Business Buyer & Seller Services for Funeral Companies

1. Where to Start: What to Know Before Buying Another Funeral Home

 

Has your funeral home ever considered acquiring another firm?

The goal may be to earn additional market share, invest in a firm that can offer more diverse offerings to families, or simply buy out a competing firm. Whatever the goal may be, we at The Business Exchange (“TBX”),  believe that we often see the opportunity for funeral homes to continue building through acquiring other firms.

The end goal in adopting a business acquisition brand strategy is to build a strong brand presence in a community and to earn larger market share within a certain region. It’s about building quality across the board. A company that uses a business acquisition brand strategy, allows funeral homes to offer different price points depending on what families want in specific locations.

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What funeral home professionals should consider and how they can prepare for acquiring another firm. Let’s take a look:
 

2. Examine the state of the business you’re looking at buying.

 

When it comes to funeral home acquisitions, we see two common scenarios: a key employee purchases the funeral home where he or she currently works, or a current funeral home owner or director purchases an outside funeral home.

Deciding which option is best for you greatly depends on your current circumstances and opportunities. Examine the call and revenue trends, operations (and how that connects with market trends) to get a clearer picture of your opportunity.

As some starter questions, TBX recommends asking and evaluating:

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• Is the business growing? If not, can you identify and implement improvements?

• Will the business support your current lifestyle ? The business will be your source of income.

• Is the business located in a place where you will be happy living, if you would need to move there?

• Understand the current leadership style and philosophy of the current owner? What else can you learn about the culture of the other firm?

• Is there proper staffing to accommodate your vision?

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3. Examine and evaluate marketplace trends.

 

Among other things to research, make sure you look into marketplace trends or shifts - and that should really be as specific to that location as much as possible. Many of the business trends will be driven by market trends, so it is important to understand the demographics in the area as well as trends in funeral service that are likely to impact your business.

Just a few of the questions that should be answered include:

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• What are the demographics of the area?

• What competition do you face in your local community?

• Is the local population growing?

• What is the cremation rate? How quickly is it rising?

Understanding the revenue versus the call volume trends, for example, identifies the current direction of the business. Don’t be afraid to inquire or to do research on the impact cremation has had on the business, how they’ve responded and why. It is simple, but you would be surprised at how often this overlooked.

 

4. Know what’s involved with your purchase price.

 

Once conversations have started between buyer and seller, seek to understand all that is involved in the purchase price. It’s important to understand what is included in the price and to have an understanding of purchase price allocation among goodwill and real estate.

For example, if it were a £1 million purchase price, you would want to know, of that £1 million, how much the real estate is worth. That’s going to determine the available term and, consequently, the cash flow available to service debt.

Put simply, the longer the term, the less the debt service per year. The shorter the term, the greater the debt service, and risk to shifts in death rate. It’s very important in an acquisition to understand the components of the purchase price.

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5. Uncover realistic potential cost savings.

 

You’ll also want to have a great deal of information about what kind of cost savings will result when taking over the target funeral home. What expenses will be reduced? How much will those expenses be reduced? Are there any expenses that could drastically increase as a result of your vision for the business?

Maybe the current owner is outsourcing some elements, but you anticipate cutting that expense by performing this service in-house with the current facilities. In short, understanding the potential cost savings as a result of the acquisition is very important for a the Buyer and lender in order to have a clear picture of the future cash flow.

 

6. Speak with TBX who have expertise in the funeral home space.

 

Many funeral homes aren’t sure where to begin or aren’t sure they have the ability to acquire another firm. It is very important to understand that just because they don’t have a lot of “spare” cash doesn’t mean they would not qualify for financing or cannot put a deal structure together to Buy a Funeral Home.

 

6. 1. Examine using a small deposit from you with Seller Finance as a method to Buy a Business

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Lets look at Seller Finance for example – click here
 

Lets take a look at some Leverage buy-deals with deferred payments or seller finance – click here
 

The lesson for funeral home owners is not to make any assumptions before speaking with TBX.
 

Many people perceive that the loan terms for buying & acquiring a funeral home are the same as in the residential market, but that’s not the case; it’s worth talking to an expert at TBX to understand the funding options.

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7. The Business and Marketplace

 

7. 1. Introduction

 

Funeral directors arrange funeral services and burial or cremation on behalf of private clients, who are usually relatives or friends of the deceased. This involves collecting the body and preparing it for burial or cremation, negotiating with and purchasing services from local crematoria and churches, and sourcing and organising various elements of the funeral service, including a venue, transport for mourners, music and flowers. Most funeral directors also provide advice on legal issues such as registering a death and burying bodies in private land.

When no relative or friend of the deceased is available, funeral directors may be engaged by local authorities, hospitals, and private service providers such as nursing and residential care homes to arrange funerals.

Embalmers, hearse drivers, pall bearers and other specialist staff may be employed by the funeral director or engaged on a freelance basis. Some elements of a funeral service, such as the provision of a horse-drawn carriage, are often subcontracted to local suppliers.

Funeral directors who provide funeral plans need to be authorised by the Financial Conduct Authority (FCA), or act as appointed representatives of FCA-authorised firms.

This profile provides information about starting up and trading as a funeral director. It describes the skills required, the training available, the current market trends and the key trading issues.

It also explains the legislation that must be complied with and provides sources of further information and support.

 

7. 2. Key market issues and trends

 

Current market issues affecting funeral directors include the following:

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• The UK funerals market is estimated to be worth over £2 billion a year, having grown at an annual rate of 4.5% over the past 5 years. – (Source: IBISWorld Industry Report S96.030 Funeral Activities in the UK, December 2017)

• According to an edition of the Office for National Statistics 'Deaths Registered in England and Wales' report, published in November 2015, there were 501,400 deaths registered in England and Wales in 2014 (for more up to date figures – go here: www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths). This represents a year-on-year decrease of 1.1%. In Scotland, the number of recorded deaths fell by 0.8% over the same period, from 54,700 in 2013 to 54,240 in 2014. In Northern Ireland, the number of recorded deaths fell by 1.9% from 2013 to 2014 from 14,970 to 14,680. In general, the death rate in each UK country has decreased steadily since the 1970s.

• Background on the funeral market. The funeral market comprises a variety of businesses, some of which are vertically integrated. Local authorities also play a significant role.  At the centre of the funeral market are funeral directors, who are typically the only point of contact for people seeking to organise a funeral. The industry is fragmented with around 5,000 funeral director branches, around 3,000 of which are operated by small regional or local businesses. Two groups, Cooperative Group Limited (through Cooperative Funeralcare) and Dignity plc together account for around 28 per cent of funerals between them. The third largest supplier, Funeral Partners Limited, is reported to have a share of just under 2 per cent. Out of the 290 crematoria in operation in the UK, 106 are privately operated with the remaining being owned and operated by local authorities, which also operate cemeteries. With 45 crematoria, Dignity plc is the largest private operator, followed by Westerleigh WGH Limited with 29 crematoria. Comparison websites specialising in funerals have started to appear in recent years. We have identified a small number of such sites.

• Britons spent £4.8 billion on arranging funerals for family and friends from 2010 to 2015, according to research from British Seniors Insurance Agency published in 2016 (for more up to date figures – go here: www.britishseniors.co.uk/over-50-life-insurance-guides/press/grave-reality-of-dying). Of the 11 million people who had arranged a funeral over the five-year period, one quarter (2.7 million) had paid for it using a credit card, payday loan or personal loan, spending £1.6 billion in total. People aged between 18 and 34 were most likely to have used one of these payment options. Almost half (44%) of respondents in this age group had used an existing credit card or taken out a new card to cover funeral expenses, and 27% had resorted to a payday loan.

• British Seniors also found that the average price of a funeral held in 2010 or the subsequent four years was £4,136 and predicted that this would increase to £4,544 by 2021, in line with inflation.

• In February 2016, a Which? survey found that funeral plan prices ranged from £3,300 to £5,500 when paid for by a single lump sum. Paying in monthly instalments adds around 15% to 26% to the cost.

• In May 2015, an opinion piece in The Spectator attacked the fees charged for arranging a funeral service, citing an example of a funeral that cost £4,000 overall, including a £2,900 for professional services and nearly £900 for crematorium hire (www.spectator.co.uk/2015/05/ funerals-are-a-rip-off-unless-you-do-it-like-this).

• In February 2016, Chair of the Scottish Working Group on Funeral Poverty, John Birrell, and Citizens Advice Scotland published a report on funeral poverty in the country (http://news.gov.scot/news/tackling-funeral-poverty-2). Its recommendations included reducing the variations in fees charged by separate local authorities and funeral directors, ensuring social security payments are sufficient to meet funeral costs and requiring funeral directors to be licensed. Go to www.cas.org.uk/news/new-report-funeral-poverty for more information about the report.

• In March 2015, it was reported that two London borough councils had stopped providing a burial service due to lack of space in their cemeteries (www.bbc.co.uk/news/uk-31837964). Family and friends of deceased Tower Hamlet and Hackney residents were being forced to choose cremation or purchase burial ground from cemeteries in neighbouring local authority areas. According to the latest in-depth survey of provision of burial space in the UK (published in 2013, www.bbc.co.uk/news/uk-24283426), English cemeteries are expected to run out of space by 2033.

• The number of UK funeral services led by clergy in 2013 (the most recent figures available) was 160,000. This is 13,000 less than in 2008 and represents just one third of funeral services carried out in the UK (www.thisismoney.co.uk/news/article-3084837/Church-funerals-dying-business-increasing-numbers-opt-secular-services.html).

• The number of natural burial sites in the UK increased from around 270 in April 2014 to more than 300 in October 2015, and demand for eco-friendly burial is continuing to grow (www.independent.co.uk/life-style/health-and-families/green-burials-plans-for-new-biodegradable-human-seed-pods-to-replace-traditional-coffins-6678511.html). Although UK law requires each death to be registered and a record of where the body, if buried, is interred, there is no legal requirement to embalm bodies or bury them in a coffin or casket.

• Some funeral directors provide services specifically for a certain faith such as Islam (www.sherazam.co.uk), while others provide services for multiple faiths to suit different religious requirements. Go to www.jbhallfuneraldirectors.co.uk/arranging-a-funeral/multi-faith-funerals for an example.

• Independent funeral directors face competition from established funeral parlour chains. Examples include The Co-operative Group (www.co-operativefuneralcare.co.uk), which has around 700 branches and offers funerals from £2,000 and a range of funeral plans, and Dignity (www.dignityfunerals.co.uk), which has branches throughout the UK and has sold funeral plans to more than 675,000 people.

• In March 2016, there were more than 7,900 funeral directors in the UK listed on Yell.com, indicating the competitive nature of this sector.

 

Further Analysis:

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Did you know that of 929 firms analysed in the Funeral Directors industry in the UK:

• Firms with sales between £3m and £5m are showing the fastest % growth.

• 16 of the UK's largest 25 firms did not increase their sales.

• 398 firms have captured 7% of the market in the latest period.

• 339 firms did not increase sales at all.

• Larger companies now control 55.4% of the market, up from 55.1%.

• Firms with sales below £0.8m have seen their market share fall by 1.3%.

• Small companies, those with sales of less than £0.8m, still control 14.2% of the market.

(Source: Plimsoll​)
 

8. Useful contacts

 

National Association of Funeral Directors (NAFD) Tel: (0121) 711 1343
Website: www.nafd.org.uk

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National Society of Allied and Independent Funeral Directors (SAIF) Tel: 0345 230 6777
Website: www.saif.org.uk

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Institute of Civil Funerals (IoCF) Tel: (01480) 861411
Website: www.iocf.org.uk

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Association of Green Funeral Directors (AGFD) Tel: (01795) 830688
Website: www.greenfd.org.uk

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Funeral Directing, pass an oral test to confirm their competence in and knowledge of the funeral profession. Premises will be re-inspected within the first six months of membership and then once every two years. There is no application fee. The annual membership fee is available on request from the NAFD. Go to www.nafd.org.uk/why-join-the-nafd/uk-funeral-firm-membership for more information.

NAFD membership benefits include professional indemnity cover for each employee, access to the NAFD's fast-track debt recovery service and the FAS, discounts on card processing fees and a subscription to 'Funeral Director Monthly'.
 

Members of the NAFD can sell the NAFD pre-paid funeral plan, and are paid a fee for each new plan they sell.
 

NAFD members must adhere to the NAFD Code of Practice and Code of Professional Standards. These include requirements to:

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• Act in a courteous and sensitive manner and not pressurise or exploit bereaved clients.

• Ensure that any advertising is in good taste and complies with the Committee of Advertising Practice (CAP) Codes (www.cap.org.uk/Advertising-Codes.aspx).

• Ensure that a price list is readily available. This must include an itemised list of fees for specific elements of the funeral directors' services, including professional services, body removal and the provision of a hearse.

• Make copies of their price list available for potential clients to take away from the premises.

• Provide clients with written confirmation of the funeral arrangements and an itemised estimate of the costs, including the known or best estimated amount of disbursements at the time.

• Ensure that estimates make it clear that, on signing, the client agrees liability for disbursements.

• Where it was only possible to estimate disbursements, the NAFD member must ensure that the actual disbursements are included in the final account in an itemised list.

• If a funeral is cancelled, return any advance payments to the client, less the costs already incurred by the funeral director.

 

The Code can be downloaded in full from www.nafd.org.uk/about-us/438-2/.

 

In addition to the NAFD there are several other trade bodies that funeral directors may find it useful to join. These include:

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• The National Society of Allied and Independent Funeral Directors (SAIF, www.saif.org.uk), which is a professional body representing independent funeral directors in the UK. Members can use the SAIF logo and benefit from professional indemnity insurance cover, access to an independent dispute resolution service, a subscription to 'SAIFInsight' and discounts from industry suppliers. The annual membership fee is based on the number of funerals arranged each year and starts at around £280, plus £25 for each additional branch. SAIF members also receive financial benefits when selling Golden Charter funeral plans.

• The Institute of Civil Funerals (IoCF, www.iocf.org.uk), which is a professional body that represents self-employed civil funeral celebrants working in the UK. Members can use the letters 'MICF' after their name and benefit from listings on the IoCF's online directory and funeralmap.co.uk. New members must hold a level 3 qualification, ideally fromCivil Ceremonies (the IoCF training partner) and pay a £50 application fee. The annual membership fee is around £280.

• The Association of Green Funeral Directors (AGFD, www.greenfd.org.uk), which is a professional body that represents UK funeral directors who provide eco-friendly funerals. The AGFD maintains an online directory of its members and provides information about membership on request.

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