Sunny business prospects may soon turn cloudy. Just when things were looking bright for funeral home and cemetery sales, the tax people have started closing in. Darker days are on the way in the form of increased capital gains and ordinary income taxes. Now is the time to consider selling.

Tax Fact #1 – The Proposal

A proposed federal tax increase could soon affect your business by raising taxes on long-term capital gains and qualified dividends, as well as ordinary income. If put into effect, the U.S. would have the highest marginal tax rate in the OECD (Organisation for Economic Co-operation and Development) at 39.6% (currently 20%). When combined with the 3.8% NIIT (Net Investment Income Tax) and average top state capital gains tax rates, the proposal would lead to a top combined state and federal tax rate of 48.4%, up from the current top rate of 29%. At this number, the U.S. would have the highest overall tax rate in the OECD.

Tax Fact #2 – The Timing

Things are already starting to look gray and the cold chill of the new tax proposal could be approved and take effect on January 1, 2022, if not sooner. This means time is of the essence to get a succession plan in order and possibly even push up your selling timeframe in order to avoid lofty new taxation on your business and personal income.

Tax Fact #3 – The Details

The new tax proposal:

• Would apply to taxpayers with taxable income over $1 million
• Is not expected to be retroactive
• Would put the U.S. in a small, elite group of only five countries facing capital gains and dividend tax rates above 40% along. The other countries are Denmark, Chile, Ireland, and Korea. 
• Is part of a broader plan to raise taxes on those making over $400,000

Tax Fact #4 – The Consequences

Because funeral home and cemetery businesses tend to stay around much longer than others, sometimes even 100 years or more, capital gains can be significant. This potentially puts funeral home and cemetery professionals at greater tax risk than others. Unlike other businesses, funeral homes and cemeteries almost always include real estate, which most often results in building depreciation. This building depreciation many times creates a net income tax benefit over the years, but the benefit is then eroded at the time of sale due to a depreciation recapture tax. The depreciation recapture is taxed at the ordinary income tax rate up to a certain threshold percentage, which could mean well over $500K-$1M in additional taxes under the proposed tax structure changes. Ordinary income taxes may have an even greater impact than capital gains taxes, so all angles need to be considered. 

Tax Fact #5 – The Exit Strategy

The first leaves are already falling, so the time to act is now. Get your share of the current selling boom before it’s silenced by new tax laws. If you do not yet have a succession plan, need to update your succession plan, or need to push up your selling timeline, we are here to talk. Johnson Consulting Group has the knowledge to help you understand what’s coming next and the experience to lead you forward. We are in business to assist you in getting the most out of your business.

Contact JCG Today

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Cash flow is one of the most important financial metrics of a funeral or cemetery business. The movement of cash in and out of a company is a strong indicator of monetary strength and market value, and cash flow problems can have severe (and sometimes irreversible) effects on continuity of operations. As such, cash flow management is a fundamental component of business strategy and should be closely monitored on a daily basis. 

Tracking how money flows in and out of a business is not an easy task however, and funeral and cemetery professionals are not alone in the struggle to maintain positive cash flow. A recent global study on cash flow challenges showed that 69% of small business owners lose sleep at night due to concerns about cash flow. In order for your funeral home or cemetery to not remain a going concern, you must ensure that there is more money coming in than going out of your accounts. This sounds simple enough but unless you understand all the cash inflows and outflows of your firm, and consistently track and measure significant changes and fluctuations, your business will most likely end up in the red. 

Jake Johnson, the president of Johnson Consulting Group, says that many death care companies don’t know how to maintain proper cash flow levels. “Cash flow issues can stem from payroll, advertising, pricing, case mix, debt load, lease payments and more,” he says. “If efficient cash management tools are not in place, it is a recipe for failure.”

JCG experts have  helped thousands of funeral home and cemetery businesses improve liquidity and value through better cash management. Over the years, we have learned that developing a budgeting and forecasting system and using industry-specific accounting tools and reporting systems are two of the most reliable methods of effective cash flow management. 

Accurate Budgets and Forecasts

Budgeting and forecasting are essential to the formation of a successful business strategy, especially in the changing commercial landscape of the funeral industry. As more families choose cremation or personalized services such as celebration of life ceremonies and green burial, it can no longer be “business as usual” for funeral and cemetery providers. Death care businesses have enjoyed a long period of stable profits, but continuing to rely on past practices will not produce the same results.

Funeral home budgets should not be based on prior year numbers if the goal is to develop realistic short-term and long-term projections. Johnson Consulting Group recommends the use of funeral industry benchmarks and trend analysis when forecasting budget expense categories and creating new product/service offerings. Funeral business operators need to compare their revenue and expense estimates against other firms in the industry in order to find out where their cash flow levels should be — this type of benchmarking can quickly show if your firm’s cash levels are too low or too high. Creating a realistic budget and analyzing the numbers on a monthly basis puts businesses on a clear path to positive cash flow.

Get Organized – Use an Accounting System

Funeral home and cemetery owners should review their financial statements carefully to determine how much cash they have available for operations and investment activities. Gone are the days when a funeral home’s P&L was only used at year-end for tax purposes — current trends demand modern accounting systems that provide detailed sales and expense reports in a timely fashion. Your local accountant may have served you well over the years, but to ensure cash flow accuracy and preserve profitability, you need a professional who can discuss your cash position in relation to your business and the relevant economics of the death care profession.

Your Financial Story

Consistent cash flow management and accurate budgeting and forecasting are the key components of financial success for funeral and cemetery businesses. Johnson Consulting Group’s Accounting and Financial Management team offers two levels of accounting services to meet your company’s specific operational needs. To find out how we can help you understand the real financial story of your business, please call us at 888-250-7741 or contact us online today.

Johnson Consulting Group offers a full-service accounting and financial management system developed specifically for funeral homes and cemeteries. We offer a specialized chart of accounts unique to the industry, and our reporting tools provide customized trend analysis statements and sales summaries by call type, individual arranger, location or company. In addition, our flexible web-based software allows you to review financial data in real time no matter where you are. This ability to analyze your profit & loss, balance sheet, and cash flow statements 24/7 is crucial to identifying negative trends and making proactive decisions for effective change.

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