The funeral industry is a fascinating mix of new world technology and old world custom. As a result, families are offered a variety of ways to handle a loved one’s remains amid the trappings of perfectly appointed venues that focus on comfort. Your interest in investing in a funeral home makes good financial sense — the industry is virtually recession-proof — but competition is keen, so check both the financials and the reputation of the company before you write a check.
Examine the financial records of the funeral home to evaluate cash flow, investor relations and credit standing. Look into administrative costs that cover everything from board of directors compensation to employee benefits. Visit the funeral home’s website. Consult the National Funeral Directors Association (see Resource) or a comparable state organization to gain an outside perspective on the business.
Assess the current state of the funeral industry to gain confidence that you’re heading in the right investment direction. According to MarketWatch, investing in funeral-based businesses, despite the recession-proof aspect, isn’t always a sure thing. For example, when Service Corporation International, the largest provider of death-care services in North America, spent more time soliciting future business than making contemporary sales, it lost half of its value during the 2008 stock market meltdown.
Make funeral spending trends an important part of your research effort. Financial concerns have resulted in more people opting for cremation over traditional burial, urns over pricey memorial markers and a diminution of perpetual care programs to maintain grave sites, all of which represent substantial savings to consumers but less revenue for funeral home owners and investors. Take this trend into consideration when you look at the facility's revenues over time.
Look into day-to-day family influence on business decisions if you're considering a family owned and operated home. Even the best-run funeral business can be problematic as a result of personal conflicts or infighting. Further, a family-run funeral business is more likely to consider buyout or consolidation offers than one that's operated by a corporation. If it appears you'll have no say over the direction the business takes, even as an investor, this may not be the wisest investment path.
Find positive reasons to invest in the funeral home in addition to looking for any drawbacks. For example, a 1997 "Inc." magazine study concluded that the failure rate for funeral homes is a mere 1 percent — a sign that your investment stands a good chance of multiplying should you invest. And since funeral homes tend to have modest advertising and marketing expenses, one of the biggest line items on most companies’ financial statements is virtually eliminated from the equation.
List the pros and cons of investing in the funeral home once you’ve finished your research. If the facility shows savvy management and has a great reputation, adequate insurance coverage, a management succession plan if family owned, community presence and a moderately leveraged financial history, you stand a good chance of making a sound financial move if you invest.
As with any financial decision, invest in a funeral home only if you won't need the principal or dividends in the near future.
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