Funeral Home Financials


EDITOR’S NOTE:  I just got an email from my friends at NFDA.  If you’re not a member yet (or you don’t take advantage of your membership), here’s what you’re missing.  The rest of this post is clipped from the NFDA email and contains their claims, not mine.  Oh, and I have not received any compensation for sharing this information with you.

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If your fiscal year matches the tax year, time is approaching for you to make those end-of-year purchases that will benefit you tax-wise and make your company stronger for the future.

In our case, the accountant has suggested we invest in needed new equipment now, rather than after the first of the year.  The cost of the equipment will cut into our profits, yes, but we’ll receive a partial tax benefit this year (less profits mean less taxes and there’s always local and state equipment write-offs and depreciation) and we’ll get some much-needed tools to make our products faster and better.

My guess is that your own accountant might suggest a few big purchases (new cars, new chairs, etc.) if she knew that you had been considering them.

Talk to your accountant today.  You just might get to spend some of money on your business, instead of sending it to Washington.

Every funeral professional should do an “end of year review”.  We all know that.  In fact, you probably spend a whole lotta time just after Christmas worrying that you can’t pay for all those gifts that just went on your Amex, right?

So forget the “week after Christmas review” and start reviewing now!

Sure, that end of year bump you’ve been expecting might come in December, but a frank look at your year-to-date in the last week in November will give you an idea of how much ground you’ve got to make up over the holidays or, if you’ve had a good year, how much “gravy” can pour during the festivities.

As I’ve warned before (in the post, Call Your Accountant Early!) your financial advisors are going to be very busy come January 1st.  So start now.

Are there new products or recurring items you order every January?  Why not place an order now, with a shipping date in the beginning of January?

No matter what you do, make sure you’re spending some time reviewing your practices, how they affected your ability to serve families this year and what improvements you can make to improve the bottom line.

What things do I consider when doing a yearly review of our cot cover business?  Good question!  Here goes:

TOTAL SALES:  I like this number because regardless of the total number of covers we sold, it measures our overall financial footprint.

NET PROFIT:  Even better than a total of sales, this one tells me how effective we were at making our product profitable. 

AVERAGE ORDER AMOUNT:  Compared to our retail prices, this lets me know how well we upsell.  I even break this down by product so I can see which specific patterns encourage more sales.

ADVERTISING PERCENTAGE:  I like to keep this low (as a percentage of total sales), even though we make a fine profit and benefit from some of our advertising.  Of course, I count lots of stuff in this one, like the costs to create this blog, our convention appearances, magazine ads, website costs, etc.

MATERIAL/OVERHEAD COSTS:  I divide this cost by the total sales to figure out what percentage of the product price goes toward the cost of materials and overhead (like our workshop, equipment, etc.).

LABOR COSTS:  This is what percentage of total sales I pay the employees.  Even though I’ve hired some contract employees in the last two years (we’re up to four!) the percentage has actually gone down as sales have risen.

These are all things that I track on a monthly basis, mostly because my small company can’t afford any major unplanned shifts in our sales.  And while we’ve moved to a much wider tightrope in recent months (snowballing sales figures have helped to put us on more stable footing) I know that an unexpected move in the market can still catch unaware.

What should you track?  Now’s the time to decide what information will help you plan your business’ future.  Get started now, before the holiday rush.

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I could file this under “Daily Nags” but I’ve pretty much let that category go since I can’t seem to remember to nag you every single day!  Consider the nag-free ride you’ve been getting a gift from your friend, Tim.

Still, this one’s perfect for November, because the end of year is coming fast!

Most funeral homes operate on a January to December fiscal year.  If that’s you, the end of your accounting cycle is almost here and there are lots of little things you need to accomplish.

If you’ve got an outside accountant, she’s probably got a WHOLE LOT of other clients who will also need to finish up end-of-year work, so don’t wait until the last minute to go over your situation.

 Contacting your accountant before Thanksgiving will have two important benefits:

1.  He’ll be able to advise you of any last-minute purchases you should make or any tax-saving actions you can take before December 31st.

2.  He’ll see you as an attentive client, who will be easy to deal with and, therefore, he’ll won’t regret picking up your file.  It’s always important to make sure your accountant actually wants to work on your files.  Not only to ensure accuracy, but to make sure you get the most beneficial help.  (Just remember, everyone wants to enjoy their job.  Make sure you’re the “fun” client or at least the proficient one.)

I just met with my accountant last week and found out that several of the big equipment purchases I was planning for next March might make more sense this year.  In fact, she even suggested I take out a loan (if necessary) to finance some expansion, since the debt would help offset the record gains our cot cover business has realized this year.  (You do know that we make quilted cot covers that are wowing the funeral industry, don’t you?)

But the simplest reason is also the most practical:  calling your accountant early will ensure that you can get an appointment during a very busy time of year!

One of the recent discussions here in posts and comments has been negotiating lower prices from suppliers.  It all started with a guest post, Michelle Carter on “The Funeral Director Mindset”.  Several comments were added by our readers (and we appreciate comments!), including one I reposted as Jim Bauschke on “The Funeral Director Mindset”.

We’ve also received the following comments from our reader, Paul:

Bravo.  Yes, we should be thinking more outside of the box, and challenging our suppliers. Batesville is not the only game in town, and one should constantly be looking for better pricing.  As you stated, they seem to be scared to ask, or think it might cause a problem–who is the customer??  Companies like Dell and WalMart are great at playing the suppliers against each other to get the best price.  Granted we are not in the same position, but if we took those thoughts and mindset and applied them to our FH’s then maybe we could change the game.

I agree that what I call the ‘Flintstone funeral homes’ are going to blow away in the wind if they don’t see the change in the air.  I know, they will say (of course many do not even have computers, so it would be hard for them to read this) well, that new guy does not know what he is talking about.  Hmmm, I think because you are still using your business plan from 1890, might be a sign that things might not be so bright.

This is not meant to say all ‘traditional’ funeral homes are this way, but it is amazing as I talk with people like this how much they are the same.  Same small thinking, plenty of complaining and no one doing anything about it.  Why?  “Because the Wilbert guy or the Batesville guy is ‘my friend’ and have known him forever.”

–okay folks time to wake up–they really don’t care about you or your business.  Honestly, think about it–they care about their paycheck.  Well, that may not be bad, but WE should think about OUR paycheck also.

The ‘well it’s always been done that way’ thinking is what is killing them.  I say bravo to those standing up, and willing to dump their current suppliers for another.  The margins are shrinking, and FD’s need to wake up and shake the trees.

Okay off my soapbox…

I’ve been thinking about this for a few months now.  It started in earnest with an email question that I wrote about in Can You Negotiate SCI-Level Casket Discounts?

Then we had a response from Michael Manley on a Possible FBA Buying Collective.  In the post, he describes a buying collective for funeral professionals that he plans to get off the ground in the coming years.

But all of it comes back to a basic issue:  maximizing income and minimizing cost.

As a business owner, I wrestle with keeping my costs down.  I’ve sought out lower costs by buying materials in bulk, buying from traditional retail outlets during sales and using coupons and promotional codes on websites.

I’ve figured out how much it costs me to have my assistant handle bill collecting versus the fee I’d pay for accepting credit cards, which has lead me to put off having a full merchant account with a credit card processor.

We save every peice of fabric that is cut off of our wholecloth when creating one of our quilted mortuary cot covers and look for new uses.  Some scraps (big squares) have been stitched together to form the quilts I’ll give as gifts this Christmas.  (If you’re a member of my family, forget that you just read that or risk not being surprised!)

Many of the fabrics we use are wider than we need, so we cut off a strip.  Those strips (about 12″ wide) are the perfect size for our latest product (still under wraps!) that we created after looking at our materials and thinking “What can we make out of that?”

Of course, there are opportunities to save money that we don’t take.  We could get a cheaper version of the nylon lining fabric that we use in our covers (we call it the FluidBlocker) but we’d have to sacrifice some of the protective qualities, so I said “no.”

How does this affect the typical funeral professional?

You need to keep your eyes open.  There are always methods to save money, but they’re not all beneficial and some will actually negatively impact your standing in the community.

Want to be seen as a prestigious firm with community roots?  You can’t have a crappy hearse that’s ten years old.  On the other hand, a price-focused funeral home can’t be located in a large, expensive building in the swankest part of town.

How you spend money at your firm should reflect the image you want to project.  Caskets aren’t your image; they reflect the image your client family wants to protect.

And to be brutally honest, the family has no idea who makes the caskets you carry or how much you pay for them.  Casket manufacturers have done little to brand their identities with the public, so why should you worry about the name?

I see three strategies for firms trying to decide which caskets to carry:

1.  Meet with every possible casket rep. in your area.  Tell each of them that you’re picking a brand and will be taking into account the discount offered, showroom assistance provided and speed of delivery.  Pick the one who gives you the best deal and offers the most benefits.

2.  Order caskets from a lot of different makers and have them on your floor.  Or get corners or pictures from a bunch of different suppliers.  Let your families decide which caskets they want to buy.  You might find that families choose based upon color and features (“Oohh… it has butterflies embroidered in the lid!”) and not the manufacturer.  If so, find the best caskets you can at the lowest price and don’t worry about who makes it.

3.  Stick with what you’ve been doing.  What’s the most you’ll save per casket?  $50?  $100?  Don’t worry about the small percentage you might save and use your time to do some more P.R. in your community.

Having run a small firm, I can tell you that we employed each of these strategies at different times.  In fact, our “proprietary showroom”, with fancy cut corners and pictures, often played host to several inexpensive caskets from the local casket company.

If a cash-strapped family wanted the simplest casket possible, we’d ask them what color they wanted and order a 20-guage, non-gasketed unit from the nearest independent casket company.  Their prices were half of York or Batesville and their quality was less, but not one of those families complained.

In fact, each family was impressed that they could get such a “pretty casket” for so little money.

Sure, we funeral professionals love a pretty casket (I saw some beauties in Vegas), but most consumers don’t even know how to close a lid properly, let alone discuss the merits of swingbar handles, urn corners or stainless steel.

So do what’s best for your company. 

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Michael Manley, publisher extraordinaire and frequent Final Embrace contributor responds to the recent question Can You Negotiate SCI-Level Casket Discounts? by describing a buying collective he’s already begun brainstorming:

This was an interesting post. I found it especially interesting because it won’t be long until I will make this very concept a reality, by forming a BUYING GROUP. Having been a “sales director” in a previous career with a large manufacturer in a 150 billion dollar/yr industry, I do believe this concept will work. The industry I previous worked was comprised of about 20% corporate owned business, and 80% independent.

In that industry, the independents had very little purchasing power, but in 2001 a “cooperative” formed, a Buying Group created, and it created an “equal playing field.” Maybe not 100% equal, but it was a big step in the right direction to give the little guy something they lacked- a collective voice and strength in numbers.

You mentioned that it may not be beneficial to the manufacturer, because they have no assurance that a member of the group won’t defect and go to another supplier. Two things on that point; first, the appeal or allure for a manufacturer is not to ensure that every member uses their product, it is to ensure that they have the ability to mass market to a large group of buyers (funeral directors) at one time. Also, a true buying group actually facilitates the transaction on behalf of the manufacturer, thus providing them a savings by streamlining the entire transactions. Most buying groups solicit, market, advertise, take orders, and invoice for the vendor. This streamlining of the sales process is the allure to the manufacturer, not the assurance that like SCI that once a deal is signed, it guarantees a certain amount of business. Not all buying groups operate exactly like this, but the opportunity and the advantages are numerous.

Now, you are right, it can be a daunting task to think of beginning a buying group. After all, how do you solicit both Manufacturer’s as members, and funeral director’s alike? How do you promote the group, and ensure that everyone has an equal opportunity to participate? In fact, you mentioned (IOGR). I have actually discussed this same concept with George Darte. The disadvantage they have, like any organization, is the marketing of the group to the entire industry, both supplier and funeral homes. They have members, but they ONLY have access to their members, unless they wanted to go outside of their members and promote the group.

Well guess what? I am actually deep into the process of beginning just such an opportunity. It won’t be long until you see, for lack of a better term, the FBA Buying Group. This whole idea was born out of something I realized a long time that FBA has given me; a distribution network of 17,500 funeral homes, crematories, and vendors. Unlike IOGR or NFDA, I don’t have an allegiance to just my members. Every independent funeral home and crematory gets my publication, so I can mass market the concept better than them.

I refer to this concept as the”Starbuck’s” principle. They didn’t invent this next concept, but they have done it as well as anyone. What is this principle? Not too long ago, Starbucks realized that they have 22 million individuals walking through their doors to purchase coffee or beverages each and every day. Twenty-Two Million consumers that they could sell anything to. It didn’t take them long with that market to realize that selling coffee may not provide them with the only opportunity to exploit this group. They soon began to moonlight as a CD retailer. They began selling pictures, cups, mugs, etc. CEO Howard Schultz has now gone and is doing what McDonalds and Burger King has done successfully for years. You soon will begin to see movies promoted on sleeves of Starbucks cups and on the Wi-Fi network.

Another example; I worked 10 years with UPS, my last 5 as a National Account Manager. So I have a fairly detailed working knowledge of UPS, and most probably don’t know that UPS business plan says that by 2012, over 50% of their revenue will come from their Logistics business (they set up distribtion channels for companies, handling everything from receipt of orders, order entry, warehousing, packaging, shipping, tracking, and reconciling statements for companies). They allow companies to outsource rather than do it themselves.

Point is, Funeral Business Advisor affords me very much the same opportunity. We have a captive audience of virtually every independent funeral home and crematory in the United States. We have relationships with over 100 vendors through the magazine. So with the distribution network in place, the next step is to organize my “cooperative.” It will be as simple as providing 2 very inexpensive products. One for the vendor, and one for the funeral director. Then for a very nominal fee ($99 per month for Vendor, and $19 per month for funeral director), we will do what we do best. Bring BUYERS and SELLERS together. The vendor package will include FBA advertising the Buying Group in each issue, forming the website with individual vendor pages that we will build and maintain for the vendor, being included in a twice annual “buying group” catalog, market them to over 17,500 readers, and numerous other benefits I can’t mention yet, all for less that $1200 per year. That is the cost of a 1/2 page color ad (1X) in most industry publications. The funeral home will receive a simple, but yet, important benefit. A minimum discount that each vendor will agree to offer the group. The will get a free annual subscription to Funeral Business Advisor, a free “buying group” catalog twice a year, private access to the website, full access to participating vendors, and a simple one-stop shopping mechanism for all of their purchasing needs. All for less that $120 per year, or amount they would save if they bought just one casket from our vendors.

Now, I agree this may not be on par to what SCI can bring to the table when they negotiate with Batesville, but interesting enough, I have a very good relationship with Joe Weigel, communications director with Batesville. And I have discussed this concept, and although he didn’t do back flips, he did say it was interesting concept and feels if done properly, would have a strong appeal.

Anyway, I am not an expert on buying groups, and i would be interested in your thoughts. Even though there may be challenges, I can’t help but believe our distribution network is our biggest asset. I value your advice, and we have always managed to have good conversation and exchanging of ideas. Waiting for feedback…

Last week started with a call from a panicked funeral director.

He’d worked hard convincing a client that his services were the best in town.  He’d used his hearse for the removal, made sure he and his staff were impeccably dressed, triple-checked his facility before they arrived for the arrangement conference, had coffee, soda, water and snacks available for the family and much more.

He carefully walked them through the funeral arrangements.  He told them that typical burial services, with a casket, ranged from $5,000 to 8,000, depending upon the casket and services selected. 

He was delighted when they chose a stainless steel casket.  He was even more excited that they liked the most expensive register book package he offers.  They chose two nights of viewing and settled on three limousines.

This was going to be the most profitable service of the month for his small funeral home.

Until he handed the family the contract, that is.  That’s when they got saw their “ideal service” would cost over $12,000.

 

The funeral director spent a few tense minutes going over the bill, highlighting the price of each item and service.

In the end, the family chose to remove many of the extra services.  They downgraded to an 18-gauge casket.  Mr. Frugal, the son who had deferred to his mother’s decisions during the initial conference, suggested that they drive themselves to the service, so the limousines fell off the bill.

The final bill:  $6,598.

“What went wrong?”  He asked me.

First, by selling himself and the great services of his funeral home, he created a level of trust with his client family.  Then he told them that most funerals cost between $5,000 and $8,000, a fact which they trusted.

Then he sprung a $12,000 bill on them.  “WHOA!” they thought, “We trusted you and you lied!”

Of course he didn’t lie, but he created an expectation that the service he helped them plan would fit inside the quote he offered.

Not to suggest you follow this lead, but consider, for a moment, the process that car salesman use when negotiating a sale:  the monthly payment game.

Rather than discuss a final price for the vehicle, the salesman might ask “how much are you willing to pay a month?”  This confuses the buyer, but also gives the salesman a baseline from which to start.  Then, he goes to “talk to the sales manager to see what can be done.”

No salesperson I’ve ever met brings back a lower amount.  In most cases, the offer is much higher than the amount you thought was your ceiling.

But now he’s got a comparison.  So he can suggest a higher amount from you, which his sales manager will, of course, reluctantly accept after 20 minutes of discussion, because, as the salesperson claims, they “want to see you in that car.”

Ernies Auto Sales of North Adams MA sells used cars

 (Photo Courtesy of Ernie’s Auto Sales of North Adams, MA) 

Why, then, do so many people drive out in a new car, excited by a monthly payment that was 20% more than they were originally willing to pay?

Because the salesperson created an expectation.  He told them that the payment might be as much as twice what they were willing to pay, but immediately followed with a promise to find a lower alternative.  Conveniently, that lower alternative was still higher than the customer’s original goal.

In the end, I suggested to the funeral director he start overestimating and making sure the final bill always comes in below the high-end.

Why?  Because any quote creates expectations for his clients.  By bringing back a lower total, he maintains the trust he’s built and looks like someone who can be trusted.

And, as I pointed out to him, some families do choose $12,000 funerals, like his clients did initially.  So he should AT LEAST quote $12,000 as a high figure.

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