By” Ron Cooper, CPA & Ray Bald, CPA

Managing your funeral home’s cash and understanding cash flow is essential to maintaining a financially healthy funeral business. If your cash flow management consists of only checking your bank accounts online or looking at the balances in QuickBooks, it’s time to step-up your financial game. It is not good enough just to look at how much cash you have today. You need to forecast how much money you will have at a specific date in the future. No! You do not have to be an accountant or financial guru to understand or implement quality cash flow procedures. All you need is a little financial sense and guidance.

Step 1-Admit your Problem
The first step towards healing a struggling funeral home is to admit that your business has a cash flow problem. If you can answer yes to any of the following questions, you might just have a cash flow issue: (1) Are you ever late on mortgage payments? (2) Do you miss out on discounts for casket or vault purchases? (3) Does your accountant harass you for not paying your federal or state income tax estimates? (4) Do you put into savings or a retirement account less than 15% of your yearly earnings? For example, in 2018, if your funeral home’s S-Corporation reported $50,000 profit and your gross wages reported on your W-2 was $50,000, did you tuck away less than $15,000? (5) Do you use funds from a line of credit to pay your mortgage or vehicle debt? Again, if you answered yes to any of the above, it’s time to act.

Step 2-Determine Monthly Cash Expenditures
The second step is to determine on average how much money flows out of your checking account on a monthly basis. Throughout each month the balance in your checking account is reduced by checks or debits to pay for the following: Cost of Goods Sold (caskets, vaults, urns, register books and cash advances); Facility Expenses (building insurance, cleaning, heat, repairs and maintenance, rubbish, utilities, water and sewer etc.) General and Administrative Expenses (advertising, dues and subscriptions, liability insurance, office supplies, postage, professional fees, telephone, internet, etc.); Salaries and Benefits (casual help, salaries and wages, payroll taxes, health insurance, workman’s compensation, etc.). Notice that the above items are expenditures found on your income statement (Profit and Loss). Also notice that only expenditures that reduce the checking account are included. Expenses on the income statement like amortization and depreciation are not included because they do not reduce the cash in the checking account. This second step can be made very easy by using an Excel spreadsheet. Remember that all you are trying to do is find out on average how much money flows out of your checking account on a monthly basis.

Step 3-Prepare Debt Schedule
The third step is to prepare a debt schedule. For many funeral homes, monthly debt payments cause the largest drain on their checking accounts. Normal debt payments consist of principal and interest. For income tax or financial reporting purposes only the interest is deducted, but for cash flow purposes both principal and interest reduce the checking account balance.

Step 4-Determine Owner’s Draws
The fourth step is to determine on a monthly average how much money is taken from the checking account by the owner in the form of dividends, distributions or non-deductible withdrawals.

Step 5-Prepare Capital Expenditure Schedule
The fifth step is to determine how much and when money will be paid for large capital expenditures that do not qualify as repairs and maintenance. Expenditures that do not qualify as repairs and maintenance are not included on the income statement and would not be included in Step 2 above. Remember, the goal is to determine what reduces the checking account balance. For example, if you plan to upgrade your flower van in December by making a down payment of $5,000. and financing $30,000 over a five-year term, the checking account will be reduced by $5,000 in December. The amount of the monthly payments, which includes principal and interest, should be included in the debt schedule.

Step 6-Prepare Schedule for Funeral Revenues
The sixth step is to determine the amount of average monthly revenues from funeral and other sources like trade work. Cash or checks deposited into the checking account increases the balance. This step is also a great time to evaluate your overall collection policy. Lenient and inconsistent collection polices will sabotage your average monthly inflow of cash. There is a direct correlation between high accounts receivables and a faulty collection policy. During the time of each at-need arrangement, it is imperative that the funeral arranger communicate to the family that payment for the services, merchandise and cash advances are expected by the day of service. Exceptions to this policy could include families that had prepaid through a mortuary trust or insurance policy. When it comes to collecting money from your families, your funeral home must be viewed from a businessperson’s eyes. Remember to tell yourself that you are not operating a bank. If a family does not have the resources to pay you before the date of service, what makes you think that they will have the resources later?

Step 7-Putting it all Together
A schedule showing the expected amount of cash coming in and cash going out for a specific time period, like monthly, quarterly or annually, is the foundation for all major and minor business decisions. If your funeral home’s net cash flow is generating less than 25% of your net funeral revenues (funeral revenues minus cash advance revenues), it’s time to determine why. That is why a cash flow analysis is so important. A properly prepared cash flow analysis will serve as a financial blueprint, highlighting financial issues that need attention. A cash flow shortage is normally a symptom caused by many small issues that add up to major financial problems. Addressing the small issues is key to gaining financial control of a funeral home. A cash flow shortage can occur from any of the following and is normally a combination of all: (1) using an ill-prepared or outdated General Price List; (2) too much mortgage or automobile debt; (3) wages and benefits, including owner’s distributions, greater than 30% of net funeral revenues; (4) not paying attention to small individual expenditures and expenses that quickly add up, like travel, entertainment, credit card processing fees and trade work. A cash flow analysis is a financial tool that maps the financial blood flow of a funeral home. But, like the information generated from your accounting and funeral reporting systems, if they are not used to make sound financial decisions, it is useless, except for preparing tax returns.

Remember, this is not your grandparent’s funeral profession anymore. What Bob Dylan started singing back in the early 60s applies to the funeral profession today. The Times They are A Changin’. FBA


Ronald H. Cooper, CPA, is a funeral home accountant and consultant with Ronald Cooper CPA, PLLC. He can be reached at 603-671-8007, or by email 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 at 603-772-3460, or by email at [email protected]