The negotiations to sell and or purchase a funeral home generally involve “what one is buying and how are they paying for it”.  It’s pretty common to hear the terms “asset sale”, “real estate”, “convenants not to compete”, “consulting agreement”, “equipment”, “inventory”, and “goodwill” among the nomenclature of the transaction that takes place between the buyer and the seller.

 

One term that you don’t hear very often, or at least I have never heard, is “Royalty payment” or “Royalty stream”.  What I’m talking about is a future payment to the seller by the buyer that is a percentage of the gross operating sales of the business going forward.  For instance if I sell a business to you that includes a 1% royalty payment then the buyer pays the seller $1 for every $100 of business going forward. . . . Most royalty payment agreements have a set time period built in, but some are perpetual.

 

Since this weeks articles in Funeral Director Daily are about thinking “outside the box”, one of the things that I’ve always wondered about is why are royalty payments never included in transactions involving funeral homes?

 

It seems to me that royalty payments are a natural when a well-known business name is involved and that business name has lots of history and customer retention or loyalty that will bring future business to the new owner.  Using that name and history is beneficial to the new owner as they don’t have to work a new identity into the marketplace and start building name recognition from scratch.

 

And what businesses in certain communities have that brand and name recognition that have endeared loyalty and retention of customers through generations?  Funeral homes.

 

Maybe there are reasons why it would not work as part of a funeral home business transaction, but if I owned a funeral home where I could trademark the name, slogans, and marks (logos) I think I would try to negotiate a perpetual royalty as part of the transaction.  That way, instead of receiving a lump-sum for the future use of the company’s historical trademarks, a selling owner would receive a revenue string of what could be increasing payments for twenty or thirty years or longer.

 

And, as  the family name continues to be used, I would continue to benefit from that use.  I think it is one aspect of selling a family funeral home that bothers many former owners  — that is the name is gone from their control forever.  Being able to receive a monthly royalty from the use of that name would probably lessen that situation and may even bring a stronger bind between buyer and seller for a longer period of time. . . .which would probably be beneficial to the new owner.

 

Who knows, there may even be advantages for the purchaser to include this as part of the transaction.  For instance, it would require less cash and/or less borrowing at the time of closing.  While the upside of the transaction may have less profitability in future years there is also the flip-side of less initial capital lost if the transaction went south.  That’s simply because that if the business flounders or goes south and goes out of business, the royalty is lessened or, in the case of going out of business, is simply not paid.

 

If you are fortunate to be able to own a funeral home that would have multiple suitors if put on the market you might be in a position to try this in the negotiations.  Maybe one of the suitors would be amenable to offering a royalty payment in order to get a leg-up on the purchase competitors.

 

Being “Trademarkable” —  There is more than likely many funeral homes that would not be able to license their trade name, slogans, and logos.  One reason is that the business has to be “Trademarkable”.  For instance, trademarking the name “Anderson Funeral Home” would probably be impossible because there are other funeral homes with the same name.  One aspect of licensing your names, slogans, and logo for royalties is that they need to be licensible as unique and you would have to defend that trademark if it were discovered that someone else was using the same name.  That would not prevent the creative use of royalty payments in a sale but would require those payments not be based off that criteria and could be one downside to a seller.

 

However, there are many funeral homes with very unique names that I’m sure would withstand trademark standards and have very little risk of trademark infringement.

 

It’s done in other industries, why not funeral homes?  —  I’m aware of a group of investors who sold a chain of 73 pizza restaurants.  They sold only the physical facilities they owned and the operations of the company.  They kept ownership of the company name, slogans, menu item names, and logos and licensed them to the new owners at a 2% royalty rate.  Today, every $10 pizza sold at those restaurants brings the former owners 20 cents and as prices and the number of restaurants increase so does their royalty payment. . . . . The former owners certainly are cheering for the new owners to continue on and do very well.

 

Anyway, royalty payments are one of this week’s “Out of the Box” opportunities in funeral service.

 

Related Article — Here’s a great story of the Listerine mouthwash perpetual royalty situation that became contractual in 1881 and continues to this day.  “The people making millions off Listerine royalties“.  The Hustle

 

Funeral Director Daily take:  During my time on the Board of Regents at the University of Minnesota I learned a lot about royalty payments, licensing, and the legalities and opportunities presented with them.  I served on the legal committee of the board for six years and at a major research university licensing and royalties, and how they are going to be implemented, are an every day happening with the equipment, medical, technological, and pharmaceutical inventions that are patented almost every single day – on average we filed a patent application every third day.  If I remember correctly, our legal department had a staff of over 20 attorneys and much of the work dealt with this realm.

 

I actually believe that there are probably more situations available for licensing and royalties in Death Care than what has been presented today and those situations would not be limited to funeral home sale and purchase transactions.

 

More news from the world of Death Care:

• First Lutheran celebrates columbarium, which helps local residents remember loved ones.  Hudson Star Observer (WI)
• The country’s first mushroom casket was buried last week in rural Maine.  Portland Press Herald (ME)
• Environmentally friendly water cremation service to open in Christchurch.  RMZ (New Zealand)
• Funeral home in Riley opens new crematory.  The Mercury (KS)

 

Enter your e-mail below to join the 3,164 others who receive Funeral Director Daily articles daily:

“A servant’s attitude guided by Christ leads to a significant life”