An airplane that runs out of fuel won’t be flying very long. It might be able to coast for a while, but eventually, the plane is coming down, and chances are it will be a rough landing.
If you read last week’s article, you’ll know that cash for a business is like fuel for an airplane. If you run out of cash, your business won’t last very long. And just like an airplane with no fuel, it will probably be a rough landing.
Launching a funeral home can be a costly undertaking. Paying for the facility, furnishings, audio/visual equipment, prep room, and vehicles can easily consume millions of dollars and deplete the cash reserves of the founders.
Unfortunately, I’ve had many phone calls from owners who had invested their life savings in launching a new funeral home but had no money to spend on marketing to bring in new families. They called looking for a miracle, but there’s not much you can do when the business runs out of cash.
For a funeral home owner to become a Funeral Business Builder, they must be able to develop a strategic growth plan. Included in that plan should be specific strategies for preserving your cash reserves as much as possible.
Below are four cash preservation strategies you should consider for your funeral home business.
Strategy #1 – Lease, don’t buy
Years ago, I tried to help a funeral home owner who had sunk his life savings into building a new funeral home. His architect and the interior decorator did terrific jobs, and the place was beautiful.
The problem was that he built it in the wrong location. It was on the outskirts of town on a by-pass road that semi-trucks were required to use. As a result, the local population, especially senior citizens, avoided the area because of the truck traffic.
That funeral home business didn’t survive.
In contrast, I had a call recently from the owner of a new funeral home who had leased a former bank branch to start his business. He had to invest some money into renovations, but he had gone from zero to 100 calls in his first year by investing most of his money into marketing.
The last I heard, he was letting his lease expire and was leasing a new location because he had outgrown the former bank. What a great problem to have!!
Whether starting a new funeral home business or just adding a new branch location, consider leasing your facility as a way to preserve your cash. Yes, you’ll spend a little more in the long run, but the chances of you getting through the start-up phase will increase significantly.
Strategy #2 – Don’t invest in a crematory
In some states, funeral home owners cannot own a crematory. But in states where it is allowed, many owners install their own crematory. They’ll invest hundreds of thousands of dollars, but it will take decades to break even in most cases.
To me, there are only two reasons to spend your money on a crematory. The first is that it gives you a strategic marketing advantage. In this case, you should be making the fact that you have a crematory a major focus in all of your marketing.
The second reason for buying a crematory is if you plan to launch a discount cremation business in addition to your traditional funeral home. In this case, you should have enough volume to keep the crematory busy.
One of my clients serves 300 cremation families each year and still doesn’t have his own crematory, even though it’s allowed in his state. Maybe he will someday, but the math doesn’t make sense to him for the foreseeable future.
Strategy #3 – Do not finance funerals
An owner told me once that he had written off over $200k in bad debt over the years. He had provided funeral services to a family and agreed on a payment plan, but the family had stopped paying. This is a common scenario.
These days there are lots of companies who will provide financing for families. Therefore, I recommend you find a suitable financing partner and let them provide this service to families.
Yes, you might lose a family who couldn’t qualify for financing. But that’s better than you becoming a collection agency.
Strategy #4 – Hire carefully!!
Most people only consider their capital expenditures when preserving cash, but that leaves out a big part of your expenses, your staff. Unfortunately, I have multiple clients who have invested tens of thousands of dollars into a new hire only to have them not work out.
There is a significant labor shortage in the funeral industry. As a result, new mortuary science graduates field multiple offers, and experienced Funeral Directors can easily find new jobs. Yet, I still recommend that you be very careful when hiring.
Here are the top ways you can lose money when hiring the wrong person.
- Lost productivity – A lazy person drags down the productivity of the entire staff.
- Lost calls – A person who says the wrong thing at the wrong time can easily cost you a call.
- Damage your reputation – Whatever they do reflects on you and your business.
- Hurt your ability to recruit – No one wants to work with toxic people.
- Lost time – You’ll spend way more time managing a bad employee than a good one.
The bottom line is that making a bad hire will cost you money and hurt your cash reserves.
Those are four strategies for preserving your cash reserves. When developing a strategic growth plan, be sure to consider these strategies.
Remember, a plane running out of fuel will crash, and a business running out of cash will crash too.
Revenue is great, but as they say, “Cash is King.”
Until next time
John
