When you look in the mirror every day, do see a good funeral director, one who day in and day out meets the needs of grieving families and one who places the family’s needs above your own? If you are like most funeral directors, helping people is why you chose your profession and that should make you feel good about yourself. But how do you feel when you look in QuickBooks and notice there are more bills to pay than there is money in the checking account? Perhaps, your management style of operating your funeral home is lopsided, leaning too heavily on giving and not taking, a caregiver and not a business person. Over the years, perhaps you developed some bad financial habits that keeps your caregiver vs. business person out of balance. It is never too late to learn from your mistakes, but first you need to admit your mistakes and second you need to make changes. Business decisions, good ones and bad ones, are a result of habits. If you listed out your bad business habits, would they include any of the following?
Basing your General Price Lists (GPL) on your Competitor’s General Price List
Unless your overhead and cash flow needs are the same as the one or two funeral homes in your town or service area, which is extremely unlikely, your GPL should be different than theirs. The amounts on your GPL need to reflect your business needs. Prior to updating your next GPL, which should be done routinely, it’s imperative that you first determine your overhead and cash flow needs. Knowing your monthly cash flow needs, along with analyzing call volume by types, enables you to prepare a GPL that will meet those needs. Pricing your goods and services is not a guessing game. Worrying about what Smith Funeral Home charges for direct cremations is not going to help you pay the monthly mortgage or bi-weekly payroll. That is not to say that competition is not important. It is, but a GPL should be more to a family than just the amounts. Effective and clear communication with your families is critical. Families need to believe that the services you provide are worth what you are charging. It is easy to compare prices with your competitor, but it is not easy to compare quality of services. You and your staff need to out-service your competitors. When families mention or hear your name or the name of your funeral home, the first thing that should come to their minds is service-how they were treated and not how much you charged them.
Inadequate Accounting and Financial System
Your accounting system is a valuable tool. A funeral home’s accounting and financial system should be used to paint a financial portrait of your business activities. If your accounting system is not generating current and relevant financial information, your business decisions become a guessing game. Remember, effective GPL pricing demands quality numbers and proper analysis.
With today’s technology, like QuickBooks Online with its time-saving features, there are no excuses for not having quality financial information at your fingertips. QuickBooks Online provides 24-hour access for you and your accountant. With a little guidance, if you can read, type and turn on a computer, you can have an effective funeral home accounting and financial system.
Funeral directors do not need a degree is accounting or finance to generate quality financial information or to make prudent business decisions. A funeral home’s accounting system should be designed with the funeral director in mind. Your chart of accounts, which is the record for each type of asset, liability, equity, revenue and expense, should be specific and tailored for you. For example, the revenue categories in your chart of accounts should match the descriptions on your Statement of Goods and Services Selected. If you offer packages, like Cremation with Visitation, that offering should appear as a line item on your Profit and Loss Statement (P&L).
Your Cost of Goods Sold should include categories like caskets, vaults, urns, monuments, clothing, memorial packages and jewelry. General categories for expenses should include General and Administrative, Automotive, Facilities, and Salaries and Benefits, with each general category further broken down to effectively paint a picture of your operations. Cash Advance Revenues and Cash Advance Expenses both deserve their own categories.
Producing quality financial reports and basing financial decisions on them is only second in importance to providing quality service to your families. Remember, a funeral home’s accounting system should not be designed only so your tax professional can prepare your federal and state tax returns. Your system needs to generate financial reports that enable you to monitor your financial operations. As an example, the Profit and Loss Statement provides information to determine if expenses are in-line with revenues. It shows if the amounts on the GPL are generating enough revenues to generate profits. The P&L is used to determine if the mark-ups on caskets and other merchandise are generating proper margins. The P&L shows a funeral director if the cost of Salaries and Benefits are too high when compared with revenues.
Too Much Debt
In February of 2019, the U.S. national debt was reported at over $22 trillion. Debt may be the American way, but that way may lead a person down a rocky financial path. There is no argument that most funeral directors need to borrow in order to purchase a funeral home business. In addition, many funeral directors rely on 5-to 7-year loans to maintain a quality fleet of automobiles. Debt is not always bad. But, debt without a financial plan to repay the debt can quickly turn dreams into nightmares. Debt is only a funeral director’s friend when it is used to increase financial net worth. Before considering a new loan or refinancing, funeral directors need to determine if they have adequate cash flow to support the new payments. When refinancing, the question to answer first is whether the costs of refinancing, like appraisals and bank fees, and the new interest rate saves or costs money. A financial red flag is obtaining a short-term loan to help pay for long-term debt, like taking out a line of credit to pay the mortgage.
Another question to answer is whether additional debt will increase the value of your funeral home. For example, if a funeral director is considering a major renovation, like a new chapel, it is important to determine if the cost of the chapel and the related debt service will be met by increased call volume. Another question to answer is whether business would be lost if no addition was made. During slow months, too much debt can quickly drain a checking account. In the case of acquiring a funeral home, the key is using financial information, like financial statements and tax returns, to determine how much debt the funeral home can support once purchased. Every funeral home owner, regardless of age, should have a debt retirement plan, a financial blueprint that illustrates how and when all debt will be paid off. Retiring while in debt does not make good financial sense.
If you find yourself always behind the financial eight ball, perhaps it is time to rethink your financial game plan by developing new habits. Wasn’t Einstein who said that a sign of insanity is doing the same thing over again and expecting different results? FBA
Ronald H. Cooper, CPA, is a funeral home accountant and consultant with Ronald Cooper & Associates CPA, LLC. He can be reached by phone at 603-671-8007, or you may email him at [email protected]
Raymond L. Bald, CPA, CFE is a funeral home tax accountant and consultant with Cummings, Lamont & McNamee, PLLC. He can be reached by phone at 603-772-3460, or you may email him at [email protected]