Business

Your Business Value: A Funeral Home Owner’s Guide to Prepping for 2023

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Jake Johnson
Johnson Consulting Group

Editor’s Note:  Today’s guest columnist is Jake Johnson, CEO of Johnson Consulting Group.  His article begins here:

 

It’s no secret to anyone right now that businesses everywhere are feeling the impacts of inflation. The funeral profession specifically has seen a rise in costs, and it’s resulted in increased stress and pressure on owners. These shifts are inevitable, and if businesses don’t start making changes and prioritizing their business value for the future, they’ll find themselves at a severe disadvantage.

 

The Impact of Inflation Right Now

Johnson Consulting Group (JCG) is on the frontlines of firms across the country. We see first hand how businesses are being impacted by inflation, and what kinds of changes are required for the profession to stay ahead. Between rising gas costs and rent, there’s a lot for owners to keep up with today. However, the largest impact we’ve seen thus far has been the labor costs. Labor costs have risen between 7-10%. The largest problem is that some funeral homes haven’t adjusted their pricing with these rising costs as well.

Payroll

Previously, payroll accounted for 25-30% of net sales in a funeral business. Now payroll is more between 30-38% for funeral homes. For cemeteries, these numbers are even higher. If you consider that inflation cost & risen labor costs of 7-10% and you haven’t adjusted these costs, it’s impacting your business’s enterprise value.

Interest Rates

Right now interest rates aren’t as high as the panic reflects, despite popular belief in our profession. There is a lot of money to be had in this business, and it’s completely a seller’s market at this point. Owners shouldn’t be fearful of expansion or acquisitions right now as rates are still low.

In the 90s, we saw interest rates much higher. From our perspective here at JCG when looking at trends, we see them heading that way again, but right now commercial business loans are in the ballpark of 7%. Many have a false perspective that interest rates will greatly impact the purchase price.

EBITDA

Inflation’s impact is starting to put stress on EBITDA within a funeral business. However, the multiples are covering this as there is more interest and excitement around owning a funeral home in today’s market.

What makes the funeral profession unique when you own a funeral home, you typically also own the real estate. The land and the building the funeral home operates out of is typically going to be valuable, and it’s something owners and potential buyers need to keep in mind.

Steps to Combating Inflation Right Now

  1. Keep a close eye on your average sale.  It’s important that your team is presenting absolutely every option to the families that come through your door so they have a clear understanding of their choices. This will require your funeral staff to be transparent so families can make the best decisions for their circumstances. Are you looking at detailed sales reports showing each item sold? Each item’s overall average sale? Average sale by arrangers? Do you have a budget for all of this?
  2. Know how each of your arrangers are contributing to your average sale. Keep a close eye on their performance, reward those who are contributing and provide extra training for those who could use it. This could mean redefining or creating incentive compensation plans.
  3. Monitor your customer experience. It’s never been more critical than today to make sure each family’s experience is up to standard. Having a way to get direct feedback is crucial to any business’s success. As our services become more commoditized (in the eyes of the customer) the one key differentiator will be customer service. Do you have customer service culture training? Do you survey? How are your online reviews?
  4. Start catering to the next generation. Whether you like it or not, the internet is a free flow of information–and generations have gotten used to having what they need to find out at the ease of their fingertips.  The next generation of customers are expecting transparency, so it’s important that our online websites reflect exactly what they are looking for in regards to pricing and other factors. 

Looking to the future

We are seeing acquisition companies paying EBITDA multiples for businesses that are starting to get close to what publicly traded companies are trading for on the stock exchange. This is very similar to what we saw in the 90s, and if these buyers aren’t careful, we could see a repeat of what happened in the 90s.

If acquirers stop buying, we could see huge ramifications. These kinds of buyers absolutely increase and drive value, however, if the prices start to get past the point where they’ll make a profit, they’ll just stop buying.

Owners right now need to maintain their optimism about the future. It’s never too early to start thinking about your succession plan. Tracking the right metrics with the right tools in your business is critical, as right now case count absolutely matters to the future of your business. Tracking these little details can add about $20,000 in enterprise value per call.

Remember, you don’t have to go about it alone. Invest in the right tools and experts to get you top dollar for your most valuable asset–your business when you are ready!

Funeral Director Daily take: Johnson Consulting Group is the premier expert in funeral and cemetery service consulting since 1997.  The Johnson Consulting Group team offers more than 600 years of combined industry experience, and is committed to partnering with business owners wherever they are in the business life cycle. Whether an owner is looking to grow in their current operations, start their exit strategy through succession planning, or take their business to market, they can assist.

For more information from Johnson Consulting Group, please click here.

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