Nicole Vullo
on
Written by Jarod Bernat
We’ve all heard the common adage “Location, Location, Location” used to denote which important factors influence home values most. This phrase also proves to be just as applicable to cemeteries and funeral homes, but not just because these businesses are often operated out of valuable commercial properties. The location, and more specifically, the demographics of the service markets of these businesses, impact how we must approach strategic business planning with regards to pricing, staffing, and succession planning.
“Demographics” as a broad term refer to the statistical data and characteristics relating to a defined population and the groups within it. In a profession like ours, this information is vital to the success of our businesses now and in the future, since the communities we serve often determine their service provider based on whom they feel most comfortable with and relate to most. This can be influenced by the aligning of race, religion, socio-economic status, and preferred disposition.
Therefore, understanding the demographic trends of the population segments you serve within your community has a significant impact on the value of your business. If you serve a declining segment of a population with a negative long-term outlook, your business will both: decline in-step with that population segment (unless changes are made to attract new population segments to your business) & become less valuable over time as the long-term viability of the business wains. But serving a growing segment of a positively trending community will fortify your firm’s long-term health and reinforce the value of your business.
In terms of strategic business planning, your service market’s demographics can also influence decisions like how you price your services to varying degrees. In rural markets, pricing levels can either be entirely determined by the operating costs a business needs to cover given their current call volume (if no immediate nearby competitor), or their pricing flexibility might be influenced by the “other firm” in the market. Stepping up into suburban markets, as the number of competitive firms increase along with overall wealth, an opportunity grows for operators to showcase service-quality distinctions as their justification for maintaining higher pricing compared to others in the market. And in large urban markets, the prevalence of “low-cost” providers has influenced consumer pricing expectations, leading to tighter margins due to eroding service prices.
The demographics of your community can also dictate how you approach staffing. In rural areas, talent can be sparce, which means great care must be taken to train, mentor, and retain competent staff for the long-term. As population density grows, so does the talent pool, but this is accompanied by more hands competing to attract employees. Wages must be competitive and treated as an investment, as well-trained passionate employees are the key to long-term success.
The dynamics of demographics and staffing are similar to how demographics influence our succession planning. As talent is often sparce in rural areas, the same is true for viable future successors for your business. Larger consolidators have been focusing less and less on entering smaller markets unless they have a nearby operation that can share resources. This means the buyer pool in these areas likely won’t include the most financially capable acquirers right off the bat. This in turns lowers the expectation of value for the business since the “value” is what someone is willing and capable of paying for it.
In these situations, it’s crucial that succession planning is started long in advance of your desired retirement date. It’s best to work with key employees to understand their desire to potentially own the business in the future. If that is a consideration, invest time and money into their professional development and mentorship to take over “ownership duties” in the future. Work with them to understand their current financial situation and lay out a plan to help them achieve good enough financial standing to purchase the business when the time comes. This means you should discuss the value of your business with a professional and set a purchase price, and work with your advisors and your key employee to determine how the purchase can be financed.
The equation is almost flipped the opposite direction when it comes to viable buyers in larger suburban and urban areas. Larger consolidators and operators will want to enter these markets and increase their existing presence. However, the larger the business (in terms of value), the more difficult it becomes for key employees to remain viable buyers down the road due to financing restrictions. Nevertheless, the importance of having capable leadership in place at the time of a sale remains just as important regardless of whom purchases your business. Larger operators value “turn-key operations” at a premium if management is already in place to maintain continuity of operations post-sale.
With all that said, it all simply boils down to knowing the demographics of your community, the market you serve within that community, and how you must take all of that into consideration when planning for the future. If you’re looking to research demographics on your own, sites like www.census.gov & https://datausa.io/ provide free tools to map and analyze demographic data sets. I challenge everyone reading to learn something new about the demographics of your own community. You never know what opportunities you might find in the numbers, on the map, or in the town over.