Dan Isard
on
I have attended ICCFA Conventions for decades. I go back to the ACA and when most people knew about half of the membership without looking at the lapel name cards! Yet, most cemeterians don’t seem to retire. Since the ICCFA morphed from the ACA and ICFA, today’s membership is a blend of cemeterians, funeral directors and cremationists. So the matter of retirement is not just a cemeterian problem, it is an industry wide problem. It is just the cemeterians have less options to plug the financial asset gap available to funeral home owners and cremation company owners. Allow me to elaborate.
Paraphrasing Old Benjamin Franklin, there are only two things that are certain in life, retirement or death before retirement. As to the later, people can buy life insurance to provide for those they are responsible to care for. As to retirement, that is another story. In my five decades of providing financial support to business owners, I have learned the number one reason people do not retire is fear. The largest fear, the fear of outliving your assets. Everyone in this business has a vision of the elderly husband and wife coming into the funeral home unannounced and wanting to create their preneed funeral account. Did you know that almost 66% of all preneed accounts are established by people “spending down”. Every cemeterian has walked people that can’t walk well, out to see the grave, crypt or niche they are contemplating buying as part of their “spend down”. No one wants to become a ward of the state, yet so many do.
To be best prepared to trust you have enough assets, get someone to help you with the analysis. The analysis is complicated because it has so many variables. These variables are:
- Age today
- Age at retirement
- Assumed Life Expectancy
- Buying Power desired
- Assumed average inflation rate
- Assumed average investment yield
This is tough enough to compute for one life, but usually it is done for a couple. Yet, it can be done! The very first computer program I wrote, took all these variables into consideration and it is still in use today. So, get someone to do this for you. In algebraic equation, a good retirement has the assumption that, Assets Need (in plain English, Assets are equal to or greater than Need). The above variables, when computed, demonstrate the result “Need”.
Now, contrast that with the Assets under your control. This is where all of your savings, investments and business interest are added up. To determine the value of the business assets, you need an experienced appraiser. Someone that has valued funeral homes, cemeteries, or crematory businesses sufficient to render an opinion of value. Too often I see valuations from people “that read an article” after being retained. They confuse a Multiple of Earnings with a Multiple of Revenue. They assume all cemeteries, funeral homes or cremation businesses are valued the same. They assume preneed or endowment care trusts are assets. It is frustrating talking to someone who cashed a check and therefore is now defending their first valuation within this profession.
As to the business interest, this is what separates the funeral home and cremation business owners, from the bulk of cemeterians. Most people that are managing cemeteries are “employees” with no ownership. For them, retirement is a process just like any neighbor of theirs, retiring from their job. They are not entrepreneur’s like the owners of funeral home or cremation businesses, in spite of having run a business as complex as a cemetery.
There are some cemeterians that own their cemetery. For these people, the value of the cemetery is a part of computing the value of their Assets just like a funeral home owner or crematory owner. That helps build their Assets, but only if the cemetery has value!
I have seen many people that don’t understand how to compute the value of a cemetery. They look at it as if it were land. Said one caller, “I have a 50 acre cemetery. I have developed 20 acres. So, I have 30 acres remaining. I had an appraisal done and the appraiser said land was $40,000/acre, so I have $1,200,000 in value”. I have had bankers tell me, “My customer bought a 40 acre area that he wants financing on, so as to turn it into a cemetery. Am I correct that if graves sell for $1,000 and you can get 1,000 graves in an acre, that means this has a value of $40,000,000?”
Do you understand why that appraiser and these bankers are wrong? I have written many articles in this magazine and others on computing the value of a cemetery. A cemetery is worth a multiple of its earnings. A cemetery has no “land”. It has only inventory!
There are not as many buyers for cemeteries as there are for funeral or cremation businesses. Less buyers impairs value. Not knowing your earnings impairs value. How your trust is invested could be impairing value. It is imperative to have a valuation performed at least a decade before you want to retire. Learn what factors are driving value and what could be impairing value.
Of the more than 25,000 cemeteries in the US, most have little or no value. Obviously, military cemeteries are government owned. Municipal cemeteries may be divested by the municipality someday, but it is rare. Religious organizations and non-profit groups that own cemeteries could either sell them or sell a management agreement to allow another to manage them for a period of time. Of the For-Profit cemeteries, these are about 25% of the total. These owners can plan for their retirement as any business owner can.
If you do the Need Analysis and add up the Assets, and have a shortfall, what can you do? Here is where you need to look at each asset in your mix. Maybe you need to be more aggressive in investing your savings, IRA, 401K, and other money. Maybe you need to work on improving the value of your business during the time leading up to your anticipated retirement date. Maybe, unfortunately, you need to push back that retirement date.
What you do not want to do to avoid a shortfall is change your assumptions. Do not assume you will die sooner. Do not cut the assumed inflation rate. Do not try for more aggressive investments in retirement. These are cautionary concerns.
If you do the Need Analysis and add up the Assets, and have an excess, what can you do? Sell now. Retire now. Enjoy life! No one has a contract with their god. Remember, 20% of all people die before retirement! Do not join that crowd! Do not try and be the wealthiest person in the cemetery.
The other part of retirement is planning on your replacement. If I assume that you are a contributing party to the operation of your business, you are going to need to have a replacement. Whoever they are, family or non-family, start the knowledge transfer now. Certainly, any business owner is entitled to make mistakes. There is a degree of learning on the job. But if you work with them to prepare them to take over your job, there will hopefully be less errors.