Luke Potter
on
When it comes time to sell a funeral home, the headline purchase price often gets the most attention – but how a deal is structured can be just as important as the number itself. Cash at close, seller financing, deferred compensation, earnouts, and equity options each carry their own advantages and tradeoffs. The right structure depends on the seller’s financial goals, risk tolerance, and desire for post-sale involvement, as well what the buyer is seeking to achieve strategically, operationally, and financially through the transaction. Understanding these differences early allows owners to make informed decisions rather than reacting to offers at the eleventh hour.
From a financial standpoint, different deal structures can materially impact net present value (NPV). A higher purchase price paid over time may look attractive on paper, but when discounted back to today’s dollars, it can be worth significantly less than a lower all-cash offer. Seller notes and deferred payments introduce time value considerations, interest rate assumptions, and credit risk that must be weighed carefully. In many cases, sellers are surprised to learn that two offers with the same headline price can result in very different economic outcomes once NPV is considered.
Collection risk is another critical factor. Seller financing and earnouts expose the seller to the buyer’s future operating performance, management decisions, and financial health. While these structures can help bridge valuation gaps or increase total consideration, they also create ongoing exposure that sellers may not want – particularly those nearing retirement. Sellers must ask themselves how comfortable they are remaining tied to the business after closing and whether the incremental upside is worth the added risk.
Finally, deal structure often dictates the seller’s post-sale involvement. Earnouts and performance-based payments may require continued operational participation, advisory roles, or non-compete extensions, while clean cash exits allow owners to step away as a clean break. There is no universally “right” structure, but there is a right structure for each individual owner. By evaluating offers through the lens of NPV, risk, and lifestyle goals – not just price – funeral home owners can choose a path that best aligns with their financial future and personal legacy.