The Evolution of Accounting in Funeral Service
By: Jake Johnson
The financial statement has come a long way in funeral service. When my father first started in funeral service back in the 1980’s, 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. Everything was reactive.
At the same time, the emerging public companies were going to the other extreme. They all paid a lot of attention to their financial statements, and unfortunately, in the early years, not enough time on client 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 then they began to lose market share and encountered other problems.
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 did in the past. 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.
So how about the independents and how they view their financials? Some have come a long way while many still only use them for tax purposes – and those are the firms that will fall by the wayside. Those that pay attention to their financials and use them as business tools will continue to prosper and grow. It is amazing to me how many operators still do not plan for the future. In fact, most still do not prepare a budget for their firms. That is the basic instrument for planning your future. There is a saying, “Create a plan and work your plan,” and not just for the year ahead but also for a few years out. A one-year plan though is a must! The result of your planning will be to construct a budget that financially supports what you want to do. Then measure how you are doing each month by comparing your results with the budget. It can give you an early indication of problems ahead and give you the tools as to how to adapt to change. Actually it is fun when you do it.
Johnson Consulting has many funeral directors who use our accounting program, which assists clients with budgeting should they want the service. Once the program becomes mature, you can compare your monthly results with the prior year, two years prior and with the budget. This illustrates trends in business in every category of sales and expense. I know Dad used this methodology everywhere he owned funeral homes in the past. It helped him be successful, and it has been an important tool for the funeral homes we’ve been assisting for the past several years.
The moral of the story: Get a complete understanding of your financial picture. Have someone knowledgeable in funeral service financials to assist. Your neighborhood accountant usually does not know enough about our industry to do the deep dives that are necessary. Construct a plan for your firm. Back it up with a budget to support the plan. Then review everything on a monthly basis, or maybe quarterly if you are a small firm. Do so and you can meet all the challenges you are facing. If you do nothing, the future will be mired in difficulty.