Know the Basics: Here’s What to Know When Selling Your Funeral Home

Posted May 24, 2017

5 min read

It’s never too soon to start preparing for the eventual sale of your funeral home. In order to maximize your company’s value and achieve the highest possible sale price, a seller should begin planning long before going to market, says Tim Bridgers, General Manager at Live Oak Bank. Live Oak has a dedicated funeral home lending team that offers loans with no balloon payments, no covenants, and a focus on funeral homes’ long-term success.

“It’s never too soon, but we look at three to four years of historical financial data,” explains Bridgers.

We sat down with Bridgers to go over the basics of how to prepare your funeral home for sale, even if you aren’t quite ready for that transition today. Here are four of the top takeaways.

1. Review your financial statements.

An owner should be prepared to deliver the types of information and analyses needed for a potential buyer and his or her financial advisors to assess and validate the true economic results of the business. A broker or consultant with industry and financial experience can help set realistic expectations about the true value of the business and assist with financial statement preparation and analysis.

Keep in mind that buyers and their lenders will often ask for up to three years of tax returns and/or audited financial statements, as well as interim statements from the beginning of the current fiscal year. 

“This means that as a seller, you should assess what prior information is available and begin compiling copies,” says Bridgers. “In addition, you should be prepared to produce interim statements if necessary, either internally or with an accounting firm. Financial statements needed will include both a profit and loss statement and a balance sheet,” adds Bridgers.

2. Review your asset values.

Do you know the value of the inventory, furniture, equipment, automobiles and other business assets that will be transferred with your business when you are ready to sell?

You’ll also want to identify those assets that will not be sold. Lenders will want to know the value of all available collateral when underwriting the buyer’s loan. The time between signing a Letter of Intent and your eventual closing can take several months with real estate appraisals, environmental reports, surveys and title work. When it comes to real estate, appraisals, tax assessments and other documentation will need to be ready, not only to show the value of those assets but to provide descriptions for parcels in the sale.

3. Think in terms of efficiency.

Financial statements are valuable because they provide a snapshot of your business’s health, but be ready to show how well your business is run. After all, how you operate is a sign of efficiency—and value.

“The better your margins are maintained—and the more they can show improvement— the more you increase their ability to add value to your business,” adds Bridgers.

“Many funeral home owners today that plan to sell are relaxing, depending on the value of their real estate without understanding that many banks today, even conventional lenders, are starting to take more note of cash flow.” Be sure you’re not making the mistake of resting when you should be preparing.

4. Don’t neglect your reputation.

You’ve worked hard over the years to build your brand’s reputation and connection with the community. Don’t let that slip as you approach a potential sale.

“The reputation of your business can be considered an intangible asset,” says Bridgers. The staff and community relationships play an important role in the success of the business. You’ll want to secure commitments by existing managers, funeral directors, and other key staff members, in many cases, so keep that in mind. Lenders like to see key employees continue working with the new owner as it diminishes the risk that is involved.

5. Make sure you have confidence in your accountant.

Having an accountant that knows the industry will help you a great deal during the process. “It’s one thing to have an accountant that understands accounting. It’s another to have an accountant that understands accounting and funeral. A funeral home business can be very complex. There are a lot of expenses that can be misallocated and can throw off or skew [factors] that lenders are closely considering.”

6. Think in terms of potential cost savings.

Both buyers and lenders want to be able to have information that can show them how expenses can decrease after they acquire your firm. “This helps your lender to really calculate an accurate cash flow by a new buyer. We like it when the seller is willing to communicate with us and the buyer [on this].”

Be prepared to provide documentation for owner-related expenses such as salaries, pension, life insurance or other expenses that will not be inherited by the buyer. If possible, keep track of unusual or one-time expenses.

Not only should you prepare to show your cost structure, you should also be ready to show any trends with your expenses over time. Being able to show the potential cost savings as a result of the acquisition will be very beneficial to you, especially when you show you have the ability to back it up.

The Simplest Way to Manage Your Funeral Home

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  • Automate your processes: contracts, forms, files, and more
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  • Create visibility: e-whiteboard, SMS messaging, satisfaction surveys, etc.

“CRäKN is a substantial time saver. We can do more with fewer resources.” – E.C. Nurre

To see how CRäKN streamlines and automates routine tasks to reduce costs, request a demo today.

About Live Oak Bank

Live Oak Bank started in 2008 in order to provide loans to small, independent businesses looking to expand, remodel, refinance and/or acquire existing practices.

With an expertise in the funeral industry, Live Oak Bank takes a personal approach and sees clients not as numbers, but as real people facing real-life opportunities and challenges. Live Oak is one of the largest originators of small business loans with one of the strongest loan portfolios in the country. Learn more about improving your cash flow and growing your business with Live Oak Bank here.

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