The Importance of Succession Planning
by T. Scott Gilligan
In the past ten years, one of the most notable trends in the funeral industry has been the increasing pace of funeral home acquisitions by publicly traded companies. While some of the acquisition companies have themselves been acquired, new companies quickly take their place and the acquisition pace continues unabated.
Although the larger companies certainly receive the lion's share of press in the field of succession planning, it is important to note that a sale to one of the consolidators is not the only option for independent funeral homes. Funeral homes continue to be transferred to family members or sold to long-term employees. In many cases, funeral homes are purchased by a competing funeral home in the market area or a funeral home in an adjoining town. The industry has also seen an increase in independent funeral homes merging together to take advantage of synergies.
The critical component of successful succession planning is preparation. Certainly, a funeral director who is anticipating retirement in the next few years should have a succession plan in place. However, even those who are many years from retirement age must have a succession plan to deal with unanticipated events such as death, disability or divorce.
Obviously, a succession plan will not be a static strategy. It must be periodically reviewed and modified to reflect changes in the funeral director's personal life and market area. A funeral director who plans to transfer the business to a son or daughter will have to revise those plans if the children do not wish to stay in the profession. Likewise, a funeral director looking to sell the funeral home to a key employee should have in place a formalized plan to reassure the employee when and how the business will be transferred.
Events in the funeral home's market area will also impact succession planning. The acquisition of a competing funeral home by a consolidator, the development of a funeral home/cemetery combination, the start-up of an aggressive preneed sales program or discount operation can quickly impact market share and alter succession planning. A very important component of successful succession planning is knowing the local market, the strength and weaknesses of your competitors, historical changes in market share and the possibility of new players in the market.
A funeral director's succession planning should not only look at transferring or selling the funeral home, but also the possibility of making acquisitions in your market area. You should be aware of your competitors' succession plans. Are they looking to transfer ownership internally or are they open to a sale to an outsider? In the latter case, would they prefer to sell to an independent funeral home rather than a consolidator? In lieu of an outright sale, would a merger or joint venture be mutually beneficial to you and your competitor?
In upcoming newsletters, we will be addressing succession planning both from the aspect of the funeral director looking to sell and the funeral director looking to buy. We will include advice from funeral industry brokers who have represented large consolidators and independent funeral homes. The articles will also draw upon our experiences in representing buyers and sellers in over one hundred funeral home transactions in Ohio and other Midwest states.
The next article (Selling A Funeral Home Business) will address selling a funeral home and the steps a funeral director should take to prepare for the sale, to carry out the sale, and to plan for life after the sale. The following article will look at opportunities for funeral homes to pursue their own acquisition programs, including purchases, mergers and joint ventures.
Part II: Selling A Funeral Home Business
First part of a three part article. Reprinted from the Summer 1999 Ohio Funeral Directors Association newsletter. T. Scott Gilligan is General Counsel for the National Funeral Directors Association.
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