Taylor Weber
on
What Sellers Need to Know Before the Deal
When it comes to selling a funeral home or cemetery business, the letter of intent (LOI) may feel like the finish line but in reality, it’s just the starting point for one of the most critical phases of the transaction: buyer due diligence.
At Foresight, we recently gathered our team for an internal training session focused on navigating the diligence process from both the buyer’s and seller’s perspectives. Here are some key insights from that discussion and why early, thorough preparation is the best way to protect value and close with confidence.
Why Buyer Due Diligence Matters
Due diligence is how a buyer verifies that what they think they’re buying is what they’re actually getting. Diligence reduces risk and uncertainty, impacting everything from valuation and deal structure to timing and close.
It’s not just about ticking boxes. Diligence dives deep into:
- Financial statements and pre-need records
- Operational policies and pricing
- Licensing and regulatory compliance
- HR practices, property, insurance, and legal matters
When sellers aren’t prepared or slow to respond, these areas become deal friction points. That’s why our team is clear from the beginning: our job isn’t just to gather documents; it’s to condition clients for the intensity of what’s ahead.
Common Pitfalls That Delay Deals
Here are some real-world examples that highlight how even small oversights can trigger big delays:
- Missing licenses: One client didn’t hold the necessary funeral license for their state, a discovery that paused the deal and rattled buyer confidence.
- Facility compliance: Recurring issues like missing eyewash stations or emergency showers in prep rooms—simple fixes that can become regulatory headaches if not addressed upfront.
- Unclear asset ownership: Copier leases, equipment titles, or real estate entanglements have all slowed deals due to confusion or lack of documentation.
Site visits often reveal what documents don’t. Many operational risks only surface through in-person inspections and candid conversations, not spreadsheets alone.
The Pre-Need Factor: Hidden Value or Hidden Risk?
Pre-need contracts are often misunderstood and sometimes mishandled. Our team shared a cautionary tale about undocumented pre-need agreements that turned into liability questions late in diligence. It is important to note that the quality and average value of pre-need contracts can swing valuation significantly.
Lessons from the Field: Solving Problems in Real Time
In a previous deal, we supported a seller struggling to fulfill diligence requests due to limited staff capacity. The buyer had sent extra resources to help and the deal stayed on track. The takeaway? Teamwork matters. Diligence isn’t just about paper, it’s about relationships.
Best Practices for a Smoother Diligence Process
- Start early. Don’t wait until the LOI. Begin gathering and organizing information at the start of the client relationship.
- Create a data room. A centralized, internal diligence folder helps clients get familiar before a buyer’s requests start rolling in.
- Set expectations. Reassure clients that diligence is standard, not a sign of mistrust. It’s simply a process to validate the story behind the business.
- Frame it as a business check-up. A well-prepared diligence process isn’t just for the buyer, it’s a valuable audit for the seller, too.
Diligence Is More Than a Checklist
At its best, due diligence isn’t a hurdle, it’s a strategy. Sellers who prepare early, stay engaged, and work collaboratively with their advisors are more likely to protect their value and reach the closing table without surprises. Buyers don’t just invest in your numbers, they invest in your readiness. And readiness starts now.