June 2009 Management Insights Newsletter
June 24, 2009
From the Chairman’s desk:
Welcome back! July is upon us and summer is officially here. Our economy is still fighting its way back but we have a long way to go to regain the confidence needed to get all segments on the same page, “Singing from the same hymnal”, as the saying goes. … But we do see signs of improvement.
Our government intervention in the main stays of our economy like banking, automotive and healthcare has certainly the potential to change the dynamics and the rules of the game. I will reserve my comments for a later issue.
What I read and learn from listening to individuals from all parts of our industry is that revenues are down in both the supplier and provider side of the business and the outlook for the immediate future is more uncertainty than optimism.
Here at Johnson Consulting, our Financing Division has seen first hand how the economy has impacted banks’ ability to finance or refinance funeral home businesses. In this issue, we have included an article on this very subject. We have identified the “Hurdles” that exist between the start and the finish line as to what is required and how to best prepare to jump over each one.
Unemployment is currently above 9% and is forecasted to exceed 10% before we begin to see a decline. Our industry is somewhat unique in the fact that our challenge is retaining mortuary school graduates. One mortuary school dean gave me a startling statistic a while back that over 80% of the graduates leave the profession after two years because of the long hours and weekend work requirements. Yet good well-qualified funeral directors are hard to find. We have also included an article in this issue on “Attracting Great Employees”.
Johnson Consulting is very privileged to have over a 1000 subscribers to our newsletter. Many are our industry’s “Thought leaders”. Bill Bischoff, the Editor of our newsletter, thought it would be interesting and insightful for us to send along a brief 15 question survey to get your thoughts and business perspectives on today’s economy and the impact it is having on your business. Our goal is to get a very high percentage return. We sincerely appreciate your response. You can be assured all responses will be kept confidential. We will write a summary report of the results and publish the findings in our next issue.
We want to call your attention to our newest program which we are featuring in this issue. It is a state of the art sales tracking and analysis system that will give you timely and vital information to best manage your business. The system will also provide you with a score card to see how your business compares to others in the industry.
In closing, we hope you enjoy this issue and we hope you will take the time to complete our survey. …Until next time “The best to you and your families…”
Regards,
Tom Johnson
Chairman
The 7 Hurdles to Funeral Home Financing
.. The hurdles may have been raised, but not insurmountable … It just takes a different approach …
Dating back to the Great Depression, banks have viewed funeral home businesses as low risk borrowers of money. Whether it was for renovating an existing funeral home, building a new location, or even purchasing an established business from another funeral director – banks always felt that lending to the funeral business was a safe bet.
Over the last two decades, the landscape of the “funeral business” changed. Mergers and Acquisitions went into over drive – with the likes of SCI, Loewen, Stewart, Carriage, and other private acquisition firms. PreNeed’s hyper-growth initially changed the future financial outlook of a firm and now may in some cases be seen as a liability. Now, with the current economy and tightened lending practices, the situation has heightened.
This isn’t meant to be all Doom and Gloom, but with a picture painted like that, how else would outsiders see our industry without our rose-colored glasses. Like it or not, we have to overcome the high lending hurdles that we helped erect. But there is hope…
If you are looking for financing for renovations, expansion or acquisitions, you will need to deal with each of these 7 lending challenges [hurdles] in a new and creative way. We can help you, as we have helped other clients come out on the winning side, with financing in hand! It’s all about the process, knowing what the banks are looking for and how to best present your case. A well thought out plan, carefully crafted with sound and factual data will greatly enhance your chances of securing that needed capital.
Johnson Consulting Group introduces an Industry First
Now you can have an essential and extremely valuable management tool that gives you up to date sales analysis on your business, both pre need fullfillments and at need, and how your business compares to others in the industry. It can also be used to track pre need sales mix and average sales as well.
This revolutionary system is all web-based and gives you 24/7 access. It provides accurate analysis and pinpoints your areas of strengths and weaknesses, gives you a trend line by month, quarter, year to date and last year’s results.
http://www.johnsonconsulting.com/survey-program/
Attracting Great Employees – Mark Jorgensen
-in 2009 it’s more challenging than ever before
Synopsis: Despite the economic downturn and widespread unemployment it’s still a “seller’s market” for those with experience in funeral service. Learn more about the challenges owners face and potential solutions for locating and hiring outstanding funeral directors and managers.
http://www.johnsonconsulting.com/attracting-great-employees-mark-jorgensen/
Exceeding Your Expectations:
Virginia Lorenzen, June 15th, 2009
Dear Mr. Johnson:
First of all thank you for sending me your letter of engagement so promptly…I also wanted to let you know that your valuation report was outstanding in helping me resolve many issues. Your report was invaluable and used by the Public Guardian attorneys and our CPA in establishing a value for the mortuary and the basis for trying to work out a settlement with the contingent beneficiaries. Opposing counsel accepted your report without any major disagreements. I am confident had I not had your report my team would not have been able to reach a suitable agreement…I believe you and your company’s work was outstanding and cannot express my appreciation and gratitude for your support. I especially appreciate my interaction with you and your staff. It has been a pleasure working with you.
Sincerely,
Lucille Lyon
Division Chief
http://www.johnsonconsulting.com/lucille-lyon-says/
Survey Program Announcement
June 24, 2009
Johnson Consulting Group introduces an Industry First
Now you can have an essential and extremely valuable management tool that gives you up to date sales analysis on your business, both pre need fulfillments and at need, and how your business compares to others in the industry. It can also be used to track pre need sales mix and average sales as well.
See Larger Images Below
This revolutionary system is all web-based and gives you 24/7 access. It provides accurate analysis and pinpoints your areas of strengths and weaknesses, gives you a trend line by month, quarter, year to date and last year’s results.
Here are just some of the features:
- Sales analysis by:
1. Case types (as many case types as you want to track)
2. Arranger
3. location
4. Company - Includes:
1. Bar graphs
2. Comparisons
3. Easy to read and interpret - Compare your sales performance against all JCG clients, particular groups you may have (such as your study group) or geographical regions
This exclusive program is completely automated and ready to start for your company or location(s) today!
Benefits:
- Everybody has surveys, however this survey was designed with continuous improvement at the funeral home in mind. We pinpoint any issues, as well as positive trends, which enhances management’s ability to positively affect change and recognized excellent performance.
- Website based with individual client logins (company and/or location logins)
- Run your own reports whenever you wish to see how you are doing.
- Use them for meetings and bonus programs (JCG can provide the bonus program if you choose)
- Easy to start up and very low cost compared to the value received
Call or email us for a demo today!
Johnson Consulting Group
“A Total Solutions Company”
Mergers & Acquisitions · Valuations · Accounting · Management Services · Financing
8095 North 85th Way · Scottsdale, AZ 85258 · Phone 888.250.7747 · Fax 480.556.8501
www.JohnsonConsulting.com
Click on image for larger size
Attracting Great Employees – Mark Jorgensen
June 24, 2009
Attracting Great Employees
—in 2009 it’s more challenging than ever before
Synopsis: Despite the economic downturn and widespread unemployment it’s still a “seller’s market” for those with experience in funeral service. Learn more about the challenges owners face and potential solutions for locating and hiring outstanding funeral directors and managers.
By Mark Jorgensen, President
Global Recruiters of Batesville, Indiana
A barrage of headlines assaults us daily about declining business and rising unemployment in our global economy. Local media detail layoffs and job eliminations across a wide array of industries as unemployment rolls grow weekly. From all indications, it’s a “buyer’s market” for skilled, professional talent–except perhaps in the funeral service and cemetery professions.
In my daily conversations with funeral home owners and managers across the country I continue to hear that finding qualified, experienced funeral directors is one of the most vexing challenges. Simply stated, the supply of great candidates isn’t keeping pace with growing demand. So while thousands of folks may be looking for work each week attractive job opportunities in funeral service go unfilled, often for months at a time.
In this profession there’s no “magic bullet” solution for those looking to hire. If you’re seeking someone from outside your immediate market area a major consideration will now be relocation. During the past six months, increasing numbers of qualified candidates are expressing reluctance to sell their homes below market value and then venture into the mortgage market for that next house in the new community.
Careers of spouses and significant others pose a similar challenge during relocation. Those with marketable skills and experience, who may have easily obtained employment in 2008, are likely faced with a longer, more difficult search in 2009. That may mean deferring or even eliminating the possibility of that household’s much needed second income.
In view of these challenges, it’s a good time to reevaluate your “value offering” to prospective employees. While your balance sheet may not allow you to exceed a set amount in terms of base salary, hiring that next funeral director will likely require some creativity. You may consider some of the following tactics that have worked successfully for others not only in attracting employees, but keeping them on the team long term:
- Financial incentives- Greater earning potential through a bonus program that is funded when individual or company objectives are achieved. Structured correctly, it will guarantee you increased revenue sufficient to fund those bonuses while increasing total compensation to a valued employee;
- Non-cash incentives- For many “time” is valued as highly as a few more dollars– a more generous vacation plan, an extra day off every 2nd or 3rd weekend, rotations on night coverage or flexible scheduling to allow for participation in leisure or children’s activities or to be the caregiver for aging parents;
- Spouse/significant other assistance- Leveraging your extensive network in the community to identify referrals for job opportunities for that spouse or significant other who may be unfamiliar with your area. Your efforts here signal a strong commitment to the whole family in navigating through the career transition.
Of course the ultimate challenge for both parties in the hiring process is the time it requires out of your demanding schedule. You can’t be actively recruiting when families in need step into your funeral home seeking your help on a moment’s notice. Being short staffed only exacerbates that problem.
On the candidate side, the outstanding funeral director you’re looking for is likely to be actively employed and serving families in another community. She or he is probably too busy to be posting a resume on career websites. In fact, some of the best candidates may not even have a current resume.
That’s where the services of a professional recruiting and search firm like mine come into the equation. Unlike some staffing firms that simply harvest resumes of the unemployed and forward them to your inbox, our firm engages in “direct sourcing.” Working from the largest database of any company in our profession, we reach out to funeral service and cemetery professionals across the country to seek first person recommendations. We’re then able to identify, screen, interview and conduct reference checks before we brief you on the candidate’s qualifications for your specific job opportunity.
The old truism, “Time is money,” is appropriately applied to professional recruitment. While your time is focused on running your business we work in parallel to bring you outstanding candidates. By taking time (and chance) out of the process, a search firm can play a vital role in your continued success and be money well spent as good people become ever more difficult to find.
Mark Jorgensen owns and operates Global Recruiters of Batesville, Indiana, a recruiting and search firm specializing in funeral service and cemetery professions. Mark’s career has spanned thirty years of senior level sales and marketing positions. He has spent thirteen of those years in the funeral service industry in senior level management positions at The Forethought Group. There he was Vice President and General Manager.
Global Recruiters of Batesville
374 Northside Drive, Suite A
Batesville, IN 47006
(812) 932-1290 Office
(812) 932-1292 Fax
mjorgensen@grnbatesville.com
www.grnbatesville.com
7 Hurdles to Funeral Home Financing – Kelly Herdt
June 24, 2009
The 7 Hurdles to Funeral Home Financing … The hurdles may have been raised, but not insurmountable … It just takes a different approach …
Dating back to the Great Depression, banks have viewed funeral home businesses as low risk borrowers of money. Whether it was for renovating an existing funeral home, building a new location, or even purchasing an established business from another funeral director – banks always felt that lending to the funeral business was a safe bet.
Over the last two decades, the landscape of the “funeral business” changed. Mergers and Acquisitions went into over drive – with the likes of SCI, Loewen, Stewart, Carriage, and other private acquisition firms. PreNeed’s hyper-growth initially changed the future financial outlook of a firm and now may in some cases be seen as a liability. Now, with the current economy and tightened lending practices, the situation has heightened.
This isn’t meant to be all Doom and Gloom, but with a picture painted like that, how else would outsiders see our industry without our rose-colored glasses. Like it or not, we have to overcome the high lending hurdles that we helped erect. But there is hope…
If you are looking for financing for renovations, expansion or acquisitions, you will need to deal with each of these 7 lending challenges [hurdles] in a new and creative way. We can help you, as we have helped other clients come out on the winning side, with financing in hand! It’s all about the process, knowing what the banks are looking for and how to best present your case. A well thought out plan, carefully crafted with sound and factual data will greatly enhance your chances of securing that needed capital.
Let’s discuss each hurdle …
1. Credit Score
95% of all the banks we have talked to will decline a loan based off of the credit score of the borrower. Some banks say they can work with a 630 FICO while others, a 680 or higher. From our research, the average American credit score is around the 680 mark but for many funeral directors it is much lower. A BIG indicator of a good borrower will reflect in his personal pay history of revolving accounts, if he or she is slow paying and has multiple 30, 60, 90 day late marks against them this will be cause for declination of the loan. Another red flag is if the potential borrower has maxed out his or her credit cards and is only making a minimum payment. If you are aware that you have made some slow payments or maxed out your credit cards, then be prepared for a lower than average credit score and issues moving forward with your application.
There are times when a specialty bank will forego the low credit score and pay issues on a refinance if they determine that the personal credit is not a reflection of how the person runs their business.
Remember, in today’s rough credit market, credit score is KING.
2. Net Worth
Banks are looking for a positive personal net worth and liquidity for a down payment. Although it is not written in stone, we can surmise that the bank’s rules concerning their net worth to lending ratio is roughly equal to or less than 400%. Analysis of the net worth statements and balance sheets provided by the borrower / guarantor does not provide specific indication of business performance, but this analysis does provide a general indication of the resources available to the borrower on which he or she can rely on if the business encounters difficulty.
3. Fixed Coverage Charge / Debt Service Coverage Ratio (DSCR)
This will vary from bank to bank but a good rule of thumb to aim for is a range 120% to 140%. This repayment analysis helps measure and forecast the borrower’s ability to make payments to the lending institution. In the past, this analysis was determined more on proforma EBITDA, but today it is tested for reasonableness against historical cash flow within the business. Banks are trying to get a better understanding of changes in the business over time which could have a material impact on future projections. Here is where a thorough analysis of the PreNeed contracts on a funeral home’s books will provide a good barometer for future fulfillments. Most CPA firms ignore this area all together.
4. Loan To Value Ratio (LTV)
There are more banks that will loan solely on the real estate than cash flow based lenders. The ratio they lend on the real estate varies from 65% to 90% of the appraised value. This type of lending causes many potential borrowers issues since funeral home prices include a large percentage of Blue Sky (goodwill) in the purchase price. This intangible piece causes the borrower to seek a specialty lender that understands cash flow lending or negotiate a large hold back in the purchase agreement to make up the difference in tangible vs. intangible.
When banks solely rely on the real estate for determining their LTV, this can cause a deal to falter. This is usually due to the fact that real estate value coming in is many times less than the bank and borrower’s anticipated value. In today’s real estate market, this could affect some funeral businesses that once thought their real estate was worth more than the current appraised value.
5. Down Payment
This is a big issue for many first time buyers as often times they have not had the ability to save enough money while working at the business. In the past, the down payment was easier to forgo if the cash flow of the business was good and the bank was able to advance working capital along with the loan for the business and assets. In today’s market, many of the local and regional banks want a down payment or “skin in the game.” The banks want the borrower to have something to lose if the loan goes bad. The amount of down payment can range from 10% to 30%, which is determined on the banks lending policy and Fixed Coverage Charge benchmark.
Some banks will get creative with seller hold backs which are subordinate to the senior loan. This can help the bank with their in-house fixed coverage charge.
6. Paperwork
One way to slow or eliminate your possibility of getting financing is by not having your paperwork together and submitted at one time. Banks are looking for any excuse not to do a loan. Whatever the banks request, you must complete and submit. Do not have partial copies of tax returns or financials and make sure you complete every section of the credit application.
Here is where a professional experienced consulting firm will expedite the process and make sure every detail is covered and put in its proper place. It’s very important to establish credibility upfront and submit all of the necessary paperwork in an organized and professional way.
7. “Local Banks Need to be Educated and Reassured”
The issue that many potential funeral business borrowers are running into is that their local banks just don’t understand the funeral home’s cash flow and the ability to lend off of it. The bank needs to consider the income statement as well as the balance sheet. Due to the credit market, many local banks that once did loans for existing funeral home owners are now not willing to even look at a line of credit or new loan. This is causing issues for potential buyers and even the existing owners to get the needed funds to acquire a firm or get cash for operating expenses.
Just because we have outlined these “obstacles” it doesn’t mean that you can’t maneuver around them. As you are getting ready to ask for a loan, make sure that you go through this Checklist:
What Banks Are Looking for from Funeral businesses and Potential Owners:
1. Good credit
2. Positive net worth
3. Ability to make a down payment
4. DSCR – 120% to 140%
5. Sound financials of the proposed business
* with revenue stable or trending up and not looking to see an unrealistic PROFORMA EBITDA
6. Completed applications
7. Complete copies of personal and business tax returns for the past 3 years
8. Strong LTV on the real estate
9. Possibility of owner non-compete or hold back
We hope this has been informative and put the complicated process of acquiring loans in today’s market into a step by step process for you. If you need any assistance in getting prepared before you see your lender or if you can’t find a lender, please contact Johnson Consulting Group – there is no obligation and the phone call is free! 1-888-250-7747.
Lucille Lyon says:
June 10, 2009
Dear Mr. Johnson:
First of all thank you for sending me your letter of engagement so promptly…I also wanted to let you know that your valuation report was outstanding in helping me resolve many issues. Your report was invaluable and used by the Public Guardian attorneys and our CPA in establishing a value for the mortuary and the basis for trying to work out a settlement with the contingent beneficiaries. Opposing counsel accepted your report without any major disagreements. I am confident had I not had your report my team would not have been able to reach a suitable agreement…I believe you and your company’s work was outstanding and cannot express my appreciation and gratitude for your support. I especially appreciate my interaction with you and your staff. It has been a pleasure working with you.
Sincerely,
Lucille Lyon
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