Cash flow is one of the most important financial metrics of a funeral or cemetery business. The movement of cash in and out of a company is a strong indicator of monetary strength and market value, and cash flow problems can have severe (and sometimes irreversible) effects on continuity of operations. As such, cash flow management is a fundamental component of business strategy and should be closely monitored on a daily basis.
Tracking how money flows in and out of a business is not an easy task however, and funeral and cemetery professionals are not alone in the struggle to maintain positive cash flow. A recent global study on cash flow challenges showed that 69% of small business owners lose sleep at night due to concerns about cash flow. In order for your funeral home or cemetery to not remain a going concern, you must ensure that there is more money coming in than going out of your accounts. This sounds simple enough but unless you understand all the cash inflows and outflows of your firm, and consistently track and measure significant changes and fluctuations, your business will most likely end up in the red.
Jake Johnson, the president of Johnson Consulting Group, says that many death care companies don’t know how to maintain proper cash flow levels. “Cash flow issues can stem from payroll, advertising, pricing, case mix, debt load, lease payments and more,” he says. “If efficient cash management tools are not in place, it is a recipe for failure.”
JCG experts have helped thousands of funeral home and cemetery businesses improve liquidity and value through better cash management. Over the years, we have learned that developing a budgeting and forecasting system and using industry-specific accounting tools and reporting systems are two of the most reliable methods of effective cash flow management.
Accurate Budgets and Forecasts
Budgeting and forecasting are essential to the formation of a successful business strategy, especially in the changing commercial landscape of the funeral industry. As more families choose cremation or personalized services such as celebration of life ceremonies and green burial, it can no longer be “business as usual” for funeral and cemetery providers. Death care businesses have enjoyed a long period of stable profits, but continuing to rely on past practices will not produce the same results.
Funeral home budgets should not be based on prior year numbers if the goal is to develop realistic short-term and long-term projections. Johnson Consulting Group recommends the use of funeral industry benchmarks and trend analysis when forecasting budget expense categories and creating new product/service offerings. Funeral business operators need to compare their revenue and expense estimates against other firms in the industry in order to find out where their cash flow levels should be — this type of benchmarking can quickly show if your firm’s cash levels are too low or too high. Creating a realistic budget and analyzing the numbers on a monthly basis puts businesses on a clear path to positive cash flow.
Get Organized – Use an Accounting System
Funeral home and cemetery owners should review their financial statements carefully to determine how much cash they have available for operations and investment activities. Gone are the days when a funeral home’s P&L was only used at year-end for tax purposes — current trends demand modern accounting systems that provide detailed sales and expense reports in a timely fashion. Your local accountant may have served you well over the years, but to ensure cash flow accuracy and preserve profitability, you need a professional who can discuss your cash position in relation to your business and the relevant economics of the death care profession.
Your Financial Story
Consistent cash flow management and accurate budgeting and forecasting are the key components of financial success for funeral and cemetery businesses. Johnson Consulting Group’s Accounting and Financial Management team offers two levels of accounting services to meet your company’s specific operational needs. To find out how we can help you understand the real financial story of your business, please call us at 888-250-7741 or contact us online today.
Johnson Consulting Group offers a full-service accounting and financial management system developed specifically for funeral homes and cemeteries. We offer a specialized chart of accounts unique to the industry, and our reporting tools provide customized trend analysis statements and sales summaries by call type, individual arranger, location or company. In addition, our flexible web-based software allows you to review financial data in real time no matter where you are. This ability to analyze your profit & loss, balance sheet, and cash flow statements 24/7 is crucial to identifying negative trends and making proactive decisions for effective change.