I was in a discussion the other day with some people who are a lot smarter than I am.  It was in the room with a volunteer group of Minnesota executives who serve on the University of Minnesota’s ad hoc Debt Management Committee.  We discuss all things concerning the debt of the University of Minnesota.

A comment was made that we only had about $1.6 billion in debt that was being amortized at about $90 million annually and that credit rating companies have told us that we could carry $2.4 billion of debt. . . so we were in a position where we had 33% of our “debt capacity” available to use.  Another comment was made that we are in a great position by having so much “dry powder” in case we need it for something.

Tom Anderson
Funeral Director Daily

Then a very bright CEO of a large credit company spoke up and said, “Maybe it’s not so good to have so much dry powder at this point in time.”  He continued that if there is something that we absolutely need, there will never be a better time to take on debt, in his opinion, in the next decade than right now, as long as we have the cash flow to make the payments.  It got everybody sitting up and listening.  Here were his three key thoughts:

1. The Federal Reserve Board has indicated that interest rates are going no where but up.  We can possibly expect two interest rate hikes in the next six months.
2. One of the rallying cries during this election cycle has been that of raising the minimum wage, and in our case in Minnesota, there is the potential for that wage to be increased to a minimum of $15 per hour.  So, expect labor to go up.
3. Finally, with the advent of tariffs on materials coming from China and much of the rest of the world it is conceivable that even materials made in America will go up in price and be more costly, even if less expensive than imported construction materials. . . .  i.e. the end result will be higher materials.

So, in essence he made a case that if interest rates rise, if wages go up, and if materials also go up, if you have built and locked in the price with a 20 year amortized loan, you will be doing it with cheaper labor, construction costs, and financing than in the future.  From a college point of view,if we know we need a new dormitory, maybe now is the time.

What does that logic say about funeral homes and cemeteries?

If you are a funeral home and are thinking about adding a crematory or a reception hall, maybe now is the time.  I think the logic is pretty good and you will save money in the long run.

Don’t build just to build.  If you think you can add market share or improve margins with a crematory or a reception hall, however, now would be a great time to take a serious look at the project.

As a cemetery, I can think of this as a good opportunity to add an inventory of columbariums on the premises.  We are pretty sure that cremations are going up in both numbers and percentages.  Maybe this provides a great opportunity to get a differentiating style of niche inventory on your grounds at a less expensive cost than will be possible in the future.

These types of exercises are what makes being an owner or manager so unique.  It is not only some of the facts that you can see, but also getting it done right, and at the right cost, sometimes requires having a crystal ball for what is going to happen in the future.

However, this type of exercise where you search for the information, do the research, and put the pencil to the paper to see where you stand should be done quite often.  Over time it can save you considerable money.

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