Business Trends and Operations, Market Trends, and Preparing for Ownership

Editor’s Note: This part one of a two-part series taken from Live Oak Bank’s “Guide to Buying a Business.” The guide is a comprehensive overview for prospective buyers to help them prepare for an acquisition. Part two will be featured in the March/April 2021 issue of Funeral Business Advisor Magazine and will cover the acquisition process and what lenders like to see.

Are you considering purchasing an existing business? If so, this editorial will help guide you through the process. Note that acquisition is simply a more formal banking term that is used when talking about the purchase of a business. This editorial’s ultimate goal is to put you on the path to success.

Business Trends and Operations
When acquiring a business, you want to make sure it is the right fit for your personal and business goals. Consider the following questions to determine if the business you are acquiring is a good fit:

Is the business growing? If not, can you identify and implement improvements?

Will the business support your current lifestyle? The business will be your source of income.

Is the business located in a place where you will be happy living?

Do you have a similar leadership style and philosophy to the current owner? As the new owner, you can make improvements, but an understanding of the former owner’s leadership style can help you ease any apprehension from the staff.

Market Trends
Many of the business trends will be driven by market trends, so it is important to understand the demographics in the area as well as trends in the industry.

What are the demographics of the area?

What competition do you face in your local community?

Is the local population growing?

Preparing for Ownership
As you prepare to purchase the business, you will need to write a business plan. The business plan is your blueprint for success. It will help you think through decisions as you approach ownership and will serve as a guide once you are in the day-to-day operations. You will also share your business plan with your lender, business partners and key employees.
Be clear and thorough when writing your business plan. Include a formal title page, and make sure your writing is grammatically correct. Make an accurate and professional representation of your capabilities and objectives.

Your business plan should include the following six components:

I. Executive Summary
II. Business Description
III. Market Research
IV. Financial Forecast
V. Operations
VI. Marketing Plan

Executive Summary
The Executive Summary introduces you and your business venture to readers and is often the first impression of your project. This section should be concise, providing the “what, why and how” of your undertaking, but also compelling enough to persuade lenders and others that your acquisition plan is viable. You may want to tackle the Executive Summary last, as much of the information for this section is extrapolated from the rest of your business plan.

Business Overview
Provide a brief overview of the business, your background in the profession, and the specific services you will offer.

Mission Statement
Outline your business philosophy. Define your goals and where you expect to be in five or 10 years.

Financing Requirements
Summarize the amount of capital you will need to achieve your acquisition goals.

Business Description
The Business Description goes into greater detail about the structure of your business, qualifications for managing the business and business resources. This section explains why you have the personal know-how and professional means to build long-term success.

Professional History
Describe your professional experience to date such as your business background, any professional experience in the industry, and where and when you attended school, degrees earned, and any related courses taken.

Management Team and Key Personnel
Identify the principals who are ultimately responsible for the financial performance of your business, your key team members and their roles, and any professional advisors who will be instrumental in providing input and guidance. Determine whether your target business has any licensing requirements.

Organizational Structure
Define the legal entity for your business (Sole Proprietorship, LLC, etc.) and ownership details.

Market Research
A certain amount of research is required to ensure the local market has the appropriate demographics and income to support your business. The Market Research section demonstrates to a lender that you understand your community and that you have considered the competition in this area.

Market Description
Describe who lives in the community surrounding the business and what sort of growth or changes are predicted for the area over the next five or 10 years.

Target Customer
Describe the ideal customer or family for your business, including demographics such as age and income level.

Competitive Analysis
Define the other businesses in your local market, what kind of services they offer, their advantages and disadvantages.

Competitive Advantage
Finally, define the competitive advantage your establishment offers that your competitors do not – for example, services, location, price points, etc.

Marketing Plan
This section allows you to be a bit more creative as you describe the marketing activities you will use to create visibility for the business and support ongoing business growth. Be sure your marketing plan is realistic and addresses the following issues:

Approximately how much are you budgeting for marketing activities during the first year or two?

How will you set yourself apart from the competition? For example, will you offer special events or sponsor community events?

Marketing Mix
What is your marketing mix – the balance between print and television advertising, referrals, social media and other channels of marketing?
The Operations section of your business plan details the day-to-day needs and functions of the business, demonstrating that your future success is based on well-thought-out ideas about how you intend to run your business. Include the following:

Location and Premises
Describe in detail the location of the business, why you chose it, and whether you will own or lease the space. Detail the equipment and inventory necessary now and in the future, whether the equipment will be owned or leased, and who your major suppliers will be. Describe the visibility of your business to surrounding foot and vehicle traffic.

Days and Hours of Operation
Describe the days and hours you will be open and how you will handle holiday and after hours calls.

Outline any staffing changes that will occur after the acquisition. Define the roles of staff members, compensation, and personnel policies.

Financial Forecast
For most business owners, the Financial Forecast is the most challenging section to complete. For your lender, it can be the most important. Your bank loan financing is based on the numbers in your financial forecast, so it is critical to make these calculations as accurate as possible. Work with your CPA or financial advisor to ensure your forecast is viable and reflects the business accurately. Your forecast should include:

Income and Cash Flow Projection
The financial projection should cover at least 36 months of operation of your business.

Capital and Operating Expenses
These are the total funds needed to acquire and operate your business. Try to be as specific and realistic as possible. Include loan payments, staff salaries, rent, utilities, supplies and other minor expenses. It is better to be conservative and overestimate your budget.

Project Financing
Detail how much you need in financing to purchase the business and consider your preferred terms. Include any personal or investor funds that will be contributed to the project. Include purchase price details such as real estate value and whether the transaction will be an asset or stock purchase. FBA

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