Understanding Proforma Financials When Selling a Funeral Home

At some point in the sale process, most funeral home owners receive a document called a proforma financial statement. It looks impressive — clean, forward-looking projections showing what the business could earn under new ownership. For an owner who has spent decades building something real, it can feel validating to see it on paper.

The problem is what’s often hiding underneath it.

What a Proforma Actually Is

A proforma is a projection, not a record of actual performance. A broker or consultant typically builds it to show hypothetical future earnings — often based on assumptions about revenue growth, expense reduction, or efficiencies that haven’t actually happened yet, and may never happen under a new owner.

At first glance, that seems harmless. Every business sale involves some forward-looking discussion. But in practice, agents frequently use proformas as a sales tool — a way to justify an inflated asking price and, more importantly, to get an owner to sign an exclusive listing agreement before they fully understand what they’re committing to.

This isn’t a hypothetical concern. Small-business M&A communities and advisor writeups on platforms like Reddit and industry blogs consistently flag the same pattern: brokers and consultants who lean on optimistic projections to justify a headline number that doesn’t hold up once a lender starts underwriting the deal.

Why Proforma Numbers Mislead Sellers

Proformas commonly include:

• Inflated revenue projections based on assumed growth that hasn’t materialized
• Reduced expense assumptions that ignore real, ongoing operating costs
• Add-backs that don’t survive lender scrutiny — expenses reclassified to make the business look more profitable than it is

The core issue is that buyers and their lenders don’t finance based on hopeful projections. They finance based on seller’s discretionary earnings (SDE) — the actual, verifiable cash flow the business generates today, adjusted for legitimate owner add-backs like compensation, benefits, and non-recurring expenses. 

As one industry breakdown of SDE puts it, this figure represents the total financial benefit a single full-time owner-operator actually receives from the business each year, not what a projection says they might receive someday.

When a proforma inflates that number, one of two things happens: the listing sits unsold because no lender will support the asking price, or a buyer who doesn’t do careful due diligence overpays and then discovers the real numbers during underwriting, at which point the deal either renegotiates down or collapses entirely.

The Real Risk: What Proformas Are Sometimes Used to Justify

The bigger concern isn’t the document itself — it’s what brokers or sellers often ask owners to sign right after they see it. Parties can use a rosy proforma to justify:

• Overpriced listings that deter serious, qualified buyers and don’t meet lender criteria
• Prolonged time on market with few or no real offers, quietly damaging the business’s reputation as a “stale” listing
• Exclusive listing agreements requiring a commission regardless of who actually finds the buyer — including if the owner finds one independently
• Clawback clauses that can hold a seller liable for commission long after the agreement is terminated
• Dual compensation structures where a broker collects fees from the seller, the buyer, and sometimes the lender — often at the cost of transparency and the seller’s net proceeds

None of this appears on the proforma itself. It surfaces months later in a listing agreement’s fine print or in a closing statement that looks nothing like the projections the parties made at the start.

How to Protect Yourself Before Signing Anything

Before agreeing to any valuation, listing agreement, or projection-based pricing strategy, ask directly:

• Is this figure based on actual tax returns and historical financials, or on projected future performance?
• What specific add-backs were used to calculate discretionary earnings, and would a bank actually accept them?
• Does this listing agreement include an exclusivity clause, and under what conditions does commission still apply if I terminate it?
• Is there a clawback provision that could obligate me to pay commission even after the agreement ends?
• Who is being compensated in this transaction, and by whom — is there any dual compensation from both sides of the deal?

If a broker or consultant is reluctant to answer these questions clearly, that reluctance is itself useful information. Our guide on funeral home valuation breaks down how a defensible, lender-supportable number should actually be built.

The 4BSF Approach: Independent, Confidential, No Pressure

At 4BSF, we are not brokers, and we don’t build listings around projections. As transaction specialists, we help funeral home owners make informed, confident decisions using real numbers.

That means:

• Independent valuations based on actual tax records and market comparables — not hopeful projections
• Direct connections to buyers and lenders, without inflated pricing or unrealistic assumptions
• Low-cost, transparent deal structures, with no exclusive lock-ins or hidden clawback clauses
• Personalized support through every step of the transition, from first conversation to closing

For a closer look at how this compares to the broker model, see Funeral Home Broker vs. Transaction Advisor, or read our full step-by-step guide to selling a funeral home.

Conclusion

A proforma isn’t inherently dishonest — but it’s a projection, not a fact, and it should never be the basis for an asking price or a signature on an exclusive contract. The owners who protect their proceeds are the ones who insist on valuations grounded in actual, historical, lender-defensible numbers, and who read every listing agreement carefully before signing.

If you’ve been shown a proforma and something about the numbers or the agreement feels off, that instinct is worth listening to. Talk it through with Matt Manske at 4BSF before you sign anything — the conversation is confidential and there’s no obligation.

Frequently Asked Questions

What’s the difference between a proforma and my funeral home’s actual financials? 

A proforma is a forward-looking projection of potential future earnings. Your actual financials — tax returns, profit and loss statements, balance sheets — reflect what the business has actually earned. Lenders finance based on the latter, adjusted into seller’s discretionary earnings (SDE), not on projections.

Why would a broker show me a proforma instead of just my real numbers? 

Sometimes it’s a legitimate discussion of growth potential for a buyer’s benefit. Other times, sellers use it to justify a higher asking price or to make signing an exclusive agreement feel more appealing. The key is asking whether the number you rely on to price your business is historical and verifiable, or projected and optimistic.

Can an inflated proforma actually hurt my sales? 

Yes. An overpriced listing based on optimistic projections tends to sit on the market longer, deters serious buyers who run their own numbers, and can make lenders decline to finance a deal at the asking price — which often forces a price reduction later, after the listing has already lost credibility.

What is a clawback clause, and why does it matter? 

A clawback clause can require you to pay a broker’s commission even after you’ve terminated the listing agreement, sometimes for months afterward, if a buyer they previously introduced eventually purchases the business. Always read this section of any listing agreement carefully before signing.

How do I know if my funeral home’s valuation is based on real numbers? 

Ask specifically whether the valuation is built from your actual tax returns and seller’s discretionary earnings, or from projected future performance. A defensible valuation should be able to withstand a lender’s underwriting process, not just look good in a sales presentation.

Do I have to sign an exclusive listing agreement to sell my funeral home? 

No. Working with a transaction advisor rather than a traditional broker means you can avoid exclusive lock-in agreements and clawback clauses entirely, while still receiving full support through valuation, buyer matching, and closing.

Thinking of Selling?

Let’s have a confidential, no-obligation conversation about your goals — and how to protect your time, your proceeds, and the legacy you’ve built. Also visit our Sell a Funeral Home page for a complete guide on how 4BSF supports sellers with transparency, discretion, and real results.

Sincerely,
Matt Manske
Founder, 4BSF
>> matt@4bsf.com | >> (913) 343-2357

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