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Developing a plan to identify who will take over your funeral home is a topic I address on a daily basis. I receive phone calls from professionals who have dedicated a large portion of their career, been effectively running a business for years, and don’t know how to approach creating an exit strategy. The average funeral home in the U.S. does 80 calls. Therefore, the owner has limited access to information related to transitioning the business to the next generation.  Where do you as an owner start?

There are several barriers to a smooth transition to consider:

Barrier 1 – Lack of Experience.

Most owners have an overall lack of knowledge about the buying and selling of a funeral home. For example: There are many 80 year old owners who should have, perhaps, sold their business 15 years ago, but didn’t for various reasons. Maybe he started the business or inherited the business causing an even stronger sense of commitment to the enterprise. The first step in this process should be getting advice from someone who has been through a similar transaction. A national consultant, a broker, or a colleague would be a trustworthy source to discuss the process.

Barrier 2 – Personal Commitment.

Leaving a business that you’ve worked hard to create can be a difficult and emotional process. A key consideration is valuing the business, the details of which owners are typically inexperienced. What is your business worth? Does the buyer understand the valuation? Transactions of buying and selling a business require the agreement of the two parties involved or the knowledge of a valuation expert to confidently appraise the business.

Barrier 3 – Lack of Financing.

Many owners face lack of financing through conventional sources. Conventional lending normally only offers financing based on real estate value. For example, your funeral home has real estate valued at $1 million, but the total sale price is $2 million. The local bank will only loan about $800,000, leaving the seller to hold a $1.2 million debt; that’s a huge gap in financing that is difficult to overcome. So what happens instead? The owner continues to hold the business until he is forced to sell to someone else because of health or obsolescence. This decision often leads to transferring the ownership to a potentially less than qualified candidate.

Live Oak Bank, however, is a cash flow lender and offers 100% financing. This means we have the ability to lend on the goodwill value of the business rather than just real estate alone. This allows an owner to select the most qualified candidate to take over the business. Someone who has been working for you for 10 years, but may not have the money to purchase, does not have to be overlooked in this financing model.

I care greatly about the funeral profession. One of the greatest sources of professional fulfillment for me at Live Oak Bank is facilitating these transitions of the right buyer with the right seller to benefit both parties.