However, the allure of ownership should be approached with careful consideration. While the idea of having the freedom to set your own schedule and make decisions without supervision is appealing, there are inherent challenges. Being a good funeral director doesn’t necessarily equate to being a good manager, and similarly, good managers don’t always make good owners. It’s critical to recognize personal inadequacies and work on developing the skills necessary to succeed as an owner.

As Tom noted in his article, the journey from funeral director to owner requires a deep understanding of what ownership entails. It’s easy to look at the rewards of owning a business without fully appreciating the hard work required to reach that level. The climb to the top involves a great deal of learning, adaptation, and a willingness to let go of certain tasks in order to assume the broader responsibilities of ownership.

When exploring funeral home ownership opportunities, it’s advisable to memorialize any promises of future ownership in writing with a current owner. Without a formal agreement, there is little foundation to build on, and years of hard work might not result in an ownership stake. Aspiring owners should also be prepared to enhance their leadership and management skills through conferences and training programs, such as those offered by Johnson Consulting Group’s Leadership and Management Academies.

One of the current advantages in our profession is the availability of financing. With the right preparation, a bank can fund the purchase of a funeral home, allowing the new owner to pay back a loan over time while keeping the business for themselves. This is a key part of the American dream, but it requires thorough financial readiness, both in terms of savings and skill set. Aspiring owners must be equipped to manage debt and know when and where to seek assistance.

It’s important to remember that the learning process never stops. As an owner, others will look to you for answers, which can create pressure. But, it’s crucial to continue growing and seeking support when needed.

Looking at the next generation, there’s often a misconception that “They won’t work as hard as previous generations”. However, today’s business professionals are finding innovative ways to balance work and life. Through outsourcing, leveraging resources like associations and the internet, and using study groups, younger professionals are finding efficient ways to accomplish their goals without overworking themselves. In summary, it’s more about prioritizing balance and using the abundant resources available.

In conclusion, owning and running a funeral business isn’t for everyone, but it can be incredibly rewarding. The key to success lies in taking care of the families you serve…Period! If you can do that, they will take care of you. With the right preparation, support, and willingness to learn, you can enjoy the many benefits of ownership and establish a successful future for you and your family.

*This article was originally posted on the Funeral Director Daily website.

The post Opportunities in Funeral Home Ownership: The Path to Entrepreneurship in the Funeral Profession appeared first on Johnson Consulting Group.

Preneed Sales: Asset or Liability?

One of the frequent questions we encounter is whether preneed sales are an asset or a liability for a funeral business. The answer is both. In accounting terms, preneed sales are considered deferred revenue, which is technically a liability. However, the value of a robust preneed book of business is invaluable for future enterprise value.

Starting with Preneed Programs

There are numerous third-party marketing companies that can assist with implementing preneed programs, or you can manage it in-house. Regardless of the method, setting a monthly sales target is crucial. Ideally, for every at need contract, we aim to replace it with 1 to 2 preneed contracts.

Our analysis of various funeral homes across the United States and Canada indicates that preneed contracts typically represent 35% of the annual at need case volume at a funeral home. This statistic is often referenced when evaluating the value of the preneed book of business. For instance, a funeral home with $5 million in their preneed account, might see only 35% of that amount come to fruition annually. In other words, that represents 35% of the total at need revenue for the year. Then, taking into consideration the correlating operating expenses of the business, the result is excess cash. This method creates a simple view of how to determine the value of the contribution of the preneed total book of business.

For further insight, consider a funeral home with an annual revenue of $1 million (excluding cash advances), where $350,000 of that revenue is derived from preneed contracts converting to at need. This revenue then incurs expenses, and the resulting EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization) is multiplied to determine the business’s value. Additionally, preneed sales help lock in today’s family preferences, which is crucial as trends like rising cremation rates continue.

Importance of Monitoring and Training

We believe that what gets measured gets done. Therefore, having a budget, weekly sales reviews, and consistent funeral home training in customer service are essential. Even funeral businesses experiencing a decline in at need volume often maintain consistent preneed case volume. This consistency highlights the loyalty families feel when they pre-plan and return to the same funeral home.

Conclusion

When asked if a preneed program is an asset or liability, it is clear to us that it is a significant asset that enhances the value of a funeral business. However, careful planning and monitoring are necessary to ensure that preneed sales do remain an asset and not a liability. At Johnson Consulting Group, we conduct numerous contract analysis studies and provide strategic planning guidance to ensure the effectiveness of these programs. Our partnerships with third-party experts further support our clients in maximizing their business value through preneed sales.

If you want to know more about increasing the value of your business, feel free to reach out to us at Johnson Consulting Group.

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First, Let’s Get Your “House” in Order 

Business Assessment 

Ensuring success begins by strengthening the core of your operations. Think of the thorough operational checkup as checking the heartbeat of your funeral home in the areas of workplace, financial management, market place, and customer service. Recognize your strengths, find areas for growth, and locate where you can make things run smoother. It’s like giving your business a health check to make sure it’s in top shape for the journey ahead. 

Strategic Planning

Identifying areas of opportunity within your business can only be created by a strategic plan, this is where many businesses fail. We are staffed appropriately to manage the daily operations but not to execute on areas of opportunity identified in a business assessment. 

Customer Service “CX” Culture Training 

Strengthen your internal team by cultivating a culture that’s eager to embrace expansion. Enhance communication channels, ensuring everyone is passionately engaged in the exciting road ahead. A united and empowered team is the driving force to ensure that your funeral home can grow successfully in the dynamic landscape of acquisitions. 

Now, What You Need For A Successful Succession 

Expanding your business isn’t just about being brave—it’s about knowing what you’re doing and having a plan. From funding the dream to knowing how much your business is worth, there’s a lot to consider when moving through a successful succession.

Determining the Right Price

Valuation isn’t just numbers; it’s an art. Learn the art of valuing funeral homes, taking into account industry-specific factors. Master negotiation strategies to ensure a fair and mutually beneficial deal. 

Funding the Dream

It starts with funding. Know your cash flow, understand the assets involved, and make sure you can manage any funeral home loans. Explore different funding options while keeping your business stable. Evaluating various financing options without sacrificing your business’s stability is vital to success, underscoring the importance of amortization, interest rates and balloon payments, among others. 

Understanding the Structure

With any business value, the details of it are the structure. It has been said that you can make any value work if the structure is correct. For that reason, knowing among other things, what to allocate to cash, to a loan, to a non-compete agreement, and to consulting agreements, are critical. 

Successfully Onboarding a New Acquisition

The real magic happens post-deal. Craft a plan for a smooth transition, addressing challenges before they arise. Ensure the cultural integration of teams to create harmony within your funeral home. How do you do this? …. Due diligence and a strategic plan! 

Each step is a critical part in mastering the deal. Armed with knowledge and equipped with strategies, Johnson Consulting Group can help you step confidently into the future of acquisitions. 

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The accelerated deaths due to COVID marked increase case volume years for the funeral profession in 2021 and 2022. However, as we stepped into 2023, the initial momentum slowed down, returning to a more typical caseload at most funeral homes. Yet, some establishments maintained their caseloads, highlighting the varying experiences across the industry.

This slowdown in case volume inevitably affected valuations. Some offers for funeral businesses were either stalled or withdrawn, accompanied by an uptick in interest rates. Funeral homes with variable interest rate loans and tight fixed charge coverage faced challenges, while those with careful financing and a mindful approach to debt-to-cash flow navigated the period with relative resilience. Despite the hurdles, my optimistic viewpoint leans towards a favorable outlook for the funeral business in 2024 and beyond as we emerge from the shadow of COVID.

One of the pivotal shifts during the pandemic was the transformation of the labor market. With the advent of remote work, rising inflation, and increased awareness of employment options, funeral businesses witnessed a notable increase in labor costs. This shift, though challenging, presents a dual perspective. On one hand, it offers an opportunity to attract and retain skilled employees who may have been underpaid. On the other, failure to adjust compensation may lead to staff seeking employment elsewhere, emphasizing the need for strategic decisions in response to changing labor dynamics.

Rising cremation rates continued to leave their mark in 2023, with technology advancements enabling online cremation offerings and discounted options. While cremation’s popularity persists, funeral homes need to adapt to the evolving landscape of service offerings.

Reflecting on valuations, 2021 and 2022 witnessed peak valuations, whereas 2023 introduced a more varied landscape. Premium firms continue to receive high valuations, but the range of offers expanded, differentiating between businesses prepared for market dynamics and those with unresolved issues. Well-prepared businesses, with a focus on budgeting, strategic planning, staff engagement, merchandising, and effective marketing, continue to stand out in the market.

As we stride into 2024, normalized projections for case volume, and stabilized or lowered interest rates offer a positive backdrop for funeral business acquisitions. The industry remains dynamic, with a steady flow of individuals interested in owning and growing funeral businesses. However, a discerning approach to evaluating future business prospects has become integral, considering the normalization of call volume after the unique challenges of 2021 and 2022.

The trajectory of labor costs seems to have found a balance, with some firms still navigating necessary adjustments. The anticipated “silver tsunami” of an aging population further underscores the importance of retaining a skilled workforce. Despite the challenges, the funeral space stands poised for growth, with a potential increase in case counts in the coming years.

In conclusion, meticulous attention to budgeting, forecasting based on trends, strategic planning, and a holistic review of various facets of funeral business operations are paramount. Whether considering succession planning, third-party involvement, or nurturing the next generation within the business, these considerations are not just essential; they are vital for the continued health and prosperity of funeral businesses and their impact on the communities they serve.

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