Businesses are not static but evolve over time and this evolution may lead to growth but may also cause the business to decline. A business life cycle is usually portrayed as a bell shaped curve where the stages follow one another in an orderly fashion, which is erroneous since variables are never consistent. A business may succeed through it’s own good management, or simply because it’s in an industry during a boom phase. But a company that consistently succeeds over time, even generations, regardless of the national or local economy, or the conditions within an industry, will follow solid management principles. Among the most fundamental business practices is budgeting, and by extension, making the budget part of a business plan.
Business practices such as managing cash, responding to recessions, their perceptions of competitors, and how they expend resources are not industry based. Business practitioners without education or managerial training often make knee jerk decisions, and many times refer to these decisions as “no brainers”. Problem is there are very few simple problems, and “no brainers” often mean the decision maker failed to think through the challenge, deciding instead not to engage his brain but to act instinctively instead.
For example, it’s instinctive to reduce spending during a recession and the easiest expense to cut is advertising; but research of business activities over the past 100 years indicates that businesses that maintain their advertising presence during a recession grow faster during and after the recession. The “no brainer” decision is to cut advertising; the well thought out decision is to maintain advertising presence as part of a long-term strategy.
Most small business owners and managers tend to be conservative as the primary objective of the small business owner is to maintain current lifestyles. Small decisions are easy to make, and the ramifications of these decisions are typically not realized on the short term. It may be years before the full impact of a series of bad decisions are felt.
For example, there was a building boom in funeral industry during the 1990’s as many firms followed their clientele into the suburbs with new facilities while many others remained in changing neighborhoods. Ten, fifteen maybe even twenty years later, those firms unwilling to invest in their long term success have suffered severely declining volume as fewer and fewer families decide to “return to the old neighborhood” for funeral services.
Because death care businesses have a long history of good, stable profitability the business plan for many funeral homes is to simply continue past practices. This plan is never written down, or analyzed, it just happens. Continuing past practices is easy; blazing new trails is hard; it takes a lot of thought, intestinal fortitude and discipline.
The diametric opposite of knee jerk decisions and “no brainers” is management through planning, strategic planning. The textbook definition of strategy defines it as a pattern in a stream of decisions made by an organization. Applied to funeral business, it is not a strategy to build a new facility or sell pre-need. A strategy would be to establish a philosophy and to incorporate that philosophy in every decision, whether major or minor.
A business strategy is not so much a plan but the implementation of a belief, or concept, or set of principles that management refers to whenever making decisions. Whether large or small, the business strategy represents the basis of the decision. There is a great deal of discussion in funeral service regarding brand and branding. Maintaining a brand is similar to following a strategy in that both are intangible yet real; they are understood and accepted by a company’s primary decision makers and communicated throughout the organization, to customers and other stake holders.
For example, Delta Air Lines is based upon a strategy developed by the founders not to be technology leaders, but to be consistently dependable with friendly, superior service. The basis of this strategy is that technology can cost a lot of money, and customers likely will not appreciate the necessary investment. So Delta waits to implement technology when it’s refined and available at a much lower cost. In the meantime, they are the first to implement service standards.
Examples of funeral business strategies would be:
- Understanding that arrangers should be well trained with good communication skills so as to assist families in making better decisions. As such, a funeral business with this strategy would recruit the best talent, invest in training and be willing to pay superior salaries in order to retain their best associates.
- An environmental or “green” strategy would be based upon the belief that offering a specific niche product can position a funeral business to grow volume from families willing to travel further and pay more for services. For this strategy to succeed the firm would need a superior website with superior Search Engine Optimization and social media so as to reach those families outside of their immediate area with their niche message.
- Aggressive price discounts for pre-need would be a strategy to lock in business for the long term, even if it means short falls at time of need in which case budgeting for the short falls would be important.
- The consolidator strategy is based upon using low cost financing and economies of scale to dominate markets. As such they require managers to possess superior organizational skills and be willing to compensate appropriately.
- If the business strategy involves superior facilities, management will likely need to set aside more funds for maintenance than competitors in the same business.
This is why budgeting is part of the annual plan, and even a five year plan; if a strategy is to succeed it must be funded. For the funding to be available it must be in the budget.
The financial statement has come a long way in funeral service. In the 1980s, most independent funeral directors only needed their financial statement at the end of the year for tax purposes. It really served no other purpose for most funeral directors. For the most part they ran their funeral homes by the amount of money they had in their checking account. Decision making was reactive.
At the same time, the emerging public companies were going to the opposite extreme. They paid a lot of attention to their financial statements and unfortunately and insufficient attention to family satisfaction. They thought that as long as they could increase sales and decrease costs, the rest would take care of itself. It did in the short term, but they realized it was time for adjustments in their long term strategy when they began to lose market share.
So let’s move this up to today and start with the public companies and some large independent operations. What have they figured out? First of all, they do pay attention to customer satisfaction. Although they will always have some difficulty against good, strong independents, they are not losing market share at the pace they once did. Primarily because they use their preneed programs to drive future business. They still review financial statements, but instead of just focusing on sales and costs, they also do deep dives on customer satisfaction and seek to fix problems.
A well thought out strategy will result in the accomplishment of a goal or goals that may take years to accomplish. It is the hallmark of a well-run company. The annual budget is a vital piece of the strategy, no matter how large or small the firm. Don’t reach out in the years ahead without a sound financial plan. A good budget and a sound strategy. Those who don’t may very well fall by the wayside and wonder what happened. Those that do put together their strategy and support it by budgeting improve their chances of success significantly.