The last several years were a tough time to try to sell a funeral home. Values were depressed and then the credit market collapsed, so would-be buyers couldn’t obtain financing for a purchase. Now, however, I’m seeing more acquisition activity. For those of you thinking of selling, I have the following suggestions and observations…

While it’s fine to let potential buyers know that you want to sell, be careful not to say or do anything which might lead someone to believe that they will be entitled to a finder’s fee or commission if they match you with a buyer. I’m speaking of a casual business acquaintance or a supplier representative, for example. You may, in fact, want to engage the services of a broker to market your business and help you through the sale process, but be sure you understand what they will do for you and what their fee or commission will be before you sign a contract or engagement letter. If you choose to use a broker I strongly suggest you use one which specializes in the funeral industry. A general business broker won’t have the knowledge and expertise to justify their fee, whereas a good specialist will be able to market your firm effectively and get you the best price for your business.

At the very beginning of the process, talk to your CPA and get an understanding of the most tax-efficient way to structure a sale and what the tax implications will be. In addition to the purchase price for the assets or stock, remember that you will also most likely receive payments for a covenant not to compete and for a consulting or employment agreement. If you own the real property on which your business is located, consider whether you should sell or lease the real property.

You should also hire an attorney, ideally before you sign a letter of intent. While it may sound self-serving, you will save time and money if you use an attorney who is familiar with the funeral industry and has handled other funeral home sale transactions. At the very least, hire an attorney who is experienced with business sales; this isn’t the time to use the divorce attorney in your Rotary Club.

Have realistic expectations. For the most part, the high prices paid in the past are not being paid today. Factors such as being in a highly competitive marketplace and doing a high percentage of cremations will also lead to lower offers. If you own the real property on which the business is conducted and intend to include it in the sale, bear in mind that a buyer can’t afford to pay you the “highest and best use” value of the real property and also pay top dollar for your business. This is because from the buyer’s perspective, the income generated by the business has to be able to essentially pay back the purchase price. Thus, you might be better off to lease the real property for a period of years, but give the buyer and option to buy it at a later date for fair market value.

Finally, if at all possible don’t wait to sell until you’re desperate from burn-out, ill health or financial pressure. Selling under such circumstances is usually very stressful, and seldom results in obtaining the best price possible.