May 16th, 2017
Featured in the American Funeral Director Financial Fitness: May 2017
By: Aaron Calloway, vice president
From ever-changing consumer preferences, a rise in supplier costs and overhead expenses surging, funeral professionals are facing substantial financial pressures, leaving little room for error. The slightest financial mistake can cause a devastating blow to your business and funeral homes across the nation are challenged with financial management decisions every day. Learning what can hurt your business is just important as learning what can help it, so here are the five financial mistakes costing your funeral home money.
1. Poor Cash Flow Management
Cash, money, dough, call it whatever you want but at the end of the day you need it to keep your funeral home running. Poor cash flow? How do you pay your employees, your suppliers, the company that repaved your parking lot? You get the point, no money equals no business. Proper cash flow management is easily the most important factor to keeping your business running smoothly, the key however is learning how to keep the money coming.
Typically when a funeral home attempts to improve cash flow they increase their service costs, lower operating costs or cutout investment opportunities. This is the worst thing you can do for your business; increasing service costs with no true value will turn customers away, lowering operating costs will most likely cost you more money in the long run and cutting investments inhibits growth.
How should a funeral home go about improving cash flow management? Free your receivables, it is money owed to your funeral home anyway. One effortless way to free receivables, outsource a funding company. If you are filing insurance assignments in-house, you are probably wasting time and resources trying to get money from challenging insurance companies. Aside from the time consuming claim paperwork, you are exposed to errors in verification benefits, leaving your funeral home and families in financial vulnerability. Insurance assignment funding companies are experts on insurance claims, and have established relationships with leading insurance companies. Typically a funding company charges a processing fee from the family’s assigned amount, making the service free to funeral homes, meaning you get the money you are owed, all at no cost to you. Most funding companies advertise they will have money in your account within 24 hours, the key is to find the funding company that provides the fastest and easiest services.
Alleviate unnecessary financial pressures, improve your cash flow and hire a funding company, your business will thank you.
2. Devaluing Your Brand
Building and establishing a recognizable brand is about increasing the value in the minds of your customers. The more value your brand holds, the more customers will be willing to use your services, remain loyal and refer their friends and family members. Take a company like Apple for example, in 2016 Forbes reported that Apple was the world’s most valuable brand. Apple has built its brand on having the most innovative products, they are not cheap and people will pay for them.
Apples CFO, Luca Maestri explains the success of the brand, “We have tremendously satisfied and loyal customers who are engaged with our services at a fast growing rate. All of this provides us with an unparalleled foundation for the future of Apple business.”
If you devalue your brand, you lose your business. Many funeral homes are devaluing their business every day and do not even realize it. Lowering costs or providing too many service options are just a couple of ways you may be devaluing your brand.
Did your competitor down the street just lower their service costs to gain more business from the bargain shopper? Let them and do not lower yours. In 2016 NFDA, reported that while consumers want a funeral director to be sensitive to their budget, price was not among the top determining factors when choosing a funeral home. Perception is reality and the perception of low cost is typically paralleled with poor service. Lowering your costs depreciates the value of your brand, after all you are providing the same resources, staff and facilities to complete each service, so why give families an altered perception?
Customers are demanding more from funeral homes today in terms of service options. Providing a truly unique service for their loved one is becoming increasingly important, leaving many funeral homes with an overwhelming amount of service options. While it is important to provide a range of services, you must find balance. Sheena Iyengar, one one of the world’s leading experts on choice notes that, our brains cannot categorize and choose with too many options, leaving us to stall and avoid choosing. Not only will this hurt your sales but it will leave consumers with a confused perception of your brand, ultimately devaluing your funeral home.
Establishing a clear brand within your community is crucial to your success and depreciating the value by lowering your costs or providing too many options with cost your funeral home.
3. Not Asking Questions
Yes, you are funeral directors not salesmen but your funeral home is a business not a play house. Every business owner must have a foundation of sales knowledge and as funeral directors you need to finesse a delivery that does not compromise the trust of your families. Over the past decade, the median cost of an adult funeral has increased 28.6 percent per NDFA, reporting a median cost of $8,505. There are many factors that can contribute to this increase, including a rise in supplier cost, however with the rise in cremation and families choosing less religious based services many funeral directors are still challenged on how to improve their bottom line.
While consumers want funeral directors to be sensitive to their budget, they also want to know what services you can provide to make their loved one’s service memorable. Yes, you have a GPL that shows all of your services, but most of your GPLS are pieces of paper stapled together in black and white with no pictures. My point is, your GPL is unappealing and families are not going to read through every sentence, the fact is most of the services you offer are going to get overlooked. You must ask questions, how will the family know you provide dove releasing ceremonies or transportation services if you do not tell them?
One key question losing funeral directors money, is not asking families paying with life insurance policies: Would you like us to fund your entire policy amount? This simple question, if answered yes, could provide a tremendous amount of financial help to your families, while potentially increasing your bottom line. Chances are, you are already charging a percentage of the policy funded for the funeral bill so why not ask the family if they want their total policy amount. If your funding company can advance complete policies in 24 hours, why not offer the service? If the family chooses not to advance their funds, at least you have not missed an opportunity to ask.
As business owners if you can properly train your staff to remain sensitive to the family’s budgets and ask pertinent service related questions, your bottom line will increase tremendously.
4. Not Investing In Marketing
As business owners, it can be challenging to know where to invest money, but if you are not investing in marketing, then you are not investing in your business. You should think of marketing as an umbrella, as it covers: sales, advertising, public relations, promotions and more. While it can be difficult to determine the effect, marketing has on your business, without it, your company will get little to no exposure. Without marketing, you will have less sales and in the wise words of Mark Cuban, “No sales, no company.” With marketing, you will increase awareness and build trust within your community. Would you trust a complete stranger? Probably not, so creating exposure for your funeral home is critical for building a trustworthy brand.
According to the U.S. Small Business Administration, a company doing less than 5 million a year in sales should spend at minimum of eight percent of your budget on marketing. Marketing drives revenue and if you are not investing in marketing then your business is suffering.
5. Not Outsourcing
Believing you can do it all will stunt the growth of your funeral home. Outsourcing back-office tasks allows your staff do to what is most important, serve the families in your community. Many small businesses believe that outsourcing should be reserved for large businesses but that could not be farther from the truth. Improvements in technology have made outsourcing more accessible for small businesses because it allows professionals to work from anywhere in the world. Trying to complete all aspects of your business in-house can end up costing you a lot of time and money. Time is money and the more value you can create in the time you have, the more successful your funeral home will be. Every business is different and there are times when everyday tasks do not warrant outside help, but as funeral directors there are certain times when you should outsource.
You would not hire a salesman to be your lawyer. While a salesman may have great negotiating skills and a general understanding of law, they are not going to provide you with the expertise an actual lawyer would. The same theory can be paralleled with your family’s life insurance assignments. Yes, you may have staff that are competent in funding assignments and can coordinate with insurance companies to get policies funded, but is the time they are investing worth their efforts? Insurance companies can be challenging, confusing and time consuming. Funding companies have established relationships with insurance companies and are experts in providing accurate, fast and easy assignment funding. You have probably had to call families back into your funeral home weeks after a service to complete additional insurance forms and it is probably something you do not enjoy. Insurance assignment specialists can alleviate many of the frustrations with in-house assignment funding, ultimately saving you time and money. Because funding companies typically charge off of the policy amount, funeral directors do not pay to use their services. So, no cost to the funeral home, saves you time, resources and frustration, maintains constant cash flow to your funeral home and your families will not have to worry about claim accuracy, why wouldn’t you outsource a funding company? Many funeral homes do not know services like this exist or they have worked with a funding company in the past that was not able to live up to their claims, no pun intended. The key is to find an insurance company that can provide you with the fastest and easiest services and that has great customer service!
Every funeral home is different and therefore will require different outsourcing strategies, the point is you should not run every aspect of your business in-house. Outsourcing provides so much value to your time and can have a powerful impact on your bottom line.
Part of being a business owner is taking risks and sometimes you fail. If you can better prepare for potential errors than you will always be a step ahead. As funeral directors, you may sometimes lose sight that you are businesspersons at the end of the day. Before you make a financial mistake that could cost your funeral home, analyze every aspect of your business and develop a clear plan of action.
