Succession planning sounds simple but in reality it is a particularly challenging process. For many funeral and cemetery business owners, choosing a suitable successor to take over their most valuable asset is a significant lifetime event that should be carefully managed. There can be unexpected pitfalls and obstacles along the way, and funeral professionals need to have a well thought out plan in order to be successful at succession planning. Here are the Top 7 mistakes of succession planning we have seen over the years.


#1: Lack of Preparation

Succession planning is not a spur of the moment event. Some funeral owners put off preparing a succession plan until a major event forces them to consider a transfer or an outright sale. However, good preparation is essential as there are many factors to consider when planning the future of your business, even if it’s not something that is currently on your radar. Owners need to evaluate the competitive landscape, future cash needs, market demographics, industry trends, and the strengths and weaknesses of potential successors.

Funeral home owners should also take into account their age and overall enjoyment of the work. For instance, at 40 – 50-years-old you may not be interested in doing a succession plan but should definitely think about future planning, whereas if you are in your 60’s or 70’s and don’t yet have a succession plan, you should start working on one as soon as possible. Remember, having a succession plan does not mean you have to implement it; the important thing is having a complete plan ready to go.


#2: The DIY Approach

Many funeral owners try to prepare a succession plan on their own but this do-it-yourself approach is not the right way to go when it comes to succession planning. Your local accountant or attorney may be able to provide limited assistance, but you should engage an industry expert who can effectively guide you through the entire process. It helps to get support from someone who understands the dynamics of the funeral industry and can provide an objective assessment of the true value of your firm. Make sure you engage the right group of professionals to optimize your succession planning experience.


#3: Incorrect Estimates

In order to define the real value of your funeral home holdings, you need an expert with experience in the field to give you an accurate determination of what your business is really worth. Getting an independent business valuation based on industry and competitor benchmarks can define the financial health of your operations, increase the value of your holdings and help you navigate the transfer of your business. This is what succession planning is all about: understanding what your value is today and then putting a plan in place to enhance your future value. This is why it’s so important to get an annual valuation for your business.


#4: Short-Term Thinking

Succession plans should include both short-term and long-term goals because there’s more to the process than just signing on the dotted line. Funeral home owners need to decide on whether they want to maximize cash received from a transfer, or if they prefer a steady stream of cash flow in future years. A key piece of the puzzle involves the tax ramifications of a business transfer. You have probably heard the saying “It is not what you sell for, it is what you put in your pocket” — what this means is that your tax situation is an important part of the ownership transfer process and ignoring this piece of the puzzle can have negative results after the fact.


#5: Choosing the Wrong Plan

One question you must ask yourself is what type of succession plan you want — family, employee, or outright sale:

  • Family – if you have family members interested in taking over the business, it makes sense to include them in your succession plan. If the family member doesn’t have the financial capability to complete the transfer, an SBA lender or your local bank may be able to assist. In many cases the funeral owner steps in personally with financing via a subordinated note.
  • Employee – a key employee may be the right person to carry on your legacy. Once again, financing may be an issue but the same options for a family transfer are also available in this case (outside/owner financing).
  • Outright Sale – if your family members and employees aren’t interested in taking over the business, you should consider an outright sale. In this situation, financing is not an issue as most industry buyers have enough cash to buy your firm, however finding a buyer who is a good fit is essential to generating maximum value from a sale.


#6: High Expectations

Some funeral home owners have an unrealistic idea of the value of their firm. They remember the good old days when purchase price multiples were very high, and incorrectly apply those numbers to their current situation. This mind-set is hard to change, because a thorough business valuation is necessary for succession planning and it entails a lot of work that can disrupt day-to-day operations. In the end, the final result may not be even close to what the owner is expecting. Nonetheless, you must first find out the true value of the business when developing a succession plan, and then move forward from there.


#7: Waiting Too Long

This is perhaps the biggest mistake we see with succession planning. Funeral home owners need to start early and analyze every aspect of their business, including current market trends, number of families served each year, the business mix, revenues and free cash flow. If any of these features are declining, then your company’s value is probably declining as well. Evaluate your overall position and see if you can correct the issues that need fixing and get your firm back on track. A JCG industry expert can provide guidance on how to change negative trends and improve performance. Whatever you do, don’t let your business continue to deteriorate as this will only weaken your succession planning value proposition.


 If you are a funeral or cemetery professional interested in knowing where your business has been, where it stands today, and what the future holds, please contact Johnson Consulting Group for a free business valuation quote today.