“I have a very highly developed sense of denial”- Gwyneth Paltrow
Nearly every study done on business succession readiness indicates that 70% or more of all small and medium business owners have no written exit plan in place.
Funeral business owners are no exception even though they know, perhaps better than anyone else, the high cost of failure to plan.
As a funeral director, you are confronted daily with painful and stressful conditions that occur when your clients don’t make plans and are forced to make important decisions under duress. You probably also realize that most of this failure to plan can be traced to human beings’ intimate relationship with denial.
Denial is a powerful, double-edged sword. On the one hand, it helps us cope with devastating occurrences that come our way. On the other hand, it often leads us to eschew preparation and planning in favor of crossing our fingers and hoping for the best.
Funeral directors succumb to denial just like anyone else; putting off much-needed business succession planning in lieu of a “wait and see” approach.
While most funeral business owners express an intense desire to see the businesses into which they have poured so much of themselves continue after they have retired, few have a plan in place to make that happen.
Without such pre-retirement planning, owners are opening themselves up to situations which can severely compromise their ability to sell their businesses for enough money to retire.
Many of them believe that when the time comes to walk away from the business, they will be able to sell the business quickly to a competitor for a nice price.
Why Selling to A Competitor Isn’t Always A Good Idea
Over the past few years, large corporations have been buying up individually owned funeral homes in record numbers. Many directors have balked at this trend and are not interested in becoming a part of a “McBurial” chain.
It’s natural, then, that when the time comes for those directors to retire; they look for other independent mortuary business owners to whom they can sell their profitable business.
However, before selling your business to a competitor, be sure you understand some of the potential adverse consequences of such a sale.
1. The would-be buyer’s interest may not be genuine.
In many businesses such as funeral homes, it is not uncommon for another business owner to feign interest in purchasing a competitor simply in order to gain inside information. By posing as a prospective buyer, competitors may hope to get access to your trade secrets, marketing techniques, or customer lists.
You must not give way any sensitive data until you have done due diligence and are satisfied that the prospect is genuine. One way to do this might be to ask for proof that they have the funds available to make such a purchase. ALWAYS ask potential buyers to sign a non-disclosure agreement that has been reviewed by your attorney. This can serve as a deterrent to “fakers” and protect your trade secrets during the selling process. You might also want to ask others you trust in your business about the reputation and integrity of the competitor who wants to purchase your business.
2. Competitors sometimes have a “low-ball” game plan.
Selling to a competitor means that you are selling to someone who ostensibly has as good an insight into the funeral industry as do you. He or she has knowledge specific to the business that allows them to justify offering you less that the most desirable price.
For instance, competitors understand all the stresses and headaches unique to the funeral home owners; they understand the “buttons” that can cause an owner to want to sell. Because they can read you and your situation, they are not as likely to want to give you your price as an equity fund or individual buyer. Additionally, because they can perform the same services as you do, they often try and carve out the “good will” part of the business valuation.
3. You are negotiating with a single buyer
When funeral services business owners opt to find a competitor to whom they can sell they have greatly diminished their chances for getting their business sold more quickly for a better price. Much as in a real estate deal, the interest of multiple qualified buyers can result in a bidding war which may drive the price up. Having only one potential buyer puts you at a disadvantage.
4. If the deal falls apart, your reputation could suffer
It’s a sad statistic, but a true one, that there is only about a 3% success for selling a business in the United States. Even when there are qualified, thoroughly-vetted buying prospects involved, deals can, and do, fall apart.
When this happens, expect the business gossips to pick up on the fact that you tried to sell and failed. Word will get around quickly and can cause families who have trusted your establishment to provide services for years to become concerned that you might be in financial trouble. Other competitors might be prone to use this against you to persuade clients to use their services instead of yours.
5. Third-party intermediaries could ruin the outcome
Your competitor, especially if this is the first time he or she has ever acquired another business, might hire a third party intermediary, such as a business broker, to provide guidance during the buying phase.
Unfortunately, unlike real estate brokers, business brokers have a less-than-stellar reputation when it comes to making selling or buying a business easier. In fact, a close examination of failed deals reveals that many times the failure is due to having too many third parties slowing down the process.
Business brokers, in general, contribute nothing but headaches when someone is trying to buy or sell a business. They can make the deal, if it happens at all, take two or three times longer while causing both buyer and seller a lot more stress.
These are just some of the important things to consider if you want to sell your business to the competition.
If you do decide upon this course of action, then be sure that you have a business exit plan in place, that you have discussed all your strategies and options with your attorney and CPA, and that you have put together a list of questions for the potential buyer.
Treat this as you would a job interview, with a view toward getting the best possible candidate.
Some questions you might want to ask the potential buyer include:
- 1. Can you really afford to purchase my business?
- 2. What is the structure of your business, i.e.; are you a sole proprietorship, corporation, owned by family, an ESOP or private equity?
- 3. Can you provide a brief history of your company and explain what your goals for the future are?
- 4. What exactly about my business makes you interested in purchasing it?
- 5. What are your plans for my employees and management?
- 6. Have you ever bought or sold businesses before?
- 7. What are you doing to grow your own business?
- 8. Why do you think you would be the perfect owner for my business?
Selling your successful funeral business to a competitor, while it might seem easier and less hassle than other methods is full of risks.
You must do everything possible to alleviate these risks that could derail your retirement plans and leave you with less money than you need in order to live a comfortable life.
You need to be absolutely sure that this move is the right one, for you and your business, and exercise extreme caution and diligence during every phase of the sale.
If you have doubts, it pays to seek out the expert advice of another business owner who has been in your shoes and can give you advice and wise counsel.
Heath Frantzen and Delta Business Services serve funeral services providers, contractors, and other small business owners. Delta is committed to helping these business owners create the best possible outcomes when the time comes to retire and sell the business. Find more free resources at http://deltabusinessservices.com or email Heath at [email protected]