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.
Building Relationships Online
May 6, 2008
The marketing thought leaders of today – Seth Godin and David Meerman Scott – both preach that to connect to today’s consumer, we have to turn away from “interruption marketing” and focus on the building of relationships. Relationship marketing is nothing new to funeral directors and cemeterians. We have woven ourselves into the fabric of our communities for generations. Whether it was through our churches, service clubs, or sports teams, we were shoulder to shoulder with other members of our community – building those relationships.
Today the problem is that we don’t always have time to belong to all of these activities and even if we do make time, others in the community are just as busy and may not be there for us to build those relationships with. We do have some resources available to help us build relationships via the Internet. Although the Internet is not meant to replace our physical presence in our communities, it does allow us to connect with those who are online themselves – just like you!
This is actually what Tom and Jake are doing with their new website and newsletter. Although you will still see them at conventions and conferences, they have created – as Bill Bischoff named it – their virtual marketing platform. With the goal of creating this platform to provide the most relevant and current information to funeral and cemetery professionals, we harnessed the power of the WordPress weblog functionality and applied the best practices of online marketing and public relations.
Key features of this site above the usual website components:
- Audio clips welcoming visitors to specific sections of the site – the goal is to make visitors comfortable with members of the team, hence building relationships
- Testimonials are displayed throughout the site, some randomly in the right sidebar and others relating to specific service offerings
- Media Room lists all press releases with the most recent listed first – this page is dynamically created and new releases are uploaded with the same ease as sending an email with an attachment – no more web developer fees to add new information
To further build those relationships, they have developed a complimentary newsletter – what you are reading right now – that will go out to members of the death care community. It takes the latest articles posted to the website and turns them into the newsletter. This strategy recognizes that some people will prefer to go to the website on a regular basis for new information; others will prefer to get that information in their email inbox; and for the super techies – they can subscribe via RSS. Just like traditional marketing, a multi-pronged approach is a must to reach potential customers in the manner that they wish to receive the message – this is what Seth Godin calls Permission Marketing.
As outlined in his book, The New Rules of Marketing and PR, David Meerman Scott states that these tools can be applied to any business who wants to methodically build relationships with their community. These tools and strategies can even be applied to funeral homes and cemeteries who want to who want to take their online presence from just a website to a virtual marketing platform. If you would like more information on how to apply these strategies to your own online presence, please visit my WordPress powered website at: www.FuneralFuturist.com or feel free to contact me at 800-810-3595 or 250-744-3595.
Robin Heppell, CFSP
Return to the May 2008 Newsletter
Value Drivers for Today’s (and Tomorrow’s) Market
May 5, 2008
We believe the merger and acquisitions market for funeral homes and cemeteries is characterized by good fundamentals at the time of this writing (January 2008), but with an uncertain future. Some currently favorable fundamentals are a wide range of buyers (first-time buyers, established independents, regional and national consolidators), good financing choices (conventional banks, SBA, industry lenders), low borrowing rates, and favorable tax rates for sellers. Several of these fundamentals, however, could change dramatically before the end of 2008.
It is unclear what effect the unraveling credit markets will have on borrowing by business buyers. Housing market problems may begin to leak over to commercial real estate markets, and have in some areas. Equally unclear is the future for historically low capital gains tax rates in this election year. Finally, the looming effect of cremation rates and timing of expected demographic changes add to an uncertain future for transfers of funeral homes and cemeteries.
For an owner considering whether this is the time to sell, or how to protect or enhance his value for a future sale, what can be done while waiting to see how the fundamentals unfold? The answer is Value Drivers.
When offering a business for sale, Value Drivers are matters within the owner’s control that have the greatest impact on achieving premium value. To be sure, in addition to the above fundamentals, there are many other factors that influence value, including reputation, area demographics, competition, facilities, etc. These factors are partly in the owner’s control, but also subject to factors that the owner cannot control. Value Drivers are those matters that the owner can address at any time he chooses, good market or bad, that will always have a positive impact on business value. What are some Value Drivers in today’s M & A market for funeral homes and cemeteries?
Effective Financial Controls. Financial controls are documented in financial statements and reports. To be an effective Value Driver, these documented financial controls need to be accurate, timely and detailed. Properly done, these controls are a critical management tool. More importantly, effectively documented financial controls help verify for a buyer (and their lender) the financial condition of the seller’s company.
Consider the seller who is currently having an above average year, while marketing his company for sale. Try telling a buyer that even though it has been 8 months since the tax return, calls are up and dollars should be too. Is it any surprise the buyer’s response is
“prove it?” Much better is the seller who can show not only monthly statements of income and expense right up to the current date, but even document particular areas where volume and averages are up.
Not only does this seller make an effective case for higher proforma cash flow, but the attention to detail and controls creates a favorable impression of the entire business that often translates into a premium price.
Management Team. Having a solid management team in place is another Value Driver for an owner planning a transfer. Though this may seem obvious, an owner needs to have some understanding of his likely buyer to know what is appropriate. A fairly paid, effective manager is essential if the buyer already owns one or more other businesses and needs someone in place. For a buyer who plans to move in and operate the business himself, however, that manager and his salary may become an unnecessary expense. Releasing the manager may be an unwelcome prospect for both buyer and seller, especially if there is not a noncompete agreement in place.
An unsettled management team almost always results in lower offers, fewer prospective buyers or both. Advance consideration of the market for a particular firm is important to establish an appropriate management team as a Value Driver.
Management Systems. Suppose you feel that you have a great team in place, ready to hit the ground running and help a new owner be as profitable as expected. How do you know, and how do you prove it to the buyer? Detailed, timely management reports that accurately measure performance and allow rapid responses are a tremendous Value Driver. Beyond the financial controls mentioned above, these reports might include:
- sales average reports for revenue categories by company, location and arranger;
- business mix reports tracking percentage of cremation, burial, forwarding, receiving and preneed fulfillments;
- customer satisfaction surveys and reports; and
- accounts receivable aging reports.
As with financial controls, not only does this seller make an effective case for higher proforma cash flow, but the attention to detail and controls creates a favorable impression of the entire business that often translates into a premium price.
Begin with the End. The legal, tax and ownership structure of a business can be another Value Driver. A structure that allows for an asset sale, with or without real estate, and free of any issues with dissenting partners or shareholders is worth a lot to a prospective buyer. Unfortunately, many decisions are made by owners at the establishment of a business and later without any consideration of the impact at the time of sale. Consider a few actual situations we have recently encountered:
- Owner owns cemetery and funeral home in the same subchapter – C corporation.
- The C-corporation means that on a sale of assets, the owner may be taxed twice on the same gain. The alternative is to force the buyer to buy stock, which has liability and tax implications for the buyer.
- By owning the funeral home and cemetery in the same C-corporation and pushing a stock sale, the seller loses the ability to look for the best buyer for each business. Only a buyer willing to buy both businesses in a stock purchase can be considered.
- Owner owns highly-appreciated vacation property in the same C-corporation that owns business.
- Instead of paying tax on $150,000 gain from an earlier real estate sale, the owner re-invested the proceeds in property now worth $1 Million.
- Again, C-corporation means owner needs to sell stock, but that means vacation property would go to buyer. To get property out of corporation prior to sale, owner may have to pay tax on gain of nearly $1 Million just to keep property.
- Upon presentation of Letter of Intent, owner had to disclose that a distant relative by marriage had a longstanding, unresolved claim to a small percentage of the company. There was no buy-sell or other arrangement in place.
- Even if buyer was willing to buy less than 100%, most lenders would not finance the purchase without a security interest and mortgage in clear title.
All of these situations arose out of the owner’s being unaware of the future impact, or making a decision to save a few bucks now and “deal with it later.” Even where there is an unfavorable ownership structure, addressing the problem before embarking on the sale process may turn a negative structure into a Value Driver.
Start Now. The common denominator for all of these Value Drivers is that they require some degree of advance planning. In addition, they are all matters that should benefit an owner throughout his ownership, in addition to bringing increased sale value. To implement processes and systems that offer current benefits as well as increased sale value, consider working with a firm that has experience and expertise in both.
We understand that not every business is suitable for each of these systems, but especially in an uncertain market, it is more important than ever for an owner to focus on these and other Value Drivers to position himself for a premium price. If financing, tax rates and other fundamental remain favorable, the owner will achieve a premium price, in addition to the benefit of a good market. If fundamentals turn downward, the owner who needs to sell can still receive a premium by being a premier offering in a tight market.
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
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