Whether you’re thinking of investing in a funeral home or looking to expand your portfolio of death care businesses, now is a great time to make that purchase. It’s important, however, to fully vet the funeral homes that you’re curious about.
By thoroughly examining the businesses that you hope to purchase–and knowing which factors to examine–you can better ensure your future success. Here are some red flags to watch out for when looking at funeral homes for sale.
High Employee Turnover
The total number of people who have left a company, both voluntarily and involuntarily, is employee turnover and an important way to measure the health of any business. For funeral businesses, which tend to operate with smaller teams, high turnover rates can be a sign of deeper issues.
High turnover rates generally indicate a lack of employee purpose, poor compensation, bad management, or an overall toxic work environment, and when you take over a funeral home, it’s unlikely that these problems will vanish on their own, meaning you’ll have to invest time and money into hiring new team members.
Ideally, when you take the helms of a funeral home, its employees will transition seamlessly into your team. However, high employee turnover is the first sign that there are complicated issues affecting the business, issues that might make it difficult to operate effectively.
Before purchasing a funeral home, you’ll want to see an accurate and detailed financial picture over the last few years. Not only will this help you determine the business’s value, but it will also let you know what you stand to gain in profits.
In most cases, you should ask to see:
- Profit and loss statements for the current and past three years
- Current balance sheets
- Cash flow statements
- Tax returns for the past three years
- Audited financial statements
- Lists of any business debts
If the current owner of a business is unable to quickly provide you with these documents, this is a huge red flag. At the very least, disorganized financials imply a lack of reliable information. At worst, they could indicate a business owner is trying to gloss over a less than ideal financial picture, hoping to pass it on to you.
Low Preneed Backlog
Preneed sales, that is, pre-arranged funeral-related services, are one of the strongest indicators of a thriving funeral business. If a funeral home has an extensive backlog of preneed arrangements, then this indicates that they’ve secured future business and likely have a degree of loyalty within the greater community.
If a funeral business has an underwhelming preneed backlog, then there is no way to guarantee its future. On a deeper level, it can even imply an underperforming sales team, something you’ll have to take time and money to fix.
A Vastly Changing Market
Since 2009, the total number of funeral homes in the U.S. has fallen steadily each year, indicating higher competition among the businesses that survive. What’s more, new trends are emerging in death care, such as a growing preference for cremation and alternative celebrations of life. Funeral homes are not immune to shifting trends and competition.
When looking to purchase a funeral home, you should take care to examine the market in the region. You’ll want to consider:
- Competition: How many other funeral businesses are in the region, and what sizes are they? What advantages are held by the business you hope to purchase? Which funeral business is the dominant player?
- Population: How many people are in the region? Is the population growing or shrinking? Does the population skew older or younger? What are the dominant religions in the area, particularly as they relate to death care? Do locals prefer certain types of memorial arrangements?
While employees, facilities, and services can all be fine-tuned, location is the one thing that you can’t change about a business. This is why it’s important to examine it closely and analyze your future prospects in this locale.
How to Vet Funeral Home Businesses
To vet a funeral business, you’ll want to look at each of its aspects at a high level to see if there are any red flags that indicate you should back off. Think of it as buying a house. While there are certainly people who wish to purchase a flawed home and conduct extensive renovations, this looks very different for a business and could mean its failure is inevitable.
To vet a funeral home, you can go it alone, but your best option is to seek the help of experts who specialize in the death care industry.
At Johnson Consulting Group, their team of brokers and consultants can help you identify which funeral businesses align with your needs, coordinate with sellers, and even conduct a full financial analysis of a prospective funeral business. Through this process, Johnson Consulting Group will not only help you identify red flags but also determine if these red flags can be overcome in service of your bottom line.