The Funeral Services Industry, perhaps the second-oldest profession, has been around for ages and, until science conquers mortality, will continue in some shape or form beyond our lifetimes. It is both a fascinating and sobering industry providing a vital service to many. Although transition and succession planning challenges are not unique to funeral service providers, the challenges are amplified, not only because funerals are one of the most personal services, but also because the profession continues to feel the pressure of the age wave pushing more providers toward retirement.

Transition planning is not a last-minute exercise to be implemented as you dust off your golf clubs, but rather a perspective to be employed continually as you develop your business. Entrepreneur, author, and Inc. Magazine columnist, Norm Brodsky, once postulated that business owners should, “Build to sell. Even if you don’t plan to sell.” He went on to write that with selling in mind, you learn to see your business more like a potential buyer would see it, allowing you to “eliminate the weaknesses and elevate the value of your business.” His thoughts parallel those of John Warrillow (in Built to Sell: Creating a Business That Can Thrive Without You), among others.

Funeral service providers generally run contrary to the “build to sell” mentality. Years of working with funeral providers has taught us that most are either focused on ministering to client-families at their times of need and carrying on the legacy of generations past. Instead of “building to sell,” many funeral directors are “building to serve” and ignoring the selling part until later, much later, sometimes waiting too long, until their own health or other events force the discussion. Indeed, this calling to serve has been the unflinching focus for many would-be funeral home entrepreneurs.

How do the modern funeral home businesses balance the need to provide for their owners and their families with the needs of the communities that they serve? In recent years the balancing act has become even more difficult with changing consumer attitudes challenging the long-held beliefs of what funeral service means. In response, a few providers may have gone too far, with questionable sales tactics and elevated prices that tarnished the image of the profession, ultimately giving rise to F.T.C. Funeral Rule 33. What can the ethical service provider do to succeed in these evolving conditions?

Without a doubt, the service side of funerals has to be the top priority. Fail to deliver superior service and see what happens—a funeral home will not sustain itself or grow. However, superior service without profit will not work either. Funeral service providers have to recognize, and be prepared to communicate to client-families, that “profit” is not a dirty word, and that raising prices is not “unholy.” The funeral providers costs – labor, equipment, taxes – rise each year, as in any other business, necessitating price adjustments. Despite its universal need, the funeral business is not a social service subsidized by any government. For that reason, the business side of funeral service demands that firms remain profitable or close their doors. A profitable business is a sustainable business and the practices that you put in place can sustain the business beyond your stewardship and into the next generation. This leads us back to the idea of building to sell.

Logically the business side of funeral service focuses on the typical entrepreneurial aspects—such as building value, equity, and wealth. Wealth, like profit, is not a dirty word. Creating business value and building personal wealth requires that you provide services that the community values. Wealth and profit will only exist if the funeral service provider satisfies the needs of the community at a price that is fair and reasonable. What is good for the community is good for the service provider and vice versa.

If the business operates profitably, the owner will build personal wealth through a combination of reasonable compensation, profit sharing programs, and annual distributions. Unfortunately, we see too many cases where funeral home owners simply choose to earn a living, drawing a minimal salary, supporting a lifestyle that is modest compared to other professions. Ask yourself, knowing the commitment that is necessary, would your level of compensation be adequate to attract you to the business if you were starting out today? If you answered no, would you ask your son or daughter to take over the business? Would you expect someone to pay you money to acquire your business? While focusing on providing a personal touch is admirable and necessary, inadequate compensation for the services you provide will impede the accumulation of personal wealth and jeopardize the sustainability of your business. Once again, we see the link between profits, business sustainability, and this notion of building to sell.

Alas, knowing the path to profits, wealth, and a sustainable funeral business is not the same as walking the path. We considered four sources of information on the financial situation of pending retirees in our research on this topic: a 2015 U.S. Government Accountability Office (GAO) report on low retirement savings, an AARP Bulletin about funeral directors, industry studies pertaining to call volumes and ages, and our own internal client statistics.

The 2015 U.S. GAO report addresses low retirement savings. The report concluded that 52% of households age 55 and older have no retirement savings in an IRA or defined contribution plan. The report also stated that 30% of households age 55 and older have neither retirement savings nor a pension. This certainly indicates that many Baby Boomers are ill-prepared for their golden years. We have seen client files and discussed many funeral directors’ experiences with Baby Boomers making funeral arrangements; you can attest that many have limited funds to pay for their own funeral or even a funeral for their parents.

An article in the January–February 2017 AARP Bulletin (10 Jobs Retirees Should Check Out) highlighted seven fields dominated by workers age 55 or older. At the top of the list with 42% of its workers 55 and older—you guessed it—morticians, undertakers, and funeral directors. (In case you were wondering, museum technicians and conservators tied for second place with 35% of its workers age 55 and older.) As further support that the industry is aging, recently published funeral industry studies, show that almost 50% of respondents are aged 55 and older.

What plans have those over-55 funeral service providers made related to their pending retirement? Are they any better off than the Baby Boomers in general? As you might expect, our own client study found that funeral firms at the top end of the volume spectrum tend to contribute higher amounts toward retirement and are more successful at building value. Roughly 60% of firms in our study contributed more than $20,000 per year for retirement funding. Of course, most of those served more than 400 calls annually. This does not include the individual contributions made by employees/owners though, which could possibly double the total monies flowing into owner’s retirement plans.

On the other hand, our survey found that approximately 15% of all firms in our study recorded no expenditure for retirement funding. Twenty-five percent (25%) of all firms expended $5,000 or less per year for corporate contributions. Those firms serving less than 120 calls annually all contributed $5,000 or less toward a company retirement plan. According to the previously mentioned industry studies, we found that 50–60% of respondent firms served 150 calls or less, indicating a great number of respondents in the retirement funding trouble zone.

Our findings raise serious questions about the lack of exit or transition plans among current funeral business owners, especially those with lower call volume. The lack of retirement funding inside a business raises questions about preparation for retirement and ability to transition, particularly when you consider that the net worth of most owners is wrapped up inside the businesses they own. One industry observer speculated a few years ago that 85% or more of owner’s net worth is tied up in the after-tax value of their business.

It seems safe to say that many of the retirement-age funeral home owners will exit their business, either voluntarily or involuntarily, in the next ten years. Unfortunately, some owners (especially, but not limited to, those serving less than 120 calls) may end up with retirement challenges. A lack of retirement funds outside of the funeral business places more pressure on the sale of their business. This can lead to unrealistic expectations, perhaps leading them to hold on to their businesses longer, well past their prime.

In our work with funeral directors, we see both ends of the financial spectrum: those who have managed to save little or nothing, limiting their retirement options, and those who have accumulated millions of dollars for retirement through building value and personal wealth. To move from the first group to the second, funeral home owners, like business owners in any industry, must establish a plan to set prices and manage expenses in a way that will allow for appropriate owner compensation, retirement savings, and business profits. Putting such a plan in place will build a sustainable service for your community, build the personal wealth and security your family needs, and build a business that can be passed on or sold to the next generation of funeral service providers. You will be building to serve while building to sell. The best time to begin preparing for retirement and the ultimate transition is now, before it’s too late.