Nicholas S. Colanzi, Jr., Commercial Services Partner | A successful business relies on maintaining proper financial management. Without a solid financial foundation, it is impossible to measure the success and future of your funeral home. For many funeral directors, wearing your “business hat” can be difficult when serving grieving families, but preserving consistent financial stability is crucial to the success of your business. From working with an accountant to simple cash flow management practices, here are five best practices for managing your funeral home’s finances.
Hire An Accountant
As a funeral director, you do not just manage funerals and embalm bodies, you are an event planner, a community leader, a therapeutic support system, the list goes on. The point is that you are already wearing many “hats,” so when it comes to your business finances, let a professional take on the task. Accountants have long been trusted and respected advisers to small-business owners. They provide a wide range of financial and tax knowledge that can help you save your hard-earned money. While it may be tempting to want to cut costs by managing your own finances, hiring an accountant will be more cost-effective in the long run. As you focus on serving families, accountants focus on helping businesses thrive by maintaining financial records, finding valuable tax deductions, and keeping your finances organized. Financial management is the hallmark of any successful business and should be left to the experts.
Free Your Receivables
Now that you have a financial expert to help manage your accounts, you need to free your receivables to maintain cash flow. It seems easy enough – you provide a service and then you get paid – but in the funeral industry receiving payment can be difficult. Often, payment for funeral services is a sensitive topic. Funeral directors do not want to stress grieving families any further, and families want funeral professionals to be sensitive to their financial situation.
Most funeral homes offer a variety of payment options to families, from cash and credit cards to payment with life insurance policies. While accepting life insurance policies as a form of payment can be extremely beneficial for both the funeral home and family, many funeral homes are decreasing their cash flow because of their poor insurance policy payment retrieval procedures. Along with time-consuming claim paperwork, challenging insurance companies, and potential for inaccuracies in verification, funeral directors are leaving themselves and families vulnerable to errors with this method of payment. In addition, some insurance companies can lengthen payment retrieval for several weeks, even months, depending on the nature of the death.
As a business owner, you cannot afford to wait a significant amount of time to get paid for services you have already provided, resources you have already utilized, and time your employees have invested. You have overhead costs, supplier charges, and unexpected expenditures you need to pay for as well.
The best way to free receivables and benefit from accepting life insurance policies as payment, is to consider outsourcing to an industry funding company, which can provide fast and easy services. Utilizing a funding company that can eliminate claim paperwork, accelerate the insurance verification process, and get you and your families funds within 24 hours, frees your receivables and improves your cash flow instantly.
Freeing your receivables by utilizing a funding company to complete life insurance payments provides immediate cash flow. Imagine having funds on hand to avoid late charges on overhead costs and take advantage of trade discounts, to pay your employees, give bonuses, and even pay yourself! There will always be challenges when running a business, but if you can eliminate financial risks, you will see great reward.
Keep Personal Expenses Separate
While it may seem obvious to keep personal expenses separate from business expenses, many business owners suffer from financial management challenges due to combining accounts. If you own a funeral home, most likely your life revolves around the business, making it easy to combine personal finances with your business finances. Sure, you can pay back your business for a personal expenditure or the other way around, but combining expenses can get complicated rather quickly.
Aside from creating financial confusion, legally it is often recommended to keep your business as a separate entity. What happens if your business is sued? If you are set up as a sole proprietorship, all your assets are potentially subject to exposure if someone decides to sue you, leaving you in financial turmoil.
How should you separate personal and business expenses? Create a separate business checking account, open a business credit card, pay yourself a salary (depending on the legal structure of the business), and utilize your accountant to inform you of opportunities to create further separation of your finances. Your personal future and business success depend heavily on the stability of your finances. Taking the effort to separate your finances now can help you to avoid potential issues in the future.
Measure Performance
While it is extremely beneficial to hire an accountant and/or financial adviser to help manage your funeral home’s finances, it is important to stay current and engaged with all financial reporting. You cannot improve or change your business if you do not measure or track results.
Measuring the performance of your funeral home will help you to adapt to changing consumer preferences, create competitive strategy, and realize growth potential. Tracking the performance of your business allows you to see what is successful and unsuccessful. Analyzing key business insights also allows you to track expenses and project potential cash flow.
There are numerous reasons to monitor and keep track of your funeral home’s performance. Whether you monitor on paper or invest in financial management software, you must analyze your business and measure performance for financial success.
Keep a Reserve
While your funeral home may have a solid foundation, a business owner should always keep a cash reserve. Unexpected costs and accidents can occur at any time, often at the worst possible moment. It’s just a fact of life.
Cash reserves can help you pay employees and suppliers during slow periods and can help your business take on new growth opportunities. While it is unwise to keep more money on hand than is necessary, your reserve should still provide enough cushion for security. Some experts recommend having a reserve to cover three months of expenses, others six months; there are a multitude of varying factors. Speaking with a financial expert can help determine the amount of cash reserves you should have but the first step is realizing your business needs a reserve.
As a business owner you will encounter many challenges, so developing a strong financial plan and safety net is essential to maintaining a successful business.
About the Author
Nicholas S. Colanzi Jr. joined Bowman & Company LLC in 1997 and is currently a Partner in the Commercial Services Department. He provides a wide range of accounting and tax services to funeral homes, professional services firms, and a variety of other business entities, individuals, estates, and trusts.
This article originally appeared in the April 2024 issue of American Funeral Director, published by Kates-Boylston Publications, and is being shared with permission. Visit www.americanfuneraldirector.com to subscribe.