Group Case: Umas Funeral Services

Growing up in Rosemary Heights, an upper middle-class suburban neighbourhood, Uma had always had a knack for sales and entrepreneurship. At an early age, she was delivering newspapers to earn extra money for the latest toys. In summers with school off, she sold lemonade at a busy corner a short walk from her house. She even hired her best friend to help out (a 10-cent commission from each glass of lemonade they sold), which boosted her sales.

Unsurprisingly, Uma went on to become a regional sales manager for a soda business in Western Canada. Being an expert negotiator, she accepted an $80,000 salary with a $1,000 bonus for every $10,000 in sales in her region. Under her management, the local soda sales quickly grew from about $40,000 in 2018 to $120,000 three years later. However, Uma has noticed that sales have been showing a changing trend in the past two years. Here are the quarterly sales for Umas region over the past three years:

Quarter 1, 2020 Quarter 2, 2020 Quarter 3, 2020 Quarter 4, 2020 Quarter 1, 2021 Quarter 2, 2021 Quarter 3, 2021 Quarter 4, 2021 Quarter 1, 2022 Quarter 2, 2022 Quarter 3, 2022 Quarter 4, 2022

$28,800 $31,700 $30,100 $28,300 $29,400 $31,600 $31,200 $29,800 $29,900 $32,100 $31,700 $30,000

Uma wants advice on how her income might look in coming years. She has been offered a new contract of $95,000 with incremental raises of 2% a year, but she has been too busy to think about it.

Uma has also noticed something interesting about her living area. Her parents and their friends have grown older and there has been more and more talk about funerals. Uma has noticed that there arent funeral services available in the area and cremations, burials, and memorial services typically happen in a couple of neighbouring cities. To make matters worse, there is almost always a wait to get loved ones the services they need!

Uma has briefly discussed the idea of opening a funeral services business in Rosemary Heights with Bonasera, a childhood friend who works as a mortician in a funeral parlour thirty minutes away. He is excited about the idea and believes there could be major profit in the business in coming years.

Uma believes she can hire Bonasera as a part-time employee for $40,000 (20 work hours a week). Alternatively, she can ask him to be her business partner. She is wondering if him paying $50,000 for a 30% share of the business is fair. Additionally, he would be required to commit at least 20 hours a week to the business for the next five years (Uma assumes if the business is successful, they will be able to hire more staff). She wants a complete analysis on having Bonasera as a business partner, including all pros and cons.

Uma is thinking of buying a plot of land where she could build a cemetery. The 1-acre piece of undeveloped land could be purchased for $400,000. Once developed, 300 plots could be pre-sold for $2,000 each. Alternatively, she could pre-sell half of the plots and sell the remaining half on an as- needed basis for $3,000 each. Uma estimates that it would take an average of 2.75 years to sell each plot at $3,000. Developing the land would cost $100,000 and take six months (the development costs would be spread evenly through the year).

Through her research on the internet, Uma has discovered that memorial headstones can be purchased for $300 on average. Engraving them typically costs another $100. Uma figures she can offer families an engraved headstone for $600. Caskets typically cost $2,000 which Uma would mark up to $2,500. Finally, embalming service could be offered for $700, with the funeral ceremony being an additional $500. To start, Bonasera would take care of both the embalming and ceremonies.

Uma has discovered that there is a small woodworking factory for sale for $450,000. If she were to buy this factory, she could manufacture coffins and engrave headstones in-house. The factory would need about $75,000 of modifications and new equipment to make it all work, but could pay off nicely once it was set up. The costs/needs for building a casket would work out as follows:

Wood needed Wood cost Manufacturing time Manufacturer rate Other materials Additional time (clean-up) Additional time rate Allocated machine costs

10 kg

$4 per kg 4.25 hours $40 per hour $20 per casket 1 hour $20 per hour $50 per casket

Headstones could be purchased in bulk for $200 each and engraving would cost $50 in-house. Uma