Your funeral home involves caring for and serving others, but how much of your attention do you give to monitoring your business? Consider giving some of your attention and effort to focusing on the internal health of your funeral home so you can continue caring for families for years to come.
While you may be aware of the following issues at your funeral home at least intuitively, consider reviewing the below items as you consider the long-term health of your business.
- Examine the performance of your business.
Do you use industry financial benchmarks to judge your own performance? Industry averages are good to know but take them with a grain of salt. Be sure to incorporate your knowledge of local conditions when assessing data. OGR’s webinar on “Benchmarks in Profitability” Thursday, August 25 will help you start this process.
- Get a handle on how your organization is structured.
What is the legal form of your organization? Are you a corporation? An LLC? A partnership? Each form of organization may provide tradeoffs on matters of control, legal liability, and taxation. This is an area where you would definitely want competent legal advice.
Your current form may be the result of how you acquired ownership of your business. You may have other choices of legal form, and they likely will be influenced by the state in which you are located. For a brief introduction to these ideas, visit these or similar websites: Study Finance. Investopedia.
- Ensure you’re getting the biggest tax breaks possible and protecting your business from financial loss.
Does your accountant protect or harm your business? Do you have an outside accountant? Does he/she advise you on matters of internal control to prevent losses through embezzlement, from unbilled revenues, and from duplicate outgoing payments through poor business processes?
Are you taking advantage of all the tax deductions available to you? Section 179 expensing of capital purchases and bonus depreciation allowed under the Internal Revenue Code can make a big difference (up to $500,000) to your taxable income as well as influence your decisions to buy vs lease. See the IRS explanation of this valuable provision.
Do you have an asset capitalization policy in place to provide consistency in accounting for big ticket, long-lived assets? Proper use of capitalization and depreciation policies will give you the most consistent view of your financial performance over longer time periods. The policy can cover not only funeral coaches and retorts, but also furnishings, computers equipment and other items on the less expensive end of the scale. Let your accountant advise you on the appropriate cost parameters for your policy.
- Make sure your employment documents are in order.
How do you keep up with employment documents, W-9 forms and 1099s? If you operate in multiple taxing jurisdictions, have you considered using a payroll service to be sure your handling of employment taxes and 401(k) contributions is correct? Depending on the size and range of your business, you may be able to avoid the headaches and legal penalties of non-compliance with various tax requirements through careful consideration of contracted automated services. A complex business might also benefit from payroll cost distribution methods built into sophisticated systems.
- Avoid legal action.
Have you answered the following questions to protect your business from legal action? Do you have an attorney? Do you require your employees to sign non-compete agreements? (Be sure to check if they are legal in your state.) How about non-solicit agreements for your long-term family relationships and your pre-planned clients? Have you assessed the risk of employees going into business for themselves in the same community and pirating your customers?
- Prepare your business for your eventual departure.
What is your long-term business plan? Do you want to expand, to sell, to bequeath your business? What is your timeframe? Do you have a succession plan? If you have a Buy-Sell agreement with partners in the event of a death, do you have life insurance on the individuals involved to fund the buyout?
- Create a budget that saves you money.
Do you have a budget? Is it created and filed away or do you revisit it periodically? Do you use it as a guide and plan or as handcuffs? Is it structured with monthly detail rather than an annual lump sum for each category? Deaths are unpredictable, but history should allow you to plan for holiday bonuses, livery purchases, utility usage by season and for special events in the months in which they will occur. A well-considered budget provides a documented basis for comparison of your actual operating results and can provide indicators to suggest corrective actions or reveal opportunities to exploit when performance diverges from the expected path.
Can you incorporate flexible budgeting and comparisons to actual results? That is, can you identify variable costs that change with the number of calls you handle – drivers and ancillary staff, fluid use, rented equipment on an as-needed basis, and crematory fees? A flexible budget can allow you to evaluate different case volume (or other) scenarios with minimal effort. It can also aid in rapidly developing alternative forecasts/plans if activity for a period does not conform to the original expectations. For an introduction, see http://www.accountingtools.com/flexible-budget
- Generate a profit by getting a better handle on your operating leverage.
Do you know your operating leverage – the relationship of your fixed costs (like salaries and benefits, operating insurance, contracted maintenance, depreciation on owned buildings, vehicles, equipment, etc.) to your total costs? Companies with high operating leverage ratios can earn more profit from incremental revenues than other companies because they don’t have to increase costs proportionately to make those sales. So, companies with high operating leverage ratios can benefit more from good marketing, economic pickups, or other conditions that tend to boost sales. Conversely, companies with high operating leverage are more vulnerable to declines in revenue.
The above is not intended as a comprehensive list of issues for your funeral home but a place to get started. Your business involves caring for and serving others. Be sure to save some of your attention and effort for yourself. If you’re interested in learning more about financial benchmarks and ensuring the long-term health of your business, sign up for OGR’s webinar with Dan Isard of the Foresight Companies next Thursday, August 25 or click here to learn more.
By Michael Ryan
OGR Accounting Director