Funeral Finance 101: The Basics of a Business Purchase Agreement

By Andrew Kennedy, senior loan officer, Live Oak Bank

During the sale of a funeral home, the seller and buyer must navigate a specific legal process. After diligently conducting due diligence and signing a letter of intent, a purchase agreement for the funeral home marks the official start of the legally binding transaction. This agreement obligates the buyer to acquire the funeral home according to the terms and price meticulously outlined within the document. These agreements can be incredibly detailed and packed with legal jargon, making it imperative that an attorney experienced in funeral home transactions crafts the purchase agreement.

Funeral home purchase agreements are complex but typically feature several standard sections tailored to the unique aspects of the deathcare industry. It is essential to have a sound understanding of each section of the agreement and to have an attorney handle the intricate terms. Both parties should fully grasp what they are signing. Leverage your professional team, including your attorney, a specialized accountant, and potentially a funeral home broker, to help you translate the legal and technical language.

Parties

This section, found at the beginning of the funeral home purchase agreement, precisely lists the legal names of the funeral home seller and buyer and their comprehensive contact information. This might include the corporate entity name for the funeral home business itself, if applicable.

Description of Funeral Home Business

Every aspect of the funeral home business is detailed here. The meticulous details include the precise physical location(s) of the funeral home(s), the specific funeral and cremation services offered, a comprehensive financial summary, and an overview of the target clientele. This section also includes a crucial statement verifying the seller’s clear legal right to authorize the sale of the funeral home, as well as additional detailed legal representations and warranties concerning the funeral home’s operational status, licenses, and compliance.

Sale

It’s critical to precisely define the type of sale along with the specific assets included and excluded from the sale of the funeral home. Potential assets typically included in a funeral home acquisition include embalming equipment, chapel fixtures, coaches and ancillary vehicle fleets, merchandise inventory, client lists and historical case files, and intellectual property such as existing funeral home branding and website domains. Potential assets excluded might include personal cash accounts, certain private vehicles, and often the real estate itself if it’s being leased rather than sold with the business. This section of the funeral home purchase agreement will also detail the property transfer, with the seller’s “Agreement to Sell” the funeral home business and the buyer’s “Agreement to Buy.”

Covenants

This section of the purchase agreement outlines the specific provisions that the funeral home seller is responsible for covering before and after the closing. This includes existing tax liabilities, outstanding loan obligations related to the funeral home, third-party fees, transferring employee benefit plans specific to funeral home staff, and continuing employee salaries. The covenants section is also where critical buyer and seller agreements are listed, including protective clauses vital to a funeral home sale, such as non-compete agreements to prevent the seller from opening a competing funeral home in the service area, confidentiality agreements regarding client data and business practices, intellectual property assignments, non-solicitation agreements, and indemnification agreements covering potential liabilities related to the funeral home’s past operations.

Transition

After the transaction closes, the buyer and seller of the funeral home need a crystal-clear understanding of responsibilities. This includes the seller’s role in the funeral home business after the sale, if any. The buyers and sellers will also establish who is responsible for training new or existing funeral home employees on systems and processes and notifying pre-need clients, active families, clergy, and other community partners that the sale has transpired. Specific provisions for transferring funeral licenses and permits are crucial here.

Participation or Absence of Brokers

If brokers were utilized by the buyer or seller in the transaction, this section of the funeral home purchase agreement covers those facilitators’ legal names and contact information. It definitively states which party is responsible for paying the broker’s commission.

Closing

This section of the funeral home purchase agreement covers the logistics, date, and time of the closing for the funeral home sale. It also addresses the official transfer of licenses and permits. It outlines what monies will be paid upon closing, including any escrow arrangements or holdbacks for specific funeral home-related contingencies.

Appendices

Any additional documents vital to the sale of a funeral home can be attached to this section of the funeral home purchase agreement. Appendices might include: the letter of intent, detailed financial statements specific to the funeral home, professional valuations of the funeral home business, buyer/seller resumes emphasizing experience in the deathcare profession, marketing plans for the new ownership, and existing vendor agreements crucial to funeral home operations.

While this summary of the fundamental sections of a purchase agreement covers the basics, it is not an extensive list of the intricate process. Both buyers and sellers of a funeral home should be acutely aware of the full scope and the importance of having a robust professional team throughout the transaction. An attorney specializing in business acquisitions, a specialized accountant familiar with funeral home financials, and a reputable funeral home broker (if applicable) will be key players in not only understanding the funeral home purchase agreement but also in navigating any necessary negotiations specific to the unique nature of a funeral home business. To learn more and connect with a member of our team visit, Liveoak.bank/funeral.