I have never met a funeral director who got in the profession because they were interested in management and accounting. Funeral professionals are there because they want to serve the families that need them. But good management and accounting systems not only pay off when an owner is ready to transfer, they enhance the ability to provide services to families. Most of us buy cars and trucks because we like or need to drive them, not because we like working on them, but we know that vehicles that are regularly serviced and well-maintained last longer and are worth more than those that aren’t. Even if a poorly maintained vehicle is “detailed” prior to sale, evidence of past neglect is easy for buyers to see.

Detailing and good marketing can help, but they are no substitute for regular maintenance. This article is a reminder that the same sort of regular maintenance and attention will increase the value of your business to you, as well as the next owner.

WORST Here is a common (and costly) process, especially for older owners:

  1. Decision to sell
  2. Approach possible purchasers;
  3. Set value, approach purchaser’s lender for financing;
  4. Lower price or re-evaluate goals, approach different purchasers;
  5. Repeat as necessary;
  6. Sale.

BETTER Any professional or advisor with experience in business sales and transfers winces at the above sequence. Once an owner has decided it is time to sell, a better sequence, in terms of time, disruption to business and value, is:

  1. Professional valuation of business, outline owner’s goals;
  2. Evaluate purchasers positioned to meet owner’s goals, identify financing sources;
  3. Confidential controlled auction to several qualified purchasers;
  4. Sale.

This process is more profitable and more predictable. But even in the properly sequenced sale something is missing. At this point, there is usually little time to remedy imbedded problems, such as below-market prices, excessive salaries and benefits, lack of management, lack of records or improper tax structure. What steps can an owner take throughout his ownership that will enhance the marketability and value of his business? . Effective management and accounting systems are accurate, timely and ef- ficient. For some owners, “off the shelf ” systems and software can get the job done, if the owner is willing to set them up, train themselves and stick with them on a long-term, consistent basis. Other owners may outsource these responsibilities completely, though lack of participation in the process sometimes leads to failure to pay attention to the results.

Do-it-yourselfers may even create their own systems, if they have the time and expertise to maintain and troubleshoot the systems. Increasingly, we have found many owners do best with systems managed by third parties (similar to a “silent board member”), who can keep them up to date and deal with the technical issues, while the owner remains engaged in the process of inputting and reviewing the results on a regular basis. Valuing a funeral home or cemetery with effective management and accounting systems invariably yields higher, more predictable values, with a wider range of suitable purchasers and willing lenders.

BEST If you think you will ever transfer ownership (and one way or another, you will), try working backward from the sale. Here is a timetable for any funeral home or cemetery who wants to maximize their value:

  1. Sale
  2. 1 month prior – buyer due diligence; lots of lawyers. Seller maintains business in ordinary course through systems in place;
  3. 2 months prior – sign letter of intent. Prepare for limited public knowledge;
  4. 3 months prior – deliver marketing package to prequalified buyers;
  5. 6 months-1 year prior – decision to sell. Prepare market package, sufficient also for bank/lender review;
  6. 1 year prior – review market value, tax effect, long – term projected income needs. Refine acceptable purchasers criteria for ability to pay, finance price;
  7. 3 – 5 years prior – efficient management and accounting systems that include: ability to generate timely, accurate accounting and fi- nancial reports throughout the year; holding expenses within budgeted ranges; periodic surveys of prices, competition and customer satisfaction; development of management capable employee(s); profit sharing or other incentive retirement plans; regulatory compliance; and employee training and oversight to enhance profitability. Obtain first appraisal. Initial consideration of acceptable successors, as well as owner’s post-sale role;
  8. Upon acquisition or founding of business, anytime,  Review by professionals for correct legal formation, to protect assets, as well as facilitate eventual transfer. Begin establishment of management and accounting systems.

Consider Steps 6-8 like standard maintenance for your firm and you will be rewarded throughout your ownership, as well as upon transfer.

This article does not constitute legal or tax advice and no action should be taken based on the information provided without consulting a qualified advisor.

D. Brooks Cowles, Jr., Esq.

Get Ready for Summit 2021 March 1-4.