Last week the news broke that SCI has acquired the massive, 6th generation Schoedinger funeral home business in Columbus, Ohio. Like many people, I was shocked by the news, but I’m sure the Schoedinger family had their reasons.
For SCI, and the other big consolidators, acquiring an existing funeral home business makes sense. They have plenty of cash to fund an acquisition that will quickly add to their earnings per share.
However, what makes sense for a large corporation does not always make sense for a typical family-owned business.
Many of my clients are interested in expanding their funeral home businesses. They’ve grown their primary business and are now looking at nearby communities as potential expansion targets.
In order to expand into a new community, they are exploring two options.
- Acquire an existing funeral home or
- Open a new funeral home
The prevailing wisdom in the funeral industry is to take option #1 and acquire an existing funeral home. But in most cases, I believe you would be better off pursuing option #2 and opening a new funeral home.
Below I will outline four reasons why acquiring an existing funeral home may not make sense, and then four reasons why opening a new funeral home might be a better decision.
Four reasons why acquiring doesn’t make sense
1. The price is often inflated
Business owners typically have an emotional attachment to their business. It makes sense because they’ve spent years building up the business and have built up both financial and sweat equity.
However, the emotional attachment often results in an inflated price mainly because they value the business based on how it used to be, not how it is today. As cremation rates rise throughout the country, is the funeral home worth as much today as it was ten or twenty years ago? No.
2. Customer loyalty is a thing of the past.
One of the key benefits of acquiring an existing funeral home is that you are hoping to continue serving the same families for years to come. But in today’s market, customer loyalty is a thing of the past. Just because you helped a family five years ago does not mean that you will win their next call.
3. The facility will often need upgrades.
Purchasing an existing funeral home is similar to buying a used car. More than likely, some neglected maintenance will need some attention (i.e., money). Unfortunately, many funeral homes look like they were last remodeled in 1980 and the carpets and furnishing are dated and worn.
4. The facility can’t deliver your secret ingredient.
Most of my clients are successful because they have mastered their “secret ingredient.” It might be their multi-media displays, their cafe, or the outdoor firepit that families love.
But when purchasing an existing funeral home, they often find that they can’t bring their secret ingredient with them. The new facility, or community bylaws, won’t allow them to offer the same level of service that made them successful in their first location.
Four reasons why opening a new funeral home makes more sense.
1.You start with a clean slate.
Acquiring an existing funeral home means buying both the assets and liabilities. In other words, the good and the bad. Sometimes that “bad” will include negative Google reviews or a former employee who still spreads rumors about the funeral home.
2. You create the “new” option.
Baby Boomers are always attracted to something new. They want to go to the new restaurants, buy new cars, and experience new things.
By opening a new funeral home, you create a new option for families. If you are in a market where most people are dissatisfied with the current funeral homes, your new option will attract a lot of attention.
3. Branding is a lot easier.
Have you ever noticed that many funeral homes have names that sound like legal firms? Smith, Barnes, Finkle & Jones Funeral Home…what a branding nightmare!
When you open a new funeral home, you can call it whatever you want, and branding becomes significantly easier. For example, if you want people to remember the name of your new funeral home, you pick something simple like <community name> Funeral & Cremation Services.
4. Good marketing is cheaper than acquiring.
Acquiring an existing funeral home is never going to be cheap. You’re going to spend at least high six figures and sometimes multiple millions.
You can buy a lot of excellent marketing for a million dollars!! You could spend money on billboards, TV ads, Google advertising, Facebook advertising, hospice outreach, and still have a significant amount left.
The bottom line is that if I were a funeral home owner looking to expand into a new market, I would always lean towards opening a new funeral home instead of buying an existing one.
Lease a professional-looking building with lots of parking on a street with plenty of traffic. Spend your money on remodeling, good signage, and marketing. Start with something small like a former bank building and move to a larger facility as your business grows.
If you want an example of a firm that is following this strategy, check out Newcomer Funeral Homes. They enter a new market with their own brand, lease a modest building, and then use aggressive marketing to win calls.
In a world where customer loyalty doesn’t exist, buying an existing funeral home may not be a wise decision.
Unless, of course, you’re SCI with a mountain of cash to spend, and you need to add to your share price right away to keep your investors happy. In which case, buying Schoedingers makes a lot of sense.
Until next time,
John
