Succession Planning in Uncertain Times

FOR MOST FUNERAL SERVICE BUSINESS OWNERS, transferring ownership of their funeral homes is a defining moment in their lives. Funeral service professionals develop deep and unique relationships with their communities and bonds of trust that can only come from helping friends and neighbors through one of life’s most difficult moments. Preserving that legacy and the goodwill of their communities are paramount in any succession plan. What, when, and why to transfer business ownership, however, varies greatly among business owners and is impacted by industry and economic issues far beyond any owner’s control. The pandemic has reframed life for funeral professionals of every generation.After nearly three years of unprecedented growth in both business volume and technology, many owners are experiencing a COVID-19 hangover. They are reviewing their pre-COVID succession plans and reevaluating their options. Do they want their children to take over and make the same sacrifices? Are they energized by the changes in funeral service and looking for a partner to help them grow their business? Do they want to continue to serve families, albeit at as lower pace and without the burden of ownership? Or do they want to sell the business and retire to enjoy the fruits of their labors? Dueling PrioritiesWhen Steve and Nanci Trevino, founders of Ponderosa Valley Funeral Services in Parker, CO, sold their very successful business in 2019, they had goals that would have been mutually exclusive had they remained owners. They wanted to grow the business but also devote more time to personally supporting and caring for families.“The core reason I entered the funeral profession was to help families, but as an owner you have to do it all; the day-to-day operations can become overwhelming, and you sometimes forget why you’re there in the first place,” said Steve Trevino. “Our partnership has allowed us to step back from day-to-day operations to focus on serving families and community outreach. And we have more time to spend with our own family. I just love it. It’s been fun telling the transition story to peers and friends in the community.”Today, three years later, Steve and Nanci Trevino still work full time and carry on many of their former duties. “As the business has expanded, I’ve pulled back some to focus on pre need sales,” saidNanci. “I still meet with families on occasion and assist at funeral services, as needed, but I’ve had more time to mentor staff and I am confident we have the best people in each job and that they will maintain our high level of customer service, our integrity and our reputation in the community.”

The Changing Economic Climate: The events of the past three years have accelerated merger and acquisition activity across the funeral service industry as the BabyBoomer generation reaches retirement age and many younger owners look for capital to expand and align their businesses with rising cremation rates and changing consumer preferences.The year 2021 was active for funeral home mergers and acquisitions, as national and regional operators continued to gain scale while navigating COVID-related growth challenges. Many sellers capitalized on recent growth and a favorable economic environment, driven by low interest rates and strong buyer access to capital.Others, in anticipation of a potential change in capital gains rates, accelerated their succession planning into last year. By the end of 2021, Foundation Partners had added 50 new locations and some of the profession’s most innovative leaders to our team.Wendy Kraft and Laura Sussman, of Kraft-Sussman Funeral& Cremation Service in Las Vegas, are perfect examples of those leaders. Founded out of frustration with the status quo in SouthernNevada funeral service, Wendy and Laura opened their business in2009 and sold to Foundation Partners in August 2021.“Laura and I built this business from scratch, so the thought of letting go was very scary,” said Wendy Kraft. “Like many funeral home owners, we always hoped that our daughters would take over the business when we were ready to step back. We tried everything to convince them to join us, but after growing up in a family where their home life could be interrupted by the next phone call, they decided this life was not for them. Once we accepted that a family succession plan was off the table, selling the business was our next best option. We talked with our colleagues and contacted a consulting firm but decided to put it on the back burner for a time. Then the pandemic hit and changed our thinking. It took a huge emotional toll, making us more aware of personal loss and that no one can do this forever.”A strategic sale or acquisition can be one of the most consequential decisions in any business owner’s growth and succession planning. Successful deals can provide business owners with enhanced career prospects and increased financial security.

Lifting a Burden Alistair “Al” and Tommie Kamm purchased Denver-based All States Cremation and All-Veterans Funeral and Cremation from their parents in 2014 and partnered in 2019 to grow the business and lighten the burden of ownership. “I’m working the same number of hours, but my level of stress is greatly reduced,” Al Kamm noted three years after the transfer of ownership. “I can run the company and grow the business knowing that I have resources to back me up, whether it’s legal or marketing.We’re no longer in it alone.”“I’m doing the same things, but I no longer feel the full weight of the business is on our shoulders,” added Tommie Kamm. The day we sold, my anxiety started to dissolve and morph into a sense of freedom and joy for what we did. I don’t have to have all the answers.”Death care business owners exploring a sale in 2023 face a more uncertain economic climate, as buyers and sellers adjust to recent shifts in interest rates, inflation, access to capital and volatile public markets.Smart owners recognize these changing conditions and are adjusting their business plans and budgets accordingly. Reinvestment in marketing and reestablishing local community relationships will be key to continued business growth as call volumes reset to a “new normal". Staffing remains challenging across the profession; and business owners are facing rising costs to maintain the level of service families expect and deserve. Detailed growth and succession plans are essential to successfully navigating these challenging economic times.

Advice from Former OwnersWe recently asked former owners what advice they would offer others considering selling their funeral homes. Here are some of the insightful, thoughtful answers we received:

Laura Sussman, Kraft-Sussman Funeral& Cremation Service, Las Vegas: “I would tell business owners to take their time and not to rush into a transaction until they have all their ducks in a row— financially and emotionally. Reach out to people who have been through a sale and ask questions, especially who they sold to. That alone will give you a good indicator of who you might want to work with. For us, the process was faster and easier than I ever thought it could be.”

Jim Letson, Beck’s Tribute Center inEdmonds, WA: “I would tell other funeral homeowners to keep an open mind to selling ... Even if they don’t think they are ready to sell tomorrow, they need to begin exploring their options.There’s nothing wrong with reaching out to a prospective buyer just to talk.They don’t have to say yes, but they might be surprised how much better their lives could be as part of a larger company or in retirement.”

Marc Brusie, Brusie Funeral Homes & Cemeteries, Chico, CA: “When you’re ready to sell and trying to find the right partner, make sure to talk to different buyers and make sure it’s a good fit. I would recommend visiting facilities run by potential buyers. You can see how they maintain their funeral home sand how much care they put into their locations. It’s such an individual decision but consider your priorities and make sure they align.”

Looking Ahead:
It’s clear that the future of death care will continue to be shaped by new technologies and evolving consumer preferences. Funeral home owners who recognize and embrace these changes will build enduring businesses with succession plans that ensure the continuation of their legacies of service to their communities.If your succession plan is built around selling your business, remember that partnership interest and valuations are based on the future, not the past. Continued investment and focus on growth will ensure your business is well-positioned when you decide the time is right to activate your succession plan.

Zach Mayer is senior vice president of Strategic Finance for Foundation Partners Group. Zach can be reached at zach.mayer@foundationpartners.com or (312) 257-6875. Foundation Partners is committed to creating enduring partnerships with successful and innovative business owners who share our vision of the future of death care, through all economic and market conditions.We’re here to serve as a resource for those in the industry looking to retire, grow their businesses and expand career opportunities for themselves and their team members.