Last week we saw the American stock markets drop almost five percent before making a partial comeback on Friday.  Who knows what will happen today, but depending on who you listen to the markets were spooked by rising interest rates, rising oil prices, and rising potential inflation which can cause changes in business success dependent on what type of business you are in.

So, let’s just take a look at how you can be affected by the following if you are in the funeral home business.  I’m not an economist but I’ve operated a funeral home for over 35 years so I have some sense of where things go in these types of environments.

Interest Rates – The most obvious consequence of rising interest rates shows up to funeral home owners with their debt payments.  Many owners have acquired their businesses with at least some help via a bank loan and many of these loans have variable interest rates which, in most instances, will rise as the Fed raises rates.  From 2008 to 2015 interest rates were held in check so companies had a great run in making low interest payments on debt.  From 2015 thru September 2018 we have had Fed interest tick up 2.25% points.  On a $500,000 loan that (2.25%) means you are paying over $11,000 more in annual interest – almost $1,000 per month more in expense.  The Fed continues to signal more interest rate raises in the future.

A quick observation about rising interest rates is that as rates rise, be cautious about adding debt and even pare some of the debt you have if you have the assets to do so.   The more interest you pay, the less you have for other expenses or profits.

If you guarantee funerals thru pre-arrangements, there may be some good news as it is quite possible that your pre-arrangement insurance partner may credit an increased amount to the policies annually, over the minimum requirement, to keep up with competition.  If so, this is a good aspect of rising interest rates as it provides the funeral home with more revenue at the time of death for the services that you have provided.

Oil Prices–  Oil prices have fluctuated over the past several years but seem to be on the rise now.  Many times oil prices also reflect how our country and our allies control the flow of oil production.  Prices have went up and at this time we are in some tense situations with our Mideastern allies.  It is difficult to know how those situations will end, but if oil prices continue to go up they do make a difference in the cost of caskets and vaults, especially for rural deliveries.  I would argue it would be prudent, at this time, for rural funeral homes to really understand that they may be facing pricing increases in those products as they move forward.

Inflation –  Inflation has really been in check in America, for actually the last 25 years – we have had only one year of the inflation rate over 4.0% since 1991.  That was in 2007 with a 4.08% and preceded the great recession.  I did notice the other day that the Social Security Administration set the COLA rate for Social Security recipients at 2.78% for next year.  That is the highest rate we have had since 2011 and four times the rate of inflation that the country had in 2014 and 2015 – when we had about 0.75% inflation.

From my point of view, inflation will cause financial pressure on funeral homes in the areas of supply costs and personnel costs.  Personnel is one of the highest costs of operating a successful funeral home and salary increases to keep up with, or exceed, inflation may be necessary to keep good and reliable personnel in the tight employment environment we are in.

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