How to Start a Funeral Home

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How to Start a Funeral Home

Funeral homeowners have the chance to make families’ lives easier during incredibly difficult times. This can be a rewarding industry to work in, and many business owners find satisfaction in helping families honor and remember their loved ones. While funeral homes were traditionally passed down through families, the industry is changing, and more funeral business owners are starting their own funeral homes. If you’re looking for an emotionally rewarding and financially profitable business to go into, starting a funeral home might be the right option for you.

Business Overview

Funeral homes offer a variety of services, including memorial services and preparing the dead for funerals or cremation. Funeral directors usually help to manage the funeral arrangements and plans, supporting families through this difficult time. Funeral directors may help families choose caskets, urns, and other products. They coordinate with all of the parties involved with a funeral, including clergy, the cemetery, and the crematorium. Funeral homes also supply many of the materials for funerals, including flowers, music, and memorial cards, and they typically provide transportation for the deceased and families to the cemetery.

The funeral industry can be emotionally stressful, so you must open a funeral home for the right reasons. If you’re mainly focused on the profits you might enjoy, you’ll probably find it difficult to stay with the business long-term. Successful funeral homeowners find the process of helping families rewarding, so they can focus on the positives of the industry rather than the sadness that can surround the business.

Industry Summary

Demand for funeral home services is fairly steady since most families rely on funeral homes when a loved one passes away. According to IBIS World, the industry is still affected by economic health, though, since more families with limited budgets opt for cremation services, which are less expensive than burial services. From 2014 through 2019, the funeral home industry experienced 1.0 percent annual growth, and the industry was projected to bring in $17 billion in revenue in 2019. During that five-year period, the number of businesses increased to 29,769, while industry employment grew to 121,404.

Industry Trends

The National Funeral Directors Association notes that many trends are transforming the funeral home industry. Baby boomers are increasingly planning funerals that are personal to honor the loved one who has passed. Today, it’s common to incorporate the deceased’s hobbies and interests in a funeral. Families are looking for funeral homes that can honor these wishes and customize a funeral to best reflect their loved ones.

With the increased awareness of eco-friendly living, those environmental values are now reflected in the funeral planning industry. Green funerals have grown in popularity, and they’re expected to continue to become even more popular. Green funerals are sometimes held outside, may feature organic flowers that have been locally grown, and may use sustainable or biodegradable caskets and clothing. In addition to green funerals, funeral homes can adopt eco-friendly practices like natural burial and using formaldehyde-free products in embalming.

Like so many industries, the funeral home industry is also embracing technology. More funeral homes are listing their products and services on their websites so that potential clients can research from the comfort of their own homes. Some funeral homes have even begun to offer broadcasts of funeral services, allowing family members who can’t travel to still view the service live.

In addition to these different service offerings, the face of the funeral industry is also changing. Traditionally, most funeral homes were staffed largely by men, but women are increasingly getting involved in this industry. While funeral homes were often passed down through families, today, people are choosing to join the industry. With over 60 percent of American mortuary science students being female, we’re likely to continue to see a shift toward greater female staffing in funeral homes.

Target Market

Funeral homes generally market to families whose loved ones have passed away, but that’s not always the case. Funeral homes are increasingly offering funeral pre-planning where individuals can specify their wishes and even pre-pay for a funeral, so funeral homes may also market to people who want to ease their loved ones’ burden when they pass away. Different businesses may have specializations, like offering green funerals, that can also refine their target market.

Checklist for Starting a Funeral Home

If you’re thinking about starting a funeral home, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Form a Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a funeral home, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 3: Name the Business

Finding the perfect business name for a funeral home business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a funeral home 

Step 4: Select your Location

It’s important to thoroughly research your location and your target market to understand the services that will be most in demand. Be prepared for the multicultural differences that occur with funerals – each culture has its own practices and traditions that shape the mood and design. The more awareness and sensitivity you have to this, the greater your target audience will be, and the better your business reputation will become.

The rent for a funeral establishment can be significant because of the size of the building needed. In addition to rent, most buildings will require significant renovations to make them suitable. Because of these renovations and the unique design that a funeral home requires, many funeral homeowners purchase their buildings rather than renting them. Finding an existing funeral home for sale or rent may be the best option, saving on renovation time and costs and allowing the business to open sooner.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

While there isn’t licensing specifically for a funeral home business, states require different licensing requirements for embalmers and funeral directors.  There is oversight from the Federal Trade Commission (FTC) as funeral homes are regulated under the Funeral Rule, which protects customers from non-transparent bundling of products and services being sold. Many states also have regulations on pre-need planning services, which results in funeral homes being audited.

Local health departments and the Occupational Safety and Health Administration (OSHA) will need to certify the funeral home is up to code and cleared to operate.

In addition to professional licensing, there are general business registrations that may be needed as well such as a business license, sales tax permit, Employer Identification Number, and Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a funeral home is another.  In general, banks like to loan money to funeral homes as demand is steady.  That said, getting the funding to start a funeral home can be difficult.  In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

Funeral homes rely on ongoing marketing to bring in new clients. Some common marketing activities include social media marketing, print advertising, and even TV and radio ads.

Related: Low-cost ideas to market a new business

One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a funeral home. A few of these include:
– General liability insurance protects the business if a customer is ever injured while on the property. This type of policy can cover costs like legal fees and expenses.
– Commercial automobile insurance protects the business against expenses that can occur if a business vehicle is involved in an accident.
– Worker’s compensation insurance helps to cover expenses like medical bills or lost wages if an employee is ever hurt while on the job.

The cost to insure a funeral home will vary depending on many factors like the value of the business’ equipment, the business’ location, and the number of employees on staff. For the most accurate idea of what insurance will cost, request quotes from multiple providers. When comparing the quotes, pay attention to details like policy coverage limits and exclusions, premiums, and deductibles.

Related: What types of insurance do funeral homes need?

Step 10: Hire Employees

Funeral homes need even a small staff to operate well, and many staff positions are specialized, requiring particular education and skills. According to ZipRecruiter, the following are average annual salaries for common funeral home staff positions:
– Funeral home manager – $66,666
– Funeral director – $50,228
– Embalmer – $42,909
– Funeral home driver – $38,710
– Mortuary assistant – $35,997
– Funeral assistant – $27,701

In addition to budgeting for salaries, a funeral home’s budget also needs to account for expenses like worker’s comp insurance, paid time off, and health insurance contributions.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your funeral home is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a funeral home?

Funeral homes require significant startup costs. Smaller operations can cost $150,000 to $250,000 to start, while larger businesses can cost as much as $450,000 and up.

Some common startup costs for a funeral home include:
– Embalming machine
– Preparation room – refrigeration, lifts, and sanitation equipment
– Inventory, like caskets and urns
– Furniture and decorations
– Hearse and funeral lead car for funeral processions
– Building renovations and modifications
– Working capital for the first three to six months of salary, utilities, internet, rent, etc.
– Licensing – funeral home director

How much can a funeral home owner make?

Funeral home income will vary depending on the business’s location, expenses, and even local funeral home competitors’ presence. Mortician Guide states that funeral homes perform approximately 110 funerals per year. With funerals averaging nearly $10,000 each, many funeral homes bring in revenue ranging from $1 to $1.5 million.

Funeral homes tend to have high operating expenses because of facilities and staff; however, revenues and profits have been on a decline. As more people choose cremation over traditional burial and online sales of caskets and urns increase, funeral homes have to find creative ways to remain profitable.

What skills are needed to run a funeral home?

A funeral homeowner doesn’t necessarily need a business degree, but certain skills, experiences, and education programs can increase the business’s chance of success.

Experience in the funeral industry. A business owner who has worked or held an internship in the funeral industry will be better prepared for the challenges that come with owning a funeral home.

Education. According to the American Board of Funeral Service Education, all states require funeral directors to be licensed, and those licensure requirements vary from state to state. Many states require that a candidate have post-secondary education (often a two- or four-year certificate or degree in funeral service education), complete an internship, and pass the National Board Examination.

Interpersonal skills. Funeral homeowners need great interpersonal skills since they work with families going through some of the worst days of their lives. A funeral homeowner who is warm, kind, and compassionate can make a lasting impression on families.

Attention to detail. From ensuring that all of a family’s wishes are met with each funeral to managing inventory, funeral homeowners work with important detail every day.

Management experience. Funeral homes need multiple employees, so experience in hiring, training, and managing staff is important.

Organization skills. From coordinating all of the elements of a funeral to managing employee schedules, a funeral homeowner needs to be well-organized.

Are there grants to start a funeral home?

It’s extremely rare to find a grant to start a funeral home. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a funeral home?

The NAICS code for a funeral home is 812210.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
American Board of Funeral Service Education
International Cemetery, Cremation and Funeral Association
National Funeral Directors Association
National Funeral Directors & Morticians Association

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