What’s on the backside of this interest rate/inflation environment for funeral homes?

August 1, 2024/Business, Preneed/

Funeral home owners and managers in the United States, and around the world, have had a lot on their business management plates in the 2020’s decade. Along with the continual increasing use of cremation and direct cremation instead of casketed burials came the pandemic, then inflation, which when measured by the Consumer Price Increase (CPI) has increased prices on average 18.3% (as of October 2023), and finally higher interest rates to try to combat the inflationary trends.

Add to those issues that the Death Care profession had a seemingly low number of employees and to hire or retain employees the salaries and benefits to do so probably climbed higher than the 18.7% inflationary rates. Finally, although the decision may be reversed because of the recent “Chevron” Supreme Court case, non-compete agreements with key employees may no longer be allowed.

Those issues are probably behind the recent quote from Kara Ludlum, who is both a Funeral Director and a Certified Public Accountant and who works with funeral home accounting software company Osiris. The quote from a recent article in a national funeral publication was this, “In the last 10 years, I have witnessed several clients who are beginning to have serious financial struggles”.

In lieu of her statement and the challenges that funeral homes have had in this decade if you are increasing market share, increasing revenue, and bringing home profits you have managed well. Quite frankly, family funeral homes, with local knowledge and business acumen behind them, usually can find a way forward. . . .but it is not always easy or without family sacrifice.

As I write this column the Federal Reserve Board is busy looking at all of the statistics and wondering if inflation is under control enough to start moving the Federal Funds interest rate down a notch, which would indicate we are getting back to more normal financial times. The consensus is that they may do that, but not until September.

So, I think that rate cut may come and it may end the inflationary rising costs of doing business as well as begin the movement of interest rates lower. . . which would lower payments for those with adjustable rates. . . . But, I think at the same time that those in business, such as funeral home owners, get this relief there may be other items at play which will continue to make the navigational waters of funeral home owners and managers continue to be pretty choppy.

Recently I’ve read reports that don’t seem very optimistic about the consumer confidence in America at this time. Just in the last week here’s some of the company reports that show a drop in sales. . . more than likely because Americans are just leery of spending at this time. But it also could be that, because of inflation, Americans are finding that they don’t have the disposable income that they once did. . .which could play out in some respects, such as disposition choice or payment ability, at the time of a death.

McDonald’s — Customers pull back on dining out. Yahoo Finance
Starbucks — Company reports another quarter of declining sales. Yahoo Finance
Job Openings and Hires drop. Yahoo Finance
Lending Tree 2024 Credit Card Statistics — Credit card balances have risen $259 billion since 4Q 2021.
New York Federal Reserve — On an anualized rate, 9% of credit card balances and 8% of auto loans went into deliquency in the 1st Quarter of 2024, delinquency transitioned rates increased for all types of debts in 1Q2024.
27% of American adults have no savings — Bankrate 2024 Annual Emergency Savings Report

Tom Anderson
Funeral Director Daily

Funeral Director Daily take: Like you, I don’t have a crystal ball. And, sometimes information can be mis-leading. For instance, there is a big difference between a McDonald’s or Starbucks customer and a funeral home consumer. . . . In general, funeral home consumers are probable older and have financial assets simply because they have lived a longer life and accumulated more.

But, that feeling, regardless of age, of not feeling as “well-off” as before probably has some consequences in the death care world. . . .might families choose cremation instead of burial because of the lower cost? . . I’m guessing that could happen. . . or they could choose immediate burial and a graveside service instead of a visitation and church service for a loved one.

I also think there is a big difference in financial ability among Americans. . . . I put that ability into four camps — Wealthy, comfortable, getting by, and needing help. And, I also would say that the “Comfortable” and “Getting By” sections are shrinking while the “Wealthy” and “Needing help” groups are growing.. . . i.e. some “Comfortable” moving up to “Wealthy” and some “Getting by” dropping into “Needing help”.

So, for a funeral home owner or manager, the demographics of your historical clientele will play a great deal into how the backside of the inflation/interest rate scenario plays out. If you are in a situation where you think your clientele has been hurt by the economy of the last four years I would certainly look into and maybe adjust the following areas of my operation in anticipation:

Accounts Receivable: What is your policy? What if client credit cards are maxxed out at the time they need them to pay for a death?. . . . Can you carry them? For how long? What interest rate?. . . .I think it is best to have some policies for this situation before it hits you in a discussion across the arrangement table with a family that suddenly cannot pay for your services.

One caveat here on the funeral business — How you respond to “helping out” in a family’s situation when they need help could cement “family loyalty” for generations. I was a 4th generation funeral director and many times heard from families that they would think of going no where else since back in our 2nd generation during the Depression, my grandfather “carried” their debt until they could pay. . . .

Preneed: I’ve always said that preneed is not only a market share driver, but it can be an Accounts Receivable tool also. You can access this money right away and even if a family has a policy that pays only a portion of the cost and the rest has to be put on a receivable. . it is better than no money down. If you haven’t done so already, I’d be pushing my preneed as much as possible to get some money down which more than likely guarantees that service and also helps with the cash-flow.

Let’s all hope the American economy keeps on “humming” but if you plan to make your 1st generation business a 2nd generation business you need to plan for the potential seasons of “disjointed” or “abnormal” business as part of your modus operandi.

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