Axel Jean-Francois on 
Why lenders only pay for profits they can trust—and how every funeral-home leader, from CEO to apprentice, can keep theirs real
A COVID-Era Deal That Didn’t Survive Diligence
In 2021, “Cascade Memorial” (Pacific Northwest) signed an LOI a bit over $4M. Lenders’ Quality-of-Earnings (QoE) review knocked nearly 20% for overstated preneed revenue and one-off COVID relief credits. The sellers walked; two years later the home sold closer to $3M. That gap wasn’t a market glitch—it was profits a lender didn’t trust.
Why this matters (to everyone)
• Public-company CFOs: figures must stand up to board and banker scrutiny.
• Independent owners: no surprise haircuts at closing.
• New apprentices: numbers tell your story—learn the clean version first.
With near-9% rates and shifting service mix, lenders ask not just “How much did you make?” but “How confident are we you’ll make it again?”
Key terms in plain English
• EBITDA = Earnings before Interest, Taxes, Depreciation & Amortization. A quick gauge of operating cash flow.
• QoE (Quality-of-Earnings) = A forensic clean-up of EBITDA to only include revenue and costs likely to repeat. Think lender lie detector.
• DSCR (Debt-Service Coverage Ratio) = Adjusted EBITDA ÷ total annual loan payments. Lenders typically want ≥ 1.25× (a 25% buffer above payments).
• COGS = Cost of Goods Sold (merchandise, etc.). SG&A = Selling, General & Administrative (overhead).
60-second reality check (jot your answers)
1. To hit 1.25× DSCR, EBITDA must exceed annual loan payments by:
A) 10% B) 15% C) 25% D) 35%
2. Best “add-back” in QoE?
A) Owner’s Escalade lease B) One-off disaster contract C) Preneed trust booked early D) PPP forgiveness
3. Inventory write-downs first show up in:
A) SG&A B) COGS C) Depreciation D) Interest
4. Reported $1.2M EBITDA with adjustments: strip $70K preneed, add $50K family payroll, strip $90K hearse sale. True EBITDA?
A) $1.05M B) $1.09M C) $1.17M D) $1.23M
Answers: 1-C, 2-A, 3-B, 4-B. (Each miss is a lender red flag.)
“Mirage” numbers that eat valuation
• Early preneed recognition → booking more trust revenue than state rules allow. Typical hit: –4% to –6%.
• Owner perks & family payroll → SUVs, phones, family salaries in the P&L can quietly erode DSCR.
• One-time windfalls → PPP credits, disaster fees, asset sales (e.g., hearse) won’t count forward. Typical hit: –5% to –10%.
Case story: “Harbor Hills” (one page, no spreadsheets)
Rainy Tuesday in Michigan. Phones humming; 72 calls logged (12 above plan). At $7,840 per call, it looked like a home run—until the QoE accountant asked:
“Why record $60K of preneed when only $35K in services occurred?”
One adjustment pushed $25K back into deferred income. EBITDA fell. DSCR tightened. But the lender now saw the honest story—and green-lit a fair deal.
DSCR, in plain English
• DSCR = Adjusted EBITDA ÷ Annual loan payments.
• 1.25× = make every payment and keep a 25% cushion.
• Rising rates can turn a comfy 1.40× into a nail-biter at 1.28×.
• Every $10K of phantom EBITDA you strip out can reduce borrowable money by about $60K (assuming 6×).
No cushion = no financing = no transaction.
What a QoE actually does
1. Checks preneed timing against state trust rules.
2. Separates owner costs (cars, travel, family pay) from true operating expenses.
3. Normalizes EBITDA to what will actually repeat.
Think of it as prepping your statements for surgery—remove the fat, reveal the healthy tissue.
Deal snapshot: Langford (before/after without the weeds)
• Reported EBITDA: $850K → $725K after removing a one-time limo sale and personal vehicle costs, and normalizing family payroll.
• Outcome: QoE request to underwriting sign-off in 3 weeks. Price held. Closed in 4 more.
Beth traded stress for garden time—because her earnings story was airtight.
Seven habits of earnings lenders trust
1. Keep receipts for every owner perk.
2. Flag all one-offs—assume they’ll be removed.
3. Treat obsolete caskets as write-offs, not assets.
4. Follow your state’s preneed recognition rules.
5. Reconcile sales tax collected vs. remitted.
6. Stress-test DSCR at today’s rates, not last year’s.
7. Respond fast to QoE requests—silence breeds suspicion.
Need a guide?
Ready to sell? Looking to buy? Or want your earnings story rock-solid before the banker knocks? Foresight can help.