How to Start a Funeral Home

Those who have passed away might get funeral services from a company known as a funeral home. The burial, cremation, and memorial services that are provided by funeral homes are for those whose loved ones have passed on. These companies fill an essential function in delivering much-required peace of mind to the bereaved family of the dead.

Funeral homes can be a vital business within a community as well as a long-term source of income for their owners. In this article, we’ll discuss the logistics of starting a funeral home and cover essential questions regarding startup costs, revenues, etc.

Create a Business Plan

When it comes to achieving success as an entrepreneur, having a detailed strategy is necessary. It will assist you in mapping out the particulars of your organization and revealing the unknowns that you will have to address either in the present or in the future.

The following are some significant considerations to take into account when starting a funeral home business:

  • How much would it cost to get started (startup costs), as well as the continuing expenses?
  • Who exactly is the customer you want to reach?
  • How much can you reasonably charge your customers?
  • What are you going to call your company?
  • How will you spread the word about your company?
  • What are your goals for one year from opening, 5 years from opening, and 10 years from opening?
  • What is the roadmap for achieving these goals? What steps do you plan to take?

What are the Initial and Ongoing Expenses Associated with Starting a Funeral Home?

In order to properly embalm and cremate bodies, a funeral home needs certain types of equipment. It is essential to have a cremation table, as well as a cremation system, hydraulic lifts, refrigerated storage, a computer, a printer, and a file system.

Caskets are required to be bought in addition to clothes and other goods that provide convenience. The company needs manual workers, as well as liability insurance, an operational area, and a parking lot. Workers have to be specially trained to properly prepare bodies for burial (or as the owner, you may be the one performing this process, in which case you will have to be properly trained). The National Funeral Directors Association (NFDA) is a go-to resource for training and learning about what you will need to know in order to operate your funeral home.

After you have found a location and a building, you will also need to outfit the building to host wakes and other aspects of the funeral service. There will be a need for tables and sofas in the viewing area. In addition to that, you will need a hearse, which is a vehicle to transport caskets to the burial site.

Due to all of these factors, the initial startup costs for a funeral home are quite high. There is a lot that goes into the funeral process. As a result, starting a funeral home is not ideal for those with limited access to funds or who are looking to start a business with a relatively small upfront cost. Indeed, smaller funeral home operations generally cost around $150,000 to $250,000 to get started, while larger operations can cost over $400,000 to $1,000,000. Really, it all depends on what sort of operation you are trying to build, how nice the building and interior will be, how many people you expect to serve a year, etc. All of these are things you will need to make a note of in your initial business plan.

What Kinds of Continuing Costs does a Funeral Home have to Deal With?

A funeral home is required to pay for its operation space, employees, utilities, marketing, caskets, and equipment for embalming and cremation in order to remain in business. There is a finite lifespan for embalming devices, meaning you will likely have to invest in these more than once over the lifespan of your business. Additionally, if you do not own the building that you are operating in, you will have to pay monthly rent.

It typically costs roughly $3,000 or more for only one embalming machine. When you include in the price of hydraulic lifts, refrigerated storage, an embalming table, embalming fluid, caskets, cosmetics, clothes, and urns, you should plan on spending at least $5,000 to $10,000 every year on equipment. Many of these costs can be passed on to customers. For example, if you are cremating a body for a client, you will be able to charge them for the urn (likely with a premium over the wholesale price) they decide to use.

Think about getting in touch with a real estate professional in order to locate a facility that is suitable for operating a funeral home at a price that is reasonable to you. The monthly rent might be anything from $700 to several thousand dollars, depending on the size of the building and its location. Obviously, the more desirable the location, the more you will have to pay in rent for the space.

You should also plan to put aside somewhere around $1,000 or more on a monthly basis for advertising and marketing providers (the costs of advertising will depend in part on where you are located). Fortunately, funeral homes operate in large part on word of mouth, with past clients recommending your services to future clients or using them again. This means that it is critical you provide excellent and professional service each and every time. Remember, owning a funeral home is a unique business in that the service you are providing is exponentially more personal and important to your clients than the services they receive from other businesses – they will not forget their experience.

You can also expect to incur the cost of utilities, such as high-speed internet, which will range from $100 to $200 per month.

Compensation in the range of $35,000 to $65,000 per year is typical for a manager of the business side of a funeral home. Annual compensation in the range of $35,000 to $55,000 is required for a marketing expert. The average yearly income for an accountant is somewhere in the region of $35,000 to $75,000. The hourly wage for a receptionist working at a funeral home is between $10 and $15. The additional support personnel will probably make between $10 and $15 an hour. You will need to budget for these employees accordingly.

Who Exactly Makes Up the Target Market?

Funeral homes benefit from the fact that their target market is very clear and easy to identify. The target market consists of individuals and families that are located in your business’s community who have recently lost a family member or other loved one and who are looking for a professional funeral service. This means there is very little ambiguity as to whom you are trying to market your services to or what sort of client will be interested in them.

How Does One Go about Making a Profit in the Funeral Business?

Caskets, cremation services, funeral services, flowers, urns, and other things and services associated with funerals may all be sold by a funeral business in order to generate revenue and profit. There are many different add-ons that you can offer to increase your profits with each service and drive up your margins. Add-ons include things like prayer cards, premium caskets and urns, quality flower options, and more.

There isn’t a lot of room for creativity in the funeral service business – so you don’t really need to think outside the box in this instance. Instead, you should take a look at what other funeral homes are offering to their clients and determine if they are the right fit for your customers.

Obituary notices, graveside funerals, and online memorial programs all have the potential to incur additional fees. It is also feasible to collect payment in exchange for giving aid in the acquisition of documents such as burial permits and death certificates.

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How Much Can You Reasonably Charge Your Customers?

A funeral typically costs between $6,000 and $7,000 in today’s dollars. This price takes into account the cost of embalming, cosmetics, viewings, transportation expenditures, and professional fees. If, on the other hand, your funeral home company provides other services, you may be able to charge more for those services. And as already noted, you can charge additional fees for add-ons, such as managing the church service, sending out notifications, etc.

The amount you can charge customers will also depend on where your funeral home is located and the local price level. For instance, funeral services in and around New York City will cost considerably more than funeral services in rural Illinois.

Revenue Potential of a Funeral Home

There is the potential for a funeral home company to generate hundreds of thousands of dollars per year if it is situated in the correct region. A lot of this will depend on the demographics of the area. Areas that tend to have more elderly people will, sadly, generate more potential clients. Getting to a stage where you have earned back your initial investment will likely take several years as a funeral homeowner. However, you can generate great cash flow and a solid income in the interim if you operate your business effectively.

Establish Yourself as a Legitimate Business.

Sole proprietorship, partnerships, limited liability companies (LLCs), and corporations are the four most typical forms of organizational structures for businesses.

When you establish a formal business entity, such as a limited liability company (LLC) or corporation, you prevent yourself from being held personally accountable in the event that your funeral home is sued.

You have the option of forming a limited liability company (LLC) on your own and paying just the bare minimum in fees required by the state, or you may employ an LLC filing service to help you out. The latter will cost a little extra but is oftentimes worth the added cost.

Register for Taxes

Before beginning operations, business owners must first get their company registered to pay a number of different state and federal taxes. You will need to submit an application for an EIN in order to become tax registered. It’s extremely straightforward, and there’s no cost involved.

You may be able to choose from a variety of taxation strategies for your company, but this is contingent on the kind of business structure that you go with. Some limited liability companies, for instance, may do better if they were taxed as S corporations (S Corp).

Open a Bank Account for Your Company

It is imperative that separate corporate banking and credit accounts be used in order to preserve personal assets. In the event that your company is sued, having personal and business accounts in the same place puts your personal assets (such as your house, your vehicle, and other valuables) in danger. This is referred to as “piercing your corporate veil” in the legislation governing businesses.

Learning how to develop business credit may also help you get credit cards and other forms of financing in the name of your company (rather than in your own name), as well as cheaper interest rates, greater credit limits, and other benefits. This will also help limit your personality liability for debts incurred by your business down the road.

In addition to being a prerequisite for submitting an application for a commercial loan, creating a business bank account for a company is essential. In this way, your personal assets and your company’s assets are kept completely separate, which is essential for the security of your personal assets. Moreover, it facilitates the process of accounting and tax filing.

Establish a System for Commercial Accounting

It is essential to keep track of all of your different sources of revenue and costs if you want to understand how well your company is doing financially. Maintaining accounts that are both precise and thorough can make completing your yearly tax return much easier.

Acquire All Necessary Permits and Licenses

If you fail to get the proper permissions and business licenses for your company, you might face substantial penalties or possibly the closure of your company. Typically, funeral homes themselves do not require a specific license. However, embalmers and funeral home directors do usually need a special license in order to legally perform their job.

Compliance with State and Local Requirements for Business Licensing

It is possible that in order to run a funeral home in a state, you will need to get certain permits and licenses. Visit the SBA’s reference to state licenses and permits to find out more information on the licensing requirements in your state. You will need to research based on the state you are planning to operate in. Make sure you are up to date on all these requirements before beginning to operate.

Terms of Service Agreement

Before beginning a new venture, firms that provide funeral services have to put some thought toward having customers sign contracts outlining the terms of such services.

By laying down the terms and conditions of payment, the service level expectations, and the ownership of intellectual property, this agreement should make the client’s expectations clear while also reducing the likelihood of legal issues.

It is often a good idea to have a legal professional look at your business’s contracts before using them. That way, there are no issues with them, and you can be confident that you are covered and protected properly by them.

Occupancy Permit or Certificate

A funeral home is often operated out of a storefront location. Companies that conduct their operations from a physical site are often required to get a Certificate of Occupancy (CO). Building rules, zoning laws, and other government restrictions must all be complied with before a CO may issue a certificate of occupancy.

If you are looking to lease a space, you should know that the CO is often the responsibility of the landlord. Before signing a lease, you should make sure that your landlord already has or can easily get a valid CO that is appropriate to a funeral home.

A new Certificate of Occupancy (CO) will often need to be granted after a significant remodel. It is advised that if your place of business will be refurbished prior to opening, you add wording in your lease agreement saying that lease payments will not begin until a valid CO is given.

You will be responsible for getting a valid CO from a local government body if you propose to acquire or construct a site, and this CO is required. Review all of the building regulations and zoning laws that are applicable to the location of your company to guarantee that your funeral home will be in compliance and will be able to receive a CO.

Get Business Insurance

Your company requires insurance in order to operate legitimately and safely, just as it needs licenses and permits. In the event that your business suffers from a loss that is covered by insurance, your firm will be financially protected.

There are many various kinds of insurance plans available, each one tailored to a particular industry sector and the dangers faced by that sector. Start with general liability insurance if you’re not sure what kinds of dangers might befall your company in the future.

Because this is the kind of coverage that is required by the vast majority of small companies, beginning your insurance policy with this component is an excellent choice for your company.

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Talking to a qualified business insurance broker can help you find what policies make sense for your business at the right price. That way, you can ensure that there are no gaps in your coverage. Better to spend a little extra upfront than find out down the road you aren’t covered properly when you need to tap into your insurance policies.

Define Your Brand

What your organization stands for and how the general public views your enterprise are both components that make up your brand. Your company may differentiate itself from its rivals by developing a powerful brand.

Flyers, pamphlets, commercials on local radio and television, and posts on social media may all be used to market to people who live in close proximity to your company.

Ensure that your business is publicized in the neighborhood newspaper. The senior population and their family members are those you want to attract as customers. Newspapers printed on paper are the medium of choice for senior folks, as opposed to internet news portals.

Put your focus on improving your online material so that it is simple for locals to locate. This practice is known as Search Engine Optimization (SEO). Make use of keywords, particularly those that are important to the people who live in your community, such as the name of the town or city, the names of local streets, and even the names of local neighborhoods.

Even while older adults may not make frequent use of the internet, it’s likely that their children and grandkids do. If you manage to leave a favorable impression on a senior’s family, there is a strong possibility that they may end up using your services. Remember, funeral services are planned by the family members of the deceased – so the deceased may or may not have had a role in advance in selecting the sort of service they would like. That is why it makes sense to advertise to a wide age range of potential customers.

Set Up an Accounting System

Establishing a reliable accounting system for your funeral home is essential if you want to see continued success in running your company.

Keeping on top of one’s tax obligations not only keeps a company out of legal hot water with the government but also enables the figures to be utilized to analyze and monitor trends as well as cash flow inside the company, so increasing the likelihood of profits being realized.

Financing Your Funeral Home

As part of the process of starting any business, you will need to assess your financing options. Starting a funeral home will likely require you to take advantage of small business loans due to the capital-intensive nature of the business. There are a number of different financing options you can take advantage of when starting a new business:

SBA Loans

The Small Business Administration (SBA) offers SBA loans to small businesses that are backed by the federal government. This allows lenders to offer loans to borrowers that they would traditionally deem too risky. It also allows borrowers to get market-leading interest rates. SBA borrowers also benefit from reasonable terms and extended repayment periods. The only real downside of SBA loans is that they come with a lengthy application process, and there are some restrictions on eligibility that can come into play depending on what sort of business the borrower is attempting to utilize the loan for.

The SBA offers several different loans that small businesses can take advantage of. The most popular type of loan currently offered by the SBA is their signature SBA 7(a) loan. SBA 7(a) loans are available for small businesses in amounts of up to $5 million and are offered with both fixed and variable interest rates. That said, as a startup business, odds are you will not qualify for the maximum loan amount and will instead have to settle for a smaller amount to start.

Term Loans

Terms loans offer businesses funding in the form of a large lump sum of cash. This sum then has to be repaid at a fixed interest rate for a set period of time. Small businesses can get term loans from both traditional brick-and-mortar lenders (i.e. traditional banks) and alternative lenders, like Biz2Credit.

Term loans offered by traditional brick-and-mortar banks are typically difficult to obtain on account of the qualifications they require borrowers to meet. They also require a lengthy application process which enables the bank to properly assess the risk associated with making a loan to you and your business. However, they also typically offer the lowest available interest rates.

Term loans that are offered by alternative lenders, on the other hand, are significantly easier to obtain. The application process is usually quick and straightforward, and you can get the funding in as little as 24 hours or a few days, depending on the lender. However, because the qualification requirements are more relaxed, term loans from alternative lenders have higher interest rates. As such, there is a trade-off to be considered depending on what you think you will qualify for and what you think is right for you and your business.

Lines of Credit

A line of credit enables businesses to borrow money up to an agreed-upon limit whenever they need it. Businesses then only pay interest on the amount they are actually borrowing, and they can borrow more money whenever they have additional space in their borrowing limit or whenever they repay the funds they have borrowed.

This makes lines of credit a valuable resource for small businesses to have access to since they don’t go away when you are not borrowing funds. This makes them ideal for borrowing money to shore up cash flow and make short-term purchases. However, due to the fact that lines of credit typically have variable interest rates, they are not always ideal for long-term financing. Instead, they can be used as a form of interim or bridge financing while your business considers other options for the long term.

Equipment Financing

Equipment financing is another loan option that small businesses can use to purchase business-related equipment. These loans can be a great option because they do not require collateral (the equipment being purchased with the loan serves as the collateral) and often have lower interest rates because the lenders know there is an asset they can repossess if the borrower defaults. Funeral homes require a number of business-related equipment, making equipment financing a potentially strong option for them.

Take Away

As is the case with any new business endeavor, it is essential to do exhaustive research on both your region and the services you plan to offer in order to ensure you have the proper plan and approach for running your business. Prepare a business strategy as a funeral homeowner, seek out other experts who currently run successful funeral home enterprises, and seek the advice of specialists who specialize in company creation, such as attorneys and accountants, among other professions. With the proper research and plan, you can dramatically increase your chances of success with your business. The more concretely you establish your business ideas, the better the chances are that your business will be successful in the long run.

Biz2Credit

Biz2Credit is an industry-leading supporter of small businesses across the nation. As part of our effort to support the initiatives of small business owners, we continue to post new articles on our Biz2Credit Blog each day. So, please continue to check back here for all the latest news, information, and trends impacting the small business world.

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