Ask the Analyst: I’ve Never Had a Budget, What Do I Do?

Written by Jared Tanke

A study performed in 2021 by Clutch, a leading B2B research firm, found that just 54% of small business owners had a documented budget that year. While I am optimistic that our profession skews higher than that, I’m sure those numbers may in fact ring true. That means there are a lot of funeral homes and cemeteries out there that have no real way of measuring their performance versus a benchmark, and that means it would be challenging to put forth any sort of financial goal. Since it is already challenging running a successful funeral home, we want to make at least one thing easier. I want to touch on just a few benefits of having a well-documented budget.

• Accountability – If you have ever gotten into a fitness routine and followed a training schedule, you know how important accountability is. I recently ran a marathon that had me follow a pretty strict 18-week program. I knew exactly what I had to do each day, and I had people around me who knew what my goals were that helped keep me motivated. Creating your budget is going to be the same, you will know what the benchmarks are, you are also going to know what that means for your financial accounts if you hit them, thus keeping you disciplined throughout the year. Without it, you may be running a good business, but you won’t have that clear measurable to compare yourself with.
• Combat Rising Costs – Every year is going to be different. Thankfully 2024 experienced less inflation than we have been used to during COVID, however the Consumer Price Index (CPI) increased 2.7% in November 2024 from a year earlier. Your costs have gone up. Without a budget in place, you may not be seeing exactly how these costs are impacting your own margins. As part of the budgeting process, it is good to look into your own GPL and ensure you are priced accordingly. At Foresight we like to make sure that not only do your service prices cover your overhead costs and allow you to turn the lights on every day, but also be making a profit that meets your financial needs.
• Preparedness – The longer you are in business, the more you are going to encounter the dreaded and unexpected AC blowout, roof/building damage, vehicle crash, and the list goes on and on. These are all items that need to be taken care of quickly, and typically have a big cost associated with them. Perhaps it’s not a capital expense, but just a slow month in terms of services, yet you still need to make payroll and other fixed cost expenses. Your budget is a tool you can utilize to make sure your business is ready for these unforeseen events. I often get asked from owners, “How much cash should I have on hand?”. A general rule of thumb is you should have anywhere from 60-90 days (2-3 months) of overhead in your bank account. The easiest way to calculate this is to take your total annual expenses, divided by 12 to get a monthly overhead cost, and then multiply by 2 or 3. The fewer services you perform, the more susceptible you may be to a slow period, and thus you want to have more cash on hand to weather any downturn or unexpected capital expenditure.
• Long Term Planning – Whether you just bought your funeral home business today, or you’ve owned it for 40+ years, you probably have some long-term goals. Expanding your territory, putting in a retort, or just planning for retirement and what that succession plan looks like. Having a budget in place, you can make these decisions as to whether you can afford to make that new acquisition, or how many more years you need to work in order to meet your financial needs and comfortably retire. Without one, you cannot have that firm grasp as to what’s happening in your business, what’s changing, and how to adapt.

It is my firm belief that without a budget in place, you are driving with a blindfold on. You have nothing to measure your performance with, and there are going to be so many things that you might miss along the way. Here at Foresight we have helped countless owners in establishing their annual budget, we also then become their partner to sit down quarterly and have a review session where we evaluate performance and identify any areas we want to work on for the next quarter. It is my hope that we can make the funeral and cemetery profession stand out from the rest of the small business world and strive to have 100% of owners with a documented budget next year.