Tips to Keeping a Funeral Home’s Finances in Order
If you’re like many funeral home directors, you don’t go into the business expecting to become rich. Chances are, you made the plunge and got into the funeral business because you were inspired by the quiet strength and guidance of a funeral director in your own tough times, and you want to give back. Perhaps something about the industry fascinates you, or it has been a family business for a long time.
No matter the reason or the values you hold, a funeral home is a business. It needs to sustain itself, to employ workers comfortably, and it needs to make a profit.
In this article, we’ll help you learn how to keep your funeral home’s finances in order and clear up the mystery of profit in the funeral home business.
Is Owning a Funeral Home Profitable?
Owning a funeral home can be profitable if it’s done correctly. Before you begin creating financial statements and organizing your profit-loss sheets, you need to make financial decisions that give your home a future advantage, which means incurring some debt.
“Debt is not always bad. But, debt without a financial plan to repay the debt can quickly turn dreams into nightmares”
– Meghan Kelly, Funeral Business Advisor
Debt isn’t a four-letter word – not always. If you incur debt strategically, you can help create a path forward for your funeral home and prepare it for success. (1)
Owning a profitable business means that your debt is paid off and you can cover your ongoing operating expenses comfortably while making money on top. Operating expenses also include salaries and contracted work by employees of your funeral home.
The average funeral home can expect a profit margin of 6-7% of their total costs. So, yes, owning a funeral home can be profitable if you take the right steps, but to achieve that 6-7% profit a few years down the line, you will need to make smart decisions at the beginning.
This also means that, given the right location, right pricing and strategic financial planning, you can also achieve a much higher profit margin than the average funeral home.
A key example of incurring strategic debt is whether you want to purchase a funeral home business, or if you want to start from scratch. With a pre-existing funeral home business, the equipment is already installed, the location is set, the locals are familiar with the home, and you can see how well the funeral home has done in the past few years.
Plus, franchising or buying a funeral home can cost significantly less than starting from scratch. (2) Starting a funeral home from scratch can cost anywhere from $100,000 to $300,000 depending on the location, necessary equipment and initial marketing needs.
“In the beginning stages of your funeral home business, you'll have to throw money at lots of little things, as well as a few large investments”
– Brenna Swanston, Chron
Even when purchasing a pre-existing business, however, you should expect to still need to spend additional money on small endeavors, such as outreach to the client list and hiring necessary talent, such as financial advisors or lawyers to keep on retainer.
4BSF helps people find funeral homes for sale, provides consultation services and helps guide you through the process of becoming a funeral director. If you’ve been a funeral director for years and are ready to retire from the industry, we can also help you sell your business and find your buyer match to make sure your home is left in good hands.
How Funeral Homes Can Create a Financial Plan
When creating a financial plan, we recommend that you work directly with your CPA or accountant on retainer. We never recommend that a funeral director takes accounting and other legal matters into their own hands.
A financial plan will help you determine the financing you need to start and operate your funeral home. This plan details how much capital you will need to start up the business in one-time fixed costs, as well as on-going variable costs for operation.
A good financial plan will also detail where you plan to get funding every step of the way and helps you project profits based on an estimated number of funeral services provided to the public.
Once you have the total planned investment, total capital, and the total amount of funding necessary, you are ready to take the next step towards owning or restructuring your funeral home.
How do You Keep A Funeral Home’s Finances in Order?
To keep your funeral home’s finances in order, you’ll need to take careful steps in planning your expenses, and this includes unplanned costs. It can seem like a daunting task, but with help from 4BSF, you can prepare your funeral home for success from the very beginning.
Here are some tips:
- Limit Expenses Limiting your expenses doesn’t mean limiting your business, but it does mean you might need to draw
up a budget. For example, if you want to hire five employees at the beginning of your practice, you might end up performing a funeral service for your business instead, but you may have the budget for two employees at the beginning. That allows you to draw up a plan for hiring the remaining three over an extended period.
“You should limit your expenditures on the things you want and stay focused on buying the items you need to help build your business. Remember you do not have to purchase it all at once. It may be best to start off small and as your business grows so can your spending budget.”
– MobiMedicalCash flow is one of the most important things to keep free in business and limiting your expenses can help you make sound business decisions. The old cremator might be a nuisance to operate, but if it is operating safely, there’s no reason to buy the latest model just yet.
Take care of the expenses you need before spending big on the expenses you want. (3) Set a monthly budget for your funeral home based on the profit it’s bringing in, or the debt you plan to incur based on the financial plan you drafted before purchasing the business.
- Keep Personal Expenses Separate Before you get into the business, it can seem obvious that you would want to keep personal expenses separate from your business expenses, but in the moment, it can be easy to get the two mixed up. Many businesses, not just in the funeral industry, face challenges from mixing personal and business expenses
Combining your personal and business expenses can create a mess for your financial planning. You won’t know how much your business is spending or bringing in, causing problems with measuring the performance of your business. This can prevent you from selling the business and can cause problems with auditors. Furthermore, if you mix personal and business expenses, you risk becoming personally liable if your funeral home is ever sued.
Keeping your personal expenses separate from business expenses keeps things organized and helps reduce your personal liability if anything happens with the business.
- Keep a Cash Reserve A cash reserve is a lifeline for your business. Think of it as a savings account; you never want to dip into it, but it’s there just in case you need it. It is a Rainy Day Fund for your business.
Some funeral directors build their cash reserve with the money received from each service, whether it was profitable for their business or not. Other directors prefer to build their reserve with an initial investment of cash, then only take a percentage off the top of their profits.
Why would you need a cash reserve?
Unexpected costs and accidents happen daily; it’s just a matter of whether it happened to you. For example, if the refrigeration goes out, it’s critical to fix in a short amount of time. Beyond repair costs, the rush charges might bring your business over the edge, even if you have a solid foundation of financial planning under you. There is always room to plan for the unexpected, and a cash reserve helps cushion your business for the unexpected things that life throws at you.
- Hire an Accountant As a funeral director, it’s your job to plan events, embalm bodies, talk to clients, work out payment
plans … the list of responsibilities you take on can continue for days. This leaves no time for learning a
new professional service, so the accounting is best left to accountants.
Hiring an accountant is important for any business, ensuring taxes and dues are paid on time and financial planning is kept in order. An accountant who specializes in working for funeral homes is the best choice for maintaining your business; the accountant will have in-depth knowledge about what you need for operations, where you can cut costs and how cash flow works in the industry.
An accountant who is knowledgeable in your business's needs and understands how to project local trends is one of the most valuable ways you can protect your funeral home’s future.
- Measure Performance Keeping your finances in order is a valuable tool to measure performance. Monthly, quarterly and annual financial reports will help you keep your business on track. You’ll be able to see, from a bird’s- eye view, how your business is performing compared to last year, and even identify patterns in seasonal income trends.
Measuring the performance of your business doesn’t just help you run your business better, increasing profit margins and helping you get the most out of the venture, but it can also be a valuable measure of success when the time comes to sell the business.
Buyers don’t want to purchase a funeral home on a handshake deal and a promise that sales have been “really good.” Buyers are looking to base their decisions on data, and the more data you can supply, the better valuation your business will obtain.
Talk to 4BSF Today
4BSF is your leading specialist in funeral home sales, connecting buyers to sellers. We specialize in funeral home financing and can help get you started on the right foot.
“The most successful funeral home transactions happen with an organized and efficient process. You want the transaction to be smooth and confidential so there’s no disruptions in service.”
– Matt Manske, 4BSF
Never doubt if your funeral home is in good hands again. Find funeral homes for sale, value your business, request a loan, or book a consultation. We provide professional financial services, specializing in funeral homes and funeral services.