Why Funeral Homes are Prime Targets for the Cooperative Movement

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Product

Funeral homes provide remembrance services such as funerals, memorials, visitations, viewings, and gatherings. They also implement personalization and decoration. Importantly, funeral homes provide caskets, urns, flower sprays, burial liners, burials, and cremations.

Customers

As long as people die, funeral homes will be needed to provide memorial services. Furthermore, as the baby boomer generation ages into their death years, there will be a surge of customers requiring funerary services. Given the resilience of cooperatives,[1] funeral home cooperatives should be well-positioned to weather the downturn as the last of the baby boomers die off.

The Window of Opportunity

As private equity begins making inroads into the industry which can result in high prices,[2] the window for converting the vast majority of mom-and-pop funeral homes into cooperatives could be shrinking. However, mom-and-pop funeral homes are reluctant to sell to private equity firms who lack a personalized touch and concern for reputation.[3] Moreover, almost 90% of funeral homes remain in private hands.[4] Thus, there should be plenty of opportunities to convert funeral homes into cooperatives.

Financing

Worker cooperatives struggle to get capital as easily as traditional businesses. Thus, there is limited outside capital available for those seeking to convert traditional businesses into cooperatives. However, funeral homes are a relatively safe investment for the limited capital that is available because there is near guaranteed demand for funerary services as baby boomers begin to pass away in the near-to-medium future. Moreover, the safe nature of the investment, particularly for conversions of well-established funeral homes, should make it easier to obtain financing.

Organizing

The average NFDA funeral home has four full-time and three part-time employees.[5] This is reflective of the small number of employees that would need to be organized to convert an existing funeral home into a cooperative. While this will limit the amount of capital that the workers can contribute, the logistics of organizing will be a lot which will limit the costs from Technical Assistance. Moreover, financing should be easier to come by than a traditional cooperative because of the soundness of the investment.

The law will require that the employees have the appropriate licenses to be funeral directors and workers. In converting an existing business, the employees should have these already but further certifications can always be acquired during the transition phase if needed. The education requirements also mean a more educated workforce that’s more likely to have some of the background required for learning how to be worker-managers.

Revenue

Funeral Homes represent billions in business every year.[6] Funerals generally cost around $7000 in 2021,[7] and the average NFDA-member served 113 families per year.[8] Thus, the hypothetical-average funeral home would be expected to generate around $791,000 a year. Being more precise, if the hypothetical-average funeral home’s business was 59% cremation services and 36% burial services,[9] then using the median costs from 2021, the hypothetical-average funeral home could expect $464,756.57 in earnings from cremation services and $319,256.64 in earnings from burial services from servicing 107 of the 113 (95%) of the families it would average a year. This totals to $784 013.21, not far off from the rough estimate especially given that 5% of the customers are excluded from the more precise number. Overall, this is a hyper-simplistic projection because it fails to account for how prices vary by geography or within services such as differences in casket pricing.[10] However, this shows that funeral homes can generate substantial revenue with relatively low volume and few employees.

Technical Assistance

Numerous organizations exist that can help cooperatives through the formation and conversion process. Thus, securing consulting and attendant accounting and legal advice through these groups should be manageable.

For groups looking to finance the conversion of existing funeral homes, then there are funeral home brokerage services that help facilitate sales.[11] Moreover, these services could be potentially be partnered with to help locate funeral homes that would be good targets for conversions as they know their sellers and have expertise in the industry. Thus, such brokers are potentially useful partners.

Conclusion

In sum, funeral homes could be promising targets for the cooperative movement. With solid revenue streams, a robust business model, and sellers who are wary of private equity and who care deeply about their reputations, funeral homes possess conditions that are good for conversions. Moreover, with relatively few employees, the logistics of organizing are not as burdensome as they would be for larger businesses. Additionally, those employees have certifications and education that should better position them to take on the challenges of being a worker-manager. Lastly, beyond the “traditional” cooperative technical assistance available, there are funeral home brokers who could help identify prime targets for conversions into cooperatives.

[1] Brian Van Slyke, Pandemic Crash Shows Worker Co-ops Are More Resilient Than Traditional Business, Truthout (May 8, 2020), https://truthout.org/articles/pandemic-crash-shows-worker-co-ops-are-more-resilient-than-traditional-business/. [2] Markian Hawryluk & Kaiser Health News, Death is anything but a dying business as private equity cashes in on the $23 billion funeral home industry, Fortune (Sept. 22, 2022 5:00 AM), https://fortune.com/2022/09/22/death-care-funeral-home-industry-private-equity/. [3] Id. [4] Statistics, NFDA, https://nfda.org/news/statistics (last visited June 28, 2023). [5] Id. [6] See id. (“the funeral industry generates $16.323 billion in revenue”). [7] See Id. (“[t]he national median cost of a funeral with a viewing and burial in 2021 was approximately $7,848 while the median cost of a funeral with cremation was approximately $6,971”). [8] Id. [9] Rounding the percentages from id. up and down for simplicity. [10] NFDA News Release: 2021 NFDA General Price List Study Shows Funeral Costs Not Rising as Fast as Rate of Inflation, NFDA (Nov. 4, 2021) https://nfda.org/news/media-center/nfda-news-releases/id/6182/2021-nfda-general-price-list-study-shows-funeral-costs-not-rising-as-fast-as-rate-of-inflation. [11] See e.g., How to Buy a Funeral Home: A Step By Step Guide, Johnson Consulting Group (Dec. 2, 2021), https://www.johnsonconsulting.com/how-to-buy-a-funeral-home/.