Selling Your Funeral Home to Insiders? Here’s How to Plan For the Transition

Posted January 20, 2021

5 min read

In our last blog, we uncovered some of the pros and cons that come with transitioning a funeral home business to family or to key employees. Selling Your Funeral Home to Insiders? The Pros & Cons, Explained.

In that article, Alan Creedy shared strategies and key advice for business owners considering this kind of insider transition. With more than 35 years in the profession, Alan has become an authority and sought-after consultant for exit planning, valuations, and business advisory services.

“If you have been in funeral service any length of time you are likely aware of family or staff transitions that got sticky. Emotions, taking sides and, ultimately, disappointments can happen,” says Alan.

So what can funeral home owners do now to set themselves up for a successful insider transfer? Alan shares 4 key tips that can help you lay the appropriate groundwork for the transition.

Start Now With Open Discussions

Many complications with an insider transition occur from a lack of open discussion with all those who may be involved. “When mom or dad have failed to express their wishes about their funeral service, sibling relationships that weren’t cordial to begin with are often stretched to the breaking point. So it is with the transition of the family business,” explains Alan.

“Unresolved family issues can and do derail many a great opportunity. An owner sometimes sells to an outsider just to keep relative peace in the family. By selling to an outsider ‘everyone is equally disappointed.’”

Other times, owners who are hoping their children or staff will be their successor are disappointed to find they don’t want it. “Not long ago I was working with a family who believed two cousins in the business would be their successors. They were shocked when both of them confessed that they planned to leave town as soon as they could afford it. Fully half of employees say they want to own the business but, when the transaction starts, they back out,” he says.

The solution for this is open and frequent dialogues. Your successor has to feel safe in sharing their perspective. If they “drag their feet” in responding (like not getting licensed in a reasonable period) it is often a sign they really don’t want it, says Alan.

Become Knowledgeable On All Your Options—Sooner, Rather than Later

The prevailing assumption is that the transfer is as much a road to retirement as it is about passing on a legacy. Insider transfers offer a much broader amount of flexibility. “Most people tend to think about structure [of the business transaction] in the same terms they think about third party sales,” says Alan. “But the reality is far different.”

In reality, there is a lot more flexibility when it comes to the potential structure of your transition. Alan shares a few of the examples seen over the years with inside transfers:

  • Sell the business and keep the real estate for lifetime rental income
  • Transfer stock using the company’s cash flow to fund it
  • Retain benefits
  • Continue working in a reduced schedule

“The takeaway for business owners is there are so many ways to transfer to insiders and so many ways you can benefit from the right structure, that planning needs to start sooner rather than later.”

Start Developing Your Successors Today

You also have an obligation to develop your successors. “Where you do not have a specific skill, you need to find people who do,” says Alan.

In other words, you cannot expect the “next generation” to step in and take over ownership instantly. You have to develop their skills. This takes time and effort but should, at least, include:

  • Marketing, which is quickly changing and requires a new set of skills.
  • Customer service, which is more complex than it was in the past and requires a new approach today.
  • Finance, so they can have the financial literacy needed to run and operate a business.
  • People management skills, which often will have to be developed.

Don’t Forget About Governance

In situations where there will be multiple owners, roles should be clearly defined. If there is going to be co-leadership, be sure that there is first the acknowledgement that there may be more than one successor candidate. Share the clear, fair criteria for selection and be sure it is known that tenure or age rank does not guarantee leadership.

“50/50 partnerships are normally a bad idea. In those situations where it is the only way, a governance structure should provide a way to equitably break a tie,” says Alan.

In Conclusion, Lay the Groundwork

All in all, laying the appropriate groundwork is the single greatest factor in success when it comes to insider transfers, says Alan. It’s never too soon to start collaborating on a future with those you envision as your successors.

Selling a business representing decades and even generations of involvement can be scary, but proper—and collaborative—planning will help you succeed and feel content about the process and outcome.

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