March 2009 Management Insights Newsletter
March 26, 2009
From the Chairman’s desk:
Welcome back! It’s a new year and the operative word certainly is “new”. New in the sense that our economy and the state of the nation are definitely in “new” and unchartered waters. We are a strong and resilient nation and I am confident we will pull out of our current economic situation as we have in the past.
So you may ask…What is Johnson Consulting Group doing in these challenging times?
We have been very busy and making great strives in several areas. Let me list some of our recent and current initiatives:
- We moved to new facilities to accommodate our growth and to better serve our clients as we expand our service offerings. We want you to be the first to read our announcement and see pictures of our new Headquarters.
- Reviewed all of our current processes and have streamlined them by taking out things that add little to no value, but have a cost associated. This has allowed us to offer some of our services at an even better value than before to our potential clients.
- Formed a strategic alliance with a very competent and qualified tax service company to provide those valuable services to our accounting customers.
- Initiated a loan procurement program to help our clients find the best and most alternatives for their financing needs.
- We have brought on several new clients in all areas of our business and our clients have given us rave reviews which we are grateful and appreciative.
- The most important corporate initiative that we undertake each day is coming to work with a positive approach in everything we do and reminding ourselves what we said we will do for our clients in our Mission Statement.
In this issue we will feature an article that was written by one of our seasoned and successful associates, Brooks Cowles. We encourage you to read it and if you have questions or need more information, by all means, pick up the phone or send us an email.
As winter turns to spring, the flowers begin to bloom and the birds are once again making the sounds of a new season, I am confident that our economy will have that same experience. Hope you enjoy this issue and the best to you until next time.
Regards,
Tom Johnson
Chairman
Johnson Consulting Group dedicates new offices to their clients’ success …
MISSION STATEMENT
We strive to provide our clients the highest degree of quality products and services so that we are the most highly regarded firm in our profession. Our objective is to provide creative, innovative, state of the art services that deliver to our valued clients the tools and methodology to achieve optimum levels of client family satisfaction and productivity. Through innovation, dedication, integrity and teamwork, our ultimate goal is to be your Total Solutions Company.
Johnson Consulting Group, a Total Solutions Company and Market Leader, Is proud to announce the opening of their offices in Scottsdale, Arizona. Record organic and acquisitive growth over the past two years has necessitated the move to support their growth, expanded product offerings, and market potential and demand.
Tom Johnson, Chairman, commented: “We believe in reinvesting in our businesses with state of the art technology, innovative business solutions and modern facilitates. Our most important and valued asset is what walks through our front doors everyday.
They are our valued associates and our clients. Our team has empathy for our client’s needs, are highly educated, experienced, and several are licensed funeral directors that have the practical experience.”
Jake Johnson, President, commented: “We are privileged to serve all size businesses in the funeral and cemetery industry. Our goal is to listen first to our client’s needs and then respond with solutions that are crafted and customized to meet and exceed their expectations. We also pride ourselves and are deeply committed to offering all of our services at very competitive prices.”
The Johnson Consulting Group would like to extend a personal and open invitation to visit us if your plans call for you to be in our area.
Should I Sell My Funeral Home in the Current Economy: Brooks Cowles
As brokers and valuation experts, we are hearing this question a lot. As always, the first consideration is whether your heart is still in your business, and whether you see yourself continuing to enjoy your work for the next five years, at least. If you cannot answer that question affirmatively, you need to consider whether now is the time to sell (or buy).
There are four major factors affecting succession planning right now, all of which are awash with generally bad news: Taxes, the U.S. economy, the credit markets, and the stock market. For funeral homes, however, there are unique opportunities among this dismal news, especially for those active in either buying or selling:
1. Taxes, 2. Economy, 3. Credit Markets, 4. Stock Market
To read the rest of the article, visit:
http://www.johnsonconsulting.com/sell-funeral-home-current-economy/
The Johnson Consulting Funeral Industry Stimulus Package
In light of the current economic landscape, we want to give you five resources that you can use to give you a bit of a boost! Let me introduce to you our . . .
FUNERAL INDUSTRY STIMULUS PACKAGE
This is a collection of some of our Best Tools and Advice from our areas of expertise in the funeral industry:
- Funeral Industry Specific Chart of Accounts
- Family Satisfaction Survey
- Best Practices for Funeral Home Payment Policies – Interview
- Funeral Home Financing – Video
- Case Study: Funeral Home Gets Financing Against the Odds – Interview
Get immediate access to all of these resources at:
http://www.johnsonconsulting.com/stimulus-package/
If you think that these resources would be helpful to other funeral professionals, please forward this link to them.
Exceeding Your Expectations:
Hi Todd,
Just wanted to express to you the positive impressions you left with our staff and how they are complimenting one another on jobs well done. We never experienced interoffice compliments like this before.
Just last night upon my return to Beverly all three of the newest staff, Francine, Virginia and Coreen and Brandy who’s been here about 6 months voiced their excitement of your presence, delivery of the presentation and how they were overall captivated by your knowledge. At this morning’s staff meeting and reemphasized that everybody in the room put themselves in the position of the grieving family’s pain and to keep their professionalism in the care center where we are always on the phone because the phone is the critical lifeline of our business.
Thanks to you and the entire Johnson staff, I have so much to work with and realistically implement on a daily basis. Thanks again and your friendship is truly valued.
Regards,
Anthony P. Guerra, Guerra & Gutierrez Mortuary, Los Angeles, CA
Until Next Time:
Improving Funeral Home Management Online Seminar – April 2009
In early April, our Management Services Team will be presenting an online seminar about Funeral Home Management including:
- Performance Analysis
- Training
- Customer Surveys
- Having the right people doing the right things
- Employee Surveys
- Management Improvement programs
- Increasing Profit
More details to follow – check your Inbox in the next few weeks.
Join the Evolution (& Johnson Consulting) at the ICCFA Convention
April 20-23, 2009 at Mandalay Bay, Las Vegas, please stop by our booth, 105 during the Exposition.
Should I Sell My Funeral Home in the Current Economy
March 25, 2009
As brokers and valuation experts, we are hearing this question a lot. As always, the first consideration is whether your heart is still in your business, and whether you see yourself continuing to enjoy your work for the next five years, at least. If you cannot answer that question affirmatively, you need to consider whether now is the time to sell (or buy).
There are four major factors affecting succession planning right now, all of which are awash with generally bad news: Taxes, the U.S. economy, the credit markets, and the stock market. For funeral homes, however, there are unique opportunities among this dismal news, especially for those active in either buying or selling:
1. Taxes
This one is pretty simple. The President made it clear in his first public address to Congress that taxes are going up. At a minimum, the Bush tax cuts, including the capital gain rate that most impacts sale proceeds, will be allowed to lapse at the end of 2010. Taxes on ordinary income will also rise for those earning over a stated amount. Sales completed before the tax increase will net at least 5% more from current tax rates. Note, however, that many commentators have stated that the tax increase would have to be larger and/or sooner than promised for the President to meet his budget goals. If you are a seller or buyer, the sooner the better to minimize the tax bite.
2. Economy
With the overall U.S. economy bad and expected to get worse at least through 2009, there is always a “flight to safety”. Sectors that are perceived as recession proof become most attractive. Since need and volume in our sector is perceived as being necessary in good times or bad, death care businesses may actually become more valuable. I say perceived because increasing joblessness and loss of confidence will begin to find its way into average sales at some point if not already.
3. Credit markets
Even with massive taxpayer money pouring into the banking systems, many banks still will not lend for two reasons. First, new loans are heavily discounted compared to old loans lenders can buy that are already discounted. Second, banks are hoarding the cash they get in anticipation that the amount of bad credit will continue to grow as defaults spread from sub-prime residential loans to consumer credit, regular mortgages and commercial real estate.
The opportunity, however, is with the SBA and local banks that have limited exposure to real estate and realize this is their chance to get customers that they might have typically lost to larger banks. Industry specific lenders who understand the funeral service business may also be a good option. For those with money to lend and solid balance sheets, any loans not based on commercial real estate values look good, and non cyclical businesses look best of all. Since predictable cash flow has always been the basis for value for most funeral homes, we expect to be able to find financing for properly structured sales with solid buyers. Nevertheless, expect several effects from tight credit markets:
- More conservative valuations and underwriting. Lending will be based on volume, revenue and profitability that have been historically proven. It will be very important that financing packages properly present this information and substantiate projected cash flow. While multiples may be a little lower than in boom times, solid companies, well presented, can achieve solid valuations.
- Higher equity requirements. Buyers will need to have at least 10-20% cash into the deal or substantial liquid net worth.
- Greater owner financing. Do not expect all cash deals if you are a seller. Buyers and lenders will want to see 10-25% of the purchase price financed by sellers. This may actually be a benefit to sellers, however, since spreading out taxes and a good interest rate on any amounts they finance may provide a better, safer return than what most other investments will offer for quite a while.
4. Stock market
Whether the market finds a bottom or continues to sour does not really matter as long as the extraordinary volatility continues. This impacts funeral home sales in two ways. First, public companies stock prices have been dragged down with the overall market, whether or not the fundamentals support such a drop. Until they stabilize at something close to traditional cash flow multiples, they may not be able to pay sellers a price representing a higher multiple than what the company’s shares trades for. Public companies could remain out of the market except for extraordinary situations. Again, this is good news for everyone else seeking to buy; especially those that can afford larger businesses that would have sold to consolidators in the past. Second, sellers will need to carefully consider where to invest proceeds. Projected returns from traditional debt and equity portfolios will be lower, making other investments (such as owner financing) more attractive. A silver lining to the low returns for those that sell now is the opportunity to sit on cash and be ready to invest once the bottom is reached, enjoying the run up in value as the market recovers.
Finally, one more effect of the economy is the impact on supply and demand. Many owners are going to “wait out” the current economy. When the economy finally shows signs of recovery, all those owners who put their plans on hold during the recession will be pushing for the exits. Selling a company during a buyer’s market with a glut of supply is going to be at least as challenging as during a recession. Therefore, an owner who feels he would like to pass on the rewards and burdens of ownership within the next few years should consider the following to determine whether to start now:
- Will you be able to attract prospective buyers with strong balance sheets who can get financing?
- Are you willing to finance 10% or more of the purchase?
- Are taxes a consideration?
- Are you willing to let someone else face the challenge of maintaining profitability through the current economic cycle?
If the answers are no, consider adding to the value of your company through select acquisitions. If the answers to these questions are yes, it is time to get started now.
This article does not constitute tax advice and no action should be taken based on the information provided without consulting a qualified tax advisor. D. Brooks Cowles, Jr., Esq. operates the Atlanta, GA office (404.262.4750) for Johnson Consulting Group headquartered in Scottsdale, AZ (888.250.7747). Copyright 2009.
Anthony Guerra says:
March 15, 2009
Hi Todd,
Just wanted to express to you the positive impressions you left with our staff and how they are complimenting one another on jobs well done. We never experienced interoffice compliments like this before.
Just last night upon my return to Beverly all three of the newest staff, Francine, Virginia and Coreen and Brandy who has been here about 6 months voiced their excitement of your presence, delivery of the presentation and how they were overall captivated by your knowledge. At this morning’s staff meeting, I reemphasized that everybody in the room put themselves in the position of the grieving family’s pain and to keep their professionalism in the care center where we are always on the phone because the phone is the critical lifeline of our business.
Thanks to you and the entire Johnson staff, I have so much to work with and realistically implement on a daily basis. Thanks again and your friendship is truly valued.
Regards,
Anthony P. Guerra, Guerra & Gutierrez Mortuary, Los Angeles, CA
Best Practices for Funeral Home Payment Policies – Interview
March 9, 2009
Al Asta offers the Best Practices for funeral home payment policies and how to handle Accounts Receivables during these economic times.
Click here to download the MP3.
(right-click and select “Save Target As” and save the file to your computer)
Funeral Home Financing Presentation
March 9, 2009
Jake offers some insight into Funeral Home Financing. Particularly he compares Asset Based Financing to Cash Flow Based Financing. Read more
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