Watching your financials is key to running a successful funeral home; however, most business owners fail to do so properly — choosing to focus mainly on quarterly taxes instead of more frequent check-ins.  

The reality is that conducting monthly financial reviews provide the optimal level of insight for your funeral home. By taking a proactive approach to your business’s financial wellbeing, you can more effectively track your progress and plan for any future initiatives. 


Here’s why you should start monthly financial health checks as soon as possible:


To Identify Issues 

Checking your accounting numbers on a monthly basis will provide you with more frequent and accurate updates on issues faced by your funeral home. With that said, quarterly and annual financial reviews might be adequate. It’s important to find a partner who can accommodate your funeral home’s specific needs.

For example, if your profits and cash are down over the course of a month, you’ll want to know as soon as possible, allowing you to pin down the issue and create a plan of course correction. If you only run quarterly financial reports, then you risk discovering an issue several months after it has began. 

Alternatively, you might notice a certain product or service experiencing significant growth. For example, over the last few years — particularly in the wake of the pandemic — many funeral homes experienced an increase in cremation rates. The businesses that run monthly financial reports would be able to note this change and adapt, further shaping their business model around that growth. 


To Check In On Performance 

As a business owner, you should keep track of your revenue, expenses, profitability, debt load, and ability to meet financial benchmarks, as these variables can change quickly, making it essential to examine them proactively. 

The resulting numbers can be used to calculate profitability ratios that essentially serve as a shorthand answer for how well your business is performing. In one method, the debt service coverage ratio (fixed charge coverage ratio), assesses your total annual debt in relation to the cash available to pay for it. That ratio should be 1.35 or greater (essentially meaning that for every dollar of debt, you have a $1.35 of cash available to pay for it). Another key metric is cash available in the bank for operations. The level of cash in the bank should be minimally 2 to 3 months of operating expenses. Some businesses have more, and then the fun part is to decide what to do with that excess cash to maximize your growth and success. Perhaps you would use this excess cash to increase your marketing.

Both of these metrics provide deeper insight into where your business stands helping to determine future goals like a funeral home expansion or to avoid complacency


To Create and Monitor Goals

In any business creating goals is crucial to your overall growth, as it provides benchmarks and a gauge for success. By monitoring these goals along the way, you ensure your funeral home is staying on the right track. 

For example, to achieve expected revenue goals, you have to keep a close eye on case count, average sale, and case mix. Budgeting these projections at the beginning of the year helps you keep an eye on your probability for success. The reason for this is that funeral businesses can be on track for case volume, but can be off in case mix. This can impact their average sale, which then in turn impacts their profitability, which can furthermore impact their key decisions on payroll, marketing, facility improvement, etc.

Another key goal is preneed sales, we should be at minimum replacing each fulfilled preneed with another one to be placed in the file. Many funeral operators get a little stubborn on their preneed sales program. If viewed correctly, this is one of your biggest marketing opportunities within your organization. Monitoring what the preneed sales should be on a annual basis can help you quickly determine whether your sales team or person is doing their job. You should at minimum be looking at monthly goals and actual sales, and equally as important, the average sale and case types being written.


Key Monthly Reports

Altogether, the below will give you an accurate picture of your current financial health, and help you forecast future opportunities.


1. Balance Sheet

A balance sheet includes all of your assets and liabilities. This will give you a view on cash in the bank and how you are tracking your debt, and the equity value that you are growing within your company. Key things to examine on the assets side within the balance sheets are your accounts receivable and operating cash. At-need accounts receivable should be 15 days or less (average days in receivables). As it relates to operating cash, that should be 2 to 3 months of your operating expenses in cash. Once again, this is where you can examine excess cash and what you should be doing with it if it exists. On the liability side of the balance sheet, this is where we look at all of the debts that we owe and how we are paying them off. Here is where we want to consider refinancing when possible, and possibly the consideration of more aggressive debt pay down, depending on the free cash available in our asset section. The lower the liability section total, the more value you have created for yourself in your business!


2. Income Statement/Profit and Loss Statement

The income statement is the single most important tool in monitoring your success. This is where you should be creating an annual budget for sales, as well as each critical expense section on the profit and loss statement (P&L). By creating a budget for the P&L you can track your sales progress, as well as determine whether your expenses are exceeding or not being spent at the level desired (advertising expense). This is also how you will be able to utilize benchmarks from companies like Johnson Consulting on what appropriate levels of payroll, advertising, facility, and auto expense should be as a percentage of your net sales.


3. Cashflow Statement

As the name implies, a cashflow statement demonstrates both the inflow and outflow of cash to your funeral home. While similar to an income statement, a cashflow statement will inform you whether or not your business made or lost cash on a monthly basis. 

To compose this statement, you’ll need to measure your operating activities, cash inflow, cash outflow, investing activities, and financing activities. If done correctly, it will be appropriate to monitor what cash might look like for the next 2 to 3 months. This is a popular way to gauge how to manage key decisions in proactive and growing funeral homes.


Benefits of Leaning on Funeral Home Experts

While most accountants will be well-acquainted with the process of monthly financial reporting, only a funeral business accountant will understand the nuances of this industry and use specialized accounting practices, and chart of accounts. 

At Johnson Consulting Group, our team of death care accountants and financial managers have the experience it takes to successfully account for any type of funeral home or cemetery. We have a dedicated accounting team who handle these functions on a daily basis to increase the probability for success within your funeral home. No matter what your case management system is, Johnson Consulting has the systems and expertise to extract from that data and produce meaningful financial statements to ensure success.