As we wrapped up the year 2023, much like any other year, the funeral business landscape revealed its diverse facets. Across the United States, some firms appeared untouched by external influences, while others experienced the ebb and flow of challenges such as slow months, fluctuating death rates, and the overarching impact of the ongoing COVID pandemic. This period, which we’ve aptly termed the “COVID correction,” witnessed a shift in death rates back to levels reminiscent of 2019 or earlier, sparking a careful analysis of financial trends and the essential planning of financial strategies for the upcoming years.
The accelerated deaths due to COVID marked increase case volume years for the funeral profession in 2021 and 2022. However, as we stepped into 2023, the initial momentum slowed down, returning to a more typical caseload at most funeral homes. Yet, some establishments maintained their caseloads, highlighting the varying experiences across the industry.
This slowdown in case volume inevitably affected valuations. Some offers for funeral businesses were either stalled or withdrawn, accompanied by an uptick in interest rates. Funeral homes with variable interest rate loans and tight fixed charge coverage faced challenges, while those with careful financing and a mindful approach to debt-to-cash flow navigated the period with relative resilience. Despite the hurdles, my optimistic viewpoint leans towards a favorable outlook for the funeral business in 2024 and beyond as we emerge from the shadow of COVID.
One of the pivotal shifts during the pandemic was the transformation of the labor market. With the advent of remote work, rising inflation, and increased awareness of employment options, funeral businesses witnessed a notable increase in labor costs. This shift, though challenging, presents a dual perspective. On one hand, it offers an opportunity to attract and retain skilled employees who may have been underpaid. On the other, failure to adjust compensation may lead to staff seeking employment elsewhere, emphasizing the need for strategic decisions in response to changing labor dynamics.
Rising cremation rates continued to leave their mark in 2023, with technology advancements enabling online cremation offerings and discounted options. While cremation’s popularity persists, funeral homes need to adapt to the evolving landscape of service offerings.
Reflecting on valuations, 2021 and 2022 witnessed peak valuations, whereas 2023 introduced a more varied landscape. Premium firms continue to receive high valuations, but the range of offers expanded, differentiating between businesses prepared for market dynamics and those with unresolved issues. Well-prepared businesses, with a focus on budgeting, strategic planning, staff engagement, merchandising, and effective marketing, continue to stand out in the market.
As we stride into 2024, normalized projections for case volume, and stabilized or lowered interest rates offer a positive backdrop for funeral business acquisitions. The industry remains dynamic, with a steady flow of individuals interested in owning and growing funeral businesses. However, a discerning approach to evaluating future business prospects has become integral, considering the normalization of call volume after the unique challenges of 2021 and 2022.
The trajectory of labor costs seems to have found a balance, with some firms still navigating necessary adjustments. The anticipated “silver tsunami” of an aging population further underscores the importance of retaining a skilled workforce. Despite the challenges, the funeral space stands poised for growth, with a potential increase in case counts in the coming years.
In conclusion, meticulous attention to budgeting, forecasting based on trends, strategic planning, and a holistic review of various facets of funeral business operations are paramount. Whether considering succession planning, third-party involvement, or nurturing the next generation within the business, these considerations are not just essential; they are vital for the continued health and prosperity of funeral businesses and their impact on the communities they serve.