How to Pull Off a Successful Family-Owned Funeral Home Sale
If your goal is to pass on your funeral home business to a family member, you may be confronted with a distinct set of challenges that differ from those faced by owners planning to sell their businesses. Woven into these challenges are family dynamics and realities that can, at the very least, complicate matters and, at worst, impede a successful transition. With more than 20 years of experience in assisting more than 300 funeral home transactions, we’ve identified seven crucial conditions that should be addressed to ensure a seamless and fulfilling transfer of your funeral home business to the next generation and/or an outside party. Examining these conditions allows you to assess your readiness to pass down your business to family or an outside group.
1. The Funeral Home Must Operate Independently
For a successful transition, your funeral home must be capable of running efficiently without your direct involvement. This entails two facets: the seamless execution of essential day-to-day operations, including financial management and facility maintenance, and the ability of critical internal and external relationships to function independently of your presence. If vital processes or relationships depend on you, passing the business down may pose a significant risk. Building a funeral home that can operate independently requires considerable effort. Developing a team competent to manage and grow the business without your direct involvement necessitates years of planning and dedication.
2. Your Successor Can Lead the Funeral Home
Your successor(s) must be capable of leading the funeral home, not just merely working hard. They must demonstrate the talent, vision, and drive to effectively lead the business – today and in the foreseeable future. Identifying successors of this caliber is challenging in any context; it can be even more demanding within a family. Your exit and succession planning should allow your successor the opportunity to prove their ability to run the funeral home before fully entrusting it to them – this ensures they earn their leadership roles based on merit rather than nepotism.
3. Have Your Financials in Order
Ensure that your funeral home’s financial affairs are organized before embarking on the exit process: this includes thoroughly examining the business’s financial statements, tax records, and any outstanding debts or liabilities. A clear understanding of your financial standing streamlines the transition and provides transparency for the incoming leadership, instilling confidence in their ability to manage the business effectively. Seek the assistance of financial experts to help you navigate this aspect of the exit strategy and make informed decisions regarding your financial portfolio.
4. Work with an Experienced Advisor
Collaborate with an experienced advisor who specializes in funeral home business transitions. An advisor like NewBridge Group can offer valuable insights, guidance, and a structured approach to the entire process. We can assist in navigating the complexities of family dynamics, succession challenges, and legal considerations. NewBridge Group can also help you devise a comprehensive exit plan, ensuring that all aspects of the transition are thoughtfully addressed, from operational intricacies to emotional considerations within the family. Our expertise can prove instrumental in steering the process smoothly and minimizing potential hurdles.
5. Keep Realistic Value Expectations
While sentimental attachment and years of hard work may inflate perceived value, it’s crucial to assess the market value of the business objectively. Having a recent, up-to-date business valuation is prudent. Given this year’s rapid rise in interest rates, the cost of capital has increased. Thus, buyers cannot offer the multiples we saw over the last few years.
Understanding the real estate value is also prudent. Funeral home buyers include the building and land value in their offers, but many sellers overestimate their real estate value. A vacant funeral home will typically sell for 50% of the market value of an owner-occupied funeral home, so if your alternative is to try and sell the real estate separately from the business, it’s a good idea to ask a local realtor what the price would be if you sold to a non-funeral home buyer.
6. Achieving Financial Freedom Without Straining the Funeral Home
Many funeral home owners depend on their businesses for financial support. Your income from the funeral home likely sustains your current lifestyle, and eventually, you’ll need to convert your business wealth into personal wealth to retire comfortably. A successful and happy transition of your funeral home is jeopardized if doing so threatens your financial security.
Unlike business owners who sell to outside buyers and experience a liquidity event, passing the business to your children usually lacks such an event. Alternative mechanisms, such as borrowing money or keeping you on the payroll indefinitely, may help you reach financial freedom but can burden the business in the long term. Ideally, your family should recognize and address this issue well before your planned exit, adopting tax-favorable strategies to build wealth outside the business.
7. A Plan for Managing Taxes
Passing on a funeral home to a family member can trigger transfer taxes, including gift taxes for transfers during your lifetime and estate taxes for transfers at death. A substantial tax bill can undermine even the most well-thought-out succession plan. While recent tax law changes offer some relief until 2025, consulting with tax advisors to determine your situation and take appropriate action within your overall exit plan is crucial.
Your Final Five Years
Effectively planning for the transition of a funeral home from one generation to the next – as well as a sale to an outsider – requires a comprehensive evaluation of the business and the family, followed by discussions, brainstorming, modeling, and guidance from experienced advisors. In essence, exit planning demands time and effort. If you envision exiting your funeral home within the next five years, now is the time to proactively address these conditions.
NewBridge Group welcomes a no-obligation, confidential conversation to help answer any questions you may have as you navigate your succession options. To learn more about how to receive a business valuation and next steps, contact NewBridge’s Co-Managing Partner, Todd Reich, at todd@newbridgegroup.com or by calling 404-542-9956.