Funeral home LOI term checklist

Price and payment terms

• Base price and what it covers. State whether the figure is for the business alone or the business plus real estate, and give each its own number. Lenders value the two separately, and a blended figure hides what the buyer thinks the building is worth.
• Preneed adjustment method. Say the price will move by any shortfall found when the register is reconciled through the five rungs of the Preneed Reconciliation Ladder. Good language fixes the method now and leaves only the figure for later.
• Working capital treatment. Say who keeps cash, at-need receivables, and insurance assignments, and how merchandise is counted. Left unstated, these become a five-figure argument in closing week.
• Form of payment. Cash at closing, any seller note (amount, rate, term, standby or not), and any escrow or holdback.
• Allocation intent. Note that the parties will agree on how the price is spread across asset classes. Buyer and seller each report it on Form 8594 under the IRS Form 8594 instructions, so agreeing early prevents mismatched filings.

Scope of the deal

• Asset or stock purchase. In a stock deal the entity’s past comes with it, including old licensing and Funeral Rule issues. Name the structure now, because it changes taxes, consents, and indemnities.
• Every location and line. Name each chapel, the crematory, any cemetery, and side lines such as pet cremation or a removal service.
• Real estate: buy, lease, or option. If the seller keeps the building, put rent, term, and renewal options in the LOI. An SBA lender will expect the lease, counting renewals the buyer controls, to run at least as long as the loan.
• Intangibles. Trade names, phone numbers, website and domain, obituary archive, and case records. Much of the goodwill lives here.
• Excluded assets. Family heirlooms, personal vehicles, a particular hearse. Listing them now avoids a painful dispute at the final walk-through.

Preneed terms

• Register delivery date. The seller delivers a complete preneed register within a set number of days. Without a date, preneed work starts late and becomes the reason closing slips.
• Remedy for a gap. Price reduction, escrow, or indemnity, and which applies to which kind of gap. Known shortfalls suit a price change; uncertain ones suit an escrow.
• Servicing commitment. The buyer agrees to honor every contract on the register on its terms. Sellers often care about this as much as price; it is a standard row in The Legacy Terms Ledger.
• Regulatory clock. Some deadlines run from signing. Under Texas Finance Code chapter 154, a preneed permit holder must notify the Department of Banking and the depository or insurer within 7 days after the transfer contract is signed, and a buyer without a permit must get one before contracts transfer. Ask counsel whether your LOI or only the definitive agreement starts a clock like that.

Financing terms

• Financing contingency with a date. The buyer’s obligation depends on a loan commitment by a stated day. Sellers should ask for the lender’s name and a term sheet before exclusivity starts.
• No earnout in an SBA deal. SBA SOP 50 10 8.1 prohibits seller earnouts in 7(a) changes of ownership, though buyer rebates are allowed. Replace a call-volume earnout with a different price or a note.
• Seller note on standby, if it counts as equity. It counts toward the buyer’s 10% injection only on full standby (no principal or interest for the life of the 7(a) loan) and for no more than half of the injection. Sellers should know this before agreeing to carry part of the price.
• Valuation gap clause. Total debt is capped at the lender’s independent business valuation. Say what happens if it comes in below price: the buyer adds equity, the parties renegotiate, or either side may walk.
• Proof of equity. The buyer shows the source of the cash injection before exclusivity begins.

People and legacy terms

• The name. Building sign, obituaries, website, and vehicles, for a stated number of years. “Keep the name” with no period is the weakest version.
• Staff. Positions retained, retention period, pay floor, and when staff will be told.
• The seller’s role after closing. In an SBA initial acquisition the seller may stay only as a consultant, for no more than 24 months in total. Write the hours, pay, and term.
• Non-compete. Radius, term, and covered activities, including preneed sales. The FTC voted in September 2025 to accept vacatur of its non-compete rule, and sale-of-business covenants were excepted from that rule anyway, so state law sets the limits.
• Community commitments. Specific churches, sponsorships, or charity care practices the family wants continued.

Binding provisions

• Exclusivity length and exits. Tie extensions to buyer progress, such as a submitted loan application or an ordered Phase I.
• Confidentiality. Cover the fact of the talks, not just the data. In a small town, a leak to staff or a competing firm can cost calls before anything is signed.
• Contact rules. No contact with staff, clergy, families, trustees, insurers, or the landlord without the seller’s consent, and a schedule for when each may be contacted.
• Expenses and deposits. Each side pays its own costs unless stated otherwise. If there is a deposit, spell out when it is refundable.
• Expiration. The offer lapses if not signed by a set date, so a stale offer cannot be accepted months later.