? Conversely, what do you dislike?
As an employee, you’ve likely had the benefit of a schedule with set days, nights, and vacations off. However, as an owner, that is likely to change. Expect there to be less freedom – you likely will be on-call 24-7, 365 days a year. Are you willing to put in the hours required? Just as important, will your family support you in this venture?
Funeral service is a multi-faceted profession which requires diverse skill sets. First and foremost, it is a service industry, and funeral directors must have compassion and empathy for the families they serve. Also necessary are technical skills and the ability to multi-task. However, ownership demands yet another dimension – comprehensive business skills for effective fiscal and operational control over the business. Strong management and leadership skills also are imperative, as well as communication and leadership skills to effectively direct your staff. If you lack some of these critical skills, seek training to strengthen your abilities.
As an owner, it will be important to develop your creativity and be willing to explore new ideas and “think outside the box.” A creative approach can be most successful in meeting the changing demands of families. Use your cohorts as resources…What are others doing? Could those concepts work in your community? Rely on the expertise of your vendors to learn about the possibilities that are available to better serve your families. Become knowledgeable about the families you will serve and be prepared to work collaboratively with your staff to develop innovative ideas to suit your business and its market.
Preparing to Buy. If it isn’t feasible for you to buy the firm at which you’ve been employed, do you have the ability and willingness to relocate to another area? Do you have the financial resources required to purchase a firm? Is your credit history strong? Do you have cash, equity, or some other form of asset(s) to invest in the deal? Have you prepared a personal financial statement? All of these are important to address prior to finding a firm and making an offer.
Once you have decided to go forward with your acquisition plan, you should start to pull together your “A Team” of advisors, including an Appraiser, an Accountant, and an Attorney, who are qualified to assist you through the acquisition process.
An industry-specific Appraiser who is also an Intermediary can help you locate a funeral home that meets your specifications and can provide you with a fair purchase price for the firm so that you neither pay too much, nor lose the sale because of a low-ball and potentially offensive offer. This advisor also can lead you through the negotiation and purchase processes. They will also work closely with your lender to ensure that your loan process goes smoothly. Importantly, your A-Team should work collaboratively to facilitate a successful transaction with the overall collective goal of protecting you throughout the process.
How Will I Pay for this? There are several options for financing your purchase. Commonly, non-industry lenders and local banks don’t understand the unique nature of funeral businesses and typically lack the ability to lend based on the firm’s cash flow. A loan that is based solely on the value of the real estate and other hard assets while excluding the firm’s goodwill and cash flow can be problematic. Industry cash-flow lenders are knowledgeable about funeral home lending and most importantly, they understand the concept of cash flow. That ensures that your loan will be constructed on the financeability based on the cash flow of the business. A loan package that builds in closing costs and working capital is most desirable.
What’s next? You’ve made the purchase – so what’s next? During the after-sale transition period it is beneficial for the Seller to publicly “welcome” you as the new owner, demonstrating their ongoing commitment to and support for the business under your leadership. The collaboration of the Buyer and Seller to create a post-sale marketing effort is a good way to ease into the transition and gain the loyalty of those families served. A well-developed after-sale plan that includes hosting sponsored events, an open house, holiday remembrance ceremonies, and other activities will give the public an opportunity to visit your facility and to meet you. Your plan also should include your introduction to clergy, churches, cemeteries, community organizations, hospice, and other such key contacts. Your presence at community events, church, and local restaurants will help you become a familiar presence.
Your “new” employees are likely the cornerstone of your business and they potentially have much to contribute. It will be essential for you to watch them in action – listen, pay attention to their ideas and their ways of conducting business, and ask questions. Learn from them – they know your market. Then, use your managerial skills to determine what changes could be made and how best to use your personnel to suit your style of operation. Effective communication, patience, and acknowledging the “good stuff” they do can lead to constructive adjustments.
Making It Your Own
During this process, you have likely envisioned all that will need to be done once you’re the owner. If you plan to make aesthetic changes or even major renovations, we recommend that you prepare a capital improvement list that prioritizes projects that you deem necessary over those that can wait. Small projects can have a big impact – painting, window treatments, carpeting, and landscaping can lend a fresh new look to the facility that is immediately noticed. Create a budget and save for future improvements. Having a line-of-credit in place provides peace of mind if a larger, unforeseen repair becomes necessary.
Be a proactive owner and take steps to make your business flourish. Continually work toward improving your own skills and encourage your staff to do so, as well. Set long-term goals to bring your new business to higher levels of performance and success. Then, when it’s your time to retire, you will have created an even more desirable business for your future successor. FBA
Melissa Drake is President/COO of American Funeral Consultants, a full-service consulting firm dedicated to serving the industry. She may be reached at 800-832-6232, by e-mail at [email protected], or by visiting www.TeamAFC.com.
Kathy Williams is CFO and Secretary/Treasurer of American Funeral Consultants, a full-service consulting firm dedicated to serving the industry. She may be reached at 800-832-6232, by e-mail at [email protected], or by visiting www.TeamAFC.com.