Funeral businesses are highly regulated and have a great deal of legal exposure. At the same time, funeral businesses can be profitable, particularly in markets with little competition.
Here are 10 considerations when you start a funeral business:
Analyze the Market
Before you start a funeral business, you need to assess the state of the market. Many cities have long-standing, family run funeral businesses that everyone in town uses. In these markets, it can be difficult to start a funeral business unless the market is under served, or your funeral business can fit into a unique market niche by offering something that your competition cannot.
The data you need to analyze your market might be obtained from public resources, like your department of vital statistics that records local deaths. You might also need to speak to local hospitals, nursing homes, and hospice facilities to get a feel for how well the market is served by the current funeral businesses.
Based on this information, you can identify market opportunities. For example, you might find that your local market is well-served, but that you can start a funeral business in a neighboring town to fill a market niche.
Learn About the Business
If you plan to start a funeral business as a career, you should make sure you understand the job. Funeral directors are also called morticians or undertakers.
In addition to offering funeral services, funeral directors:
- Pre-need planning: Most funeral businesses consult with people who want to make their own arrangements before their deaths. This can take the stress and pressure off the surviving family when the death occurs.
- Planning: Funeral directors meet with the family after the death occurs to make funeral and burial arrangements.
- Benefits assistance: Funeral businesses are usually trained in government plans that assist families after a death, such as death benefits offered by the Social Security Administration and burial benefits offered by the Department of Veterans Affairs. Funeral directors can also assist families in preparing paperwork to document the death for insurance companies, banks, and stock brokers.
- Transport and prepare the body: Funeral directors transport, store, and prepare the body in accordance with the deceased person’s and family’s wishes and religious traditions.
- Host the funeral and burial: The funeral business provides space, or makes arrangements for space, to hold funeral services. The funeral business also works with the cemetery to open the grave, conduct the burial, and close the grave.
If you plan to start a funeral business and remain a hands-off owner, you will still need to hire a funeral director to manage and direct the funerals.
It can cost a lot of money to start a funeral business. Generally speaking, you will have three options to start a funeral business:
- New business: You can start a new business. The costs associated with this option will be high, from building or leasing property to searching for, and hiring, qualified employees.
- Going concern: You can acquire an existing funeral business. The benefit of this option is that you get a head start on marketing since the business already has a name and reputation in the business. Moreover, you know that the facilities will be adequate for your needs. The downside is that the owners may charge a premium because of these benefits.
- Franchise: You can obtain a franchise from a national funeral business chain. This option has the benefit of national advertising and uniform training that will help get the business started. However, you will be locked into the franchisor’s business plan and cannot deviate without obtaining special permission.
You will likely need a blend of lenders and investors to start a funeral business regardless of how you start it. Both lenders and investors will likely require a business plan before offering funding. A business plan that shows you have a well thought through method of doing business can help persuade investors and banks to provide financial support. You might want to talk to a bankruptcy lawyer to discuss the pitfalls you might encounter that could damage your business plan.
The benefit of business loans is that if the business has a solid business plan, a bank will often offer a zero down loan. However, under these loans, since you are not required to make a down payment, you may be required to put up your business equipment and receivables as collateral in the event of a default.
The benefit of investors is that you do not need to repay the investors unless the business grows and the investment agreement calls for a dividend or other profit distribution. The downside is that investors are technically co-owners and have input into how the business is run.
Before you can start a funeral business, you will need to obtain a myriad of licenses. These licenses include:
- Business license: Most cities and counties require all businesses to obtain a business license. This ensures the city or county can properly tax the business and that the business complies with local ordinances, like health and fire codes.
- Funeral director license: Every state except Colorado requires funeral directors to be licensed. This typically requires the applicant to pass the funeral director’s board examination and pass a background check. Some states also require that the applicant have a degree in mortuary science or related field.
- Additional employee licenses: In addition to funeral directors, many states require licenses for crematorium operators, pre-need sales people, and transporters as well.
Find a Location
Once you have your market research and funding, you can start looking for a place to locate your business. If you have acquired a going concern, you will likely use the existing facilities until you outgrow them or they become outdated. However, if you are starting fresh, you will need to find a location to start your funeral business.
The two problems that you are likely to encounter when finding a location will be:
- Zoning: Cities and counties often restrict where certain businesses can be located. While the zoning might not restrict funeral homes, it might restrict where businesses offering embalming, burial, and cremation can be located. If your business provides any of these services, you might need to hire real estate lawyers to research where zoning ordinances permit your business to be located.
- Specialized needs: A funeral home will have very specific needs, like a place to prepare the remains, large funeral halls, and possibly a crematorium. As a result, you will probably not be able to just rent any space available. Instead, you will likely either need to build a facility, buy a facility that you can renovate, or rent a facility that was formerly a funeral home.
Once you have identified your location, you can begin researching any other legal requirements that you must satisfy to start a funeral business in that location. Specifically, in addition to individual and business licenses, you might also need land use permits to start a funeral business. For example:
- Cemetery: Most cities and counties have local ordinances that restrict the location of cemeteries. If your funeral business will have a cemetery, you will likely need to apply for a land use permit for the cemetery site.
- Crematorium: Many funeral businesses offer onsite cremation arrangements rather than transporting bodies to an offsite crematorium. If you plan to have an on-site crematorium, you should research the regulations governing where the crematorium can be located as well as the approvals and licenses you need. For example, state law might require a license from the air quality department and city law might also require zoning approvals.
- Parking lot: To host funeral services, you will need ample parking. Before you will be allowed to build a parking lot, your local city or county will likely require you to submit a site plan and application for a building permit.
Develop Plans to Sell
Many funeral businesses develop package plans for sale to customers. The benefits of package plans include:
- Vendor relationships: If you can cut down the number of vendors you work with, you can often develop a close relationship that may earn you preferential pricing and access to the newest products.
- Economies of scale: Buying in bulk may reduce your costs. This will allow you to pass on discounts to your customers to under-sell your competitors or improve your profit margins.
While there are no federal regulations on pre-need plans, you should consult a lawyer when drawing up your plan agreements. For pre-need plans that include pre-payment for services or products, you will be required to hold the money in trust until the purchaser dies. If you violate that trust, the deceased person’s estate planning attorney may seek to recover the pre-payment along with any damages the estate incurred for the trust violation.
Moreover, a blatant violation of the customer’s trust might be a criminal act. For example, a prosecutor might allege that the sale of pre-need plans without retaining the money to provide the purchased goods or services at the time of death amounts to fraud.
According to surveys, as much as 85% of customers come from referrals. When you start a funeral business, the quickest way to build up a clientele is to develop relationships with professionals who would be in a position to refer business. For example, lawyers, doctors, social workers, and hospital administrators are in a position to refer customers to a funeral home.
Some ways to develop these relationships include:
- Host an open house at your new funeral business: Few people will turn down free food and drinks. Inviting people into your funeral home to introduce yourself will make you memorable to the people who can help your business.
- Develop a referral network: Seek out people who can create a mutually beneficial relationship. For example, a referral relationship with an estate planning lawyer can benefit both businesses as you refer clients to the lawyer and the lawyer refers customers back to you.
- Offer friends and family discounts: Turn your referral sources into salespeople by empowering them to offer a discount. This will provide a powerful hook to covert referrals into paying customers.
Develop a Marketing Plan
The term “marketing plan” can be a bit misleading. Your marketing plan should be a dynamic process that you can adjust as you determine what work and what does not. For example, if you try television advertising, you will need a way to measure how effective the TV so you can calculate your return on investment (ROI).
Without going into too much detail, ROI tells you how much business your marketing investments produce. An expensive marketing campaign is worthwhile if it produces a great deal of business. Conversely, a cheap marketing campaign is useless if it produces no business. By balancing costs against benefits, you can determine whether a marketing campaign should be continued or terminated.
When developing a marketing plan, you should put yourself into your customers’ shoes. That is, rather than planning marketing campaigns around conventional thinking, plan marketing campaigns around how your customers would encounter the need for your services.
Thus, you might find that you get much better bang for your marketing dollars by distributing brochures at hospice agencies than advertising on TV. Similarly, you might find that you get much better ROI from online marketing than print ads. Potential customers might not need your services when they encounter a print ad but will typically search online for your services when the need arises.
You must also be prepared to keep your marketing campaigns fresh. By targeting different aspects of your business for promotion, you can catch potential customers’ attention without wearing them out seeing the same ads over and over.
You should be aware of the risks before you start a funeral business. Among the risks are:
- Human error: Human error can include mixing up remains, improperly preparing remains, or presenting remains to the family in an upsetting condition. Human error, however innocent, can be the basis of a negligence lawsuit. As such, you should consider general business liability insurance to cover losses and damages that arise from such errors.
- Automobile accidents: Accidents can occur when you transport remains. Your insurer and general business insurance agency might recommend additional coverage for transporting passengers to or from burials.
- Property damage: If your business is responsible for any property damage, such as an object that falls on a car in your parking lot, property insurance usually covers the damage.
- Personal injury: Similarly, if someone is injured on your property, such as a slip and fall accident in your funeral home, property insurance and general business liability insurance will usually cover the injured person’s medical bills and damages.
- Employee injuries: Any employee inured on the job is covered by workers’ compensation insurance. Workers’ compensation insurance covers the injured employee’s medical bills and usually pays partial wage replacement benefits.
There is no recipe to start a funeral business. However, there are some general considerations that most funeral home owners should consider before getting started. You should decide if you will be actively involved in the business or will hire staff to run the funeral home. You need to raise capital by developing a business plan and seeking investment or loans.
As you start a funeral business, you will need to secure licenses for your employees and develop a marketing plan. You should consider developing connections within the community to build a referral network. Finally, you should educate yourself on the business risks of running a funeral business and the steps you can take to mitigate those risks.