If a quality of earnings report finds lower EBITDA than the Confidential Information Memorandum (CIM), the buyer usually has four choices: ask for a lower price, change the structure of the deal, go ahead on the original terms, or walk away. Which one makes sense depends on why the number moved, how far it moved, and what the lender does with the new figure. A lower number is not by itself a sign that anyone misled anyone. Most of the gap usually comes from presentation, timing and missing support, and the report shows which is which.
A CIM is a marketing document. It is often prepared by the business owner and a broker from the company's own books, with add-backs listed and little or no support attached. A QoE starts from the same books and tests them against bank statements, filed tax returns and documents provided by the company. The gap shows up where a CIM figure has nothing behind it.
The causes we see most often:
| CIM item | What the QoE tests | Common finding |
|---|---|---|
| Add-backs | Invoices, statements and payroll records behind the adjustment | No document beyond the owner's description |
| One-time costs | Whether the cost shows up in other years | The same cost appears in two or three of the last three years |
| Revenue | Deposits in the bank statements and revenue on the filed returns | Revenue on the P&L that does not tie to deposits or to the returns |
| Trailing twelve months | Cash-basis timing around the period | Payments for earlier work, or a large prepayment, landing inside the period |
| Owner compensation | Payroll records and the role the buyer will need filled | Owner pay added back with no replacement salary, or a market rate that is low |
| Margins | Gross margin trend against inventory and purchases | Margin that improved because inventory was run down, not because the business got better |
More on which adjustments tend to hold up is in which add-backs survive diligence.
More than the gap itself. Small business deals are commonly priced as a multiple of earnings, so a change in earnings moves the price by that change times the multiple.
An illustration with round numbers. A CIM shows $800,000 of adjusted EBITDA, and the LOI prices the business at $3,200,000, which is 4.0 times that figure. The QoE finds $700,000. The $100,000 difference comes from $60,000 of add-backs with no support and a $40,000 cost presented as one-time that appears in two of the last three years.
| Line | Per the CIM | After QoE testing |
|---|---|---|
| Adjusted EBITDA | $800,000 | $700,000 |
| Multiple in the LOI | 4.0x | 4.0x |
| Implied price | $3,200,000 | $2,800,000 |
A $100,000 change in earnings becomes a $400,000 question on price. The same change also lowers the cash flow the lender uses for debt service coverage, covered in how SBA lenders calculate DSCR. Whether the multiple itself should stay the same is a separate conversation, and the QoE does not set it.
LOIs on small business deals are commonly non-binding on price, but the exclusivity period, any deposit and the conditions for changing terms are set by the document. Talk to your attorney about what yours allows before you raise anything with the company.
| Option | What changes | What to confirm |
|---|---|---|
| Reprice | Purchase price comes down to reflect the tested earnings | Whether the lender resizes the loan and the equity injection with it |
| Restructure | Part of the price moves into a note carried back by the business owner, an earnout or a holdback tied to results after closing | How the lender treats the note or earnout, and how the terms are written |
| Proceed as agreed | Nothing in the deal; the buyer accepts the difference | That the loan still works on the tested figure |
| Walk away | The deal ends under the terms of the LOI | Deposit, exclusivity and any costs the LOI assigns |
Repricing is the most direct. Restructuring is common when the business owner believes a disputed item will hold up after closing: if the earnings are there, the owner gets paid through the note or the earnout. Going ahead at the original price can make sense when the gap is small, or when the buyer sees value the trailing numbers do not capture, as long as the loan still works.
Often, yes. Lenders commonly underwrite from the earnings figure they trust most, and once a QoE exists, that is usually the tested number. A lower figure can reduce the loan amount the cash flow supports, change the required equity injection, or change how the lender treats a note carried back by the business owner.
Under SBA SOP 50 10 8.1, effective October 1, 2026, Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more need a QoE from an independent financial professional engaged by and acting on behalf of the lender. The threshold is the price in the purchase agreement less owner-occupied real estate at appraised value. The buyer's equity injection and any note carried back by the owner are not deducted. On those deals, the lender sees the same findings the buyer sees, and a repriced deal may land on either side of $3 million. Confirm with your lender how it will treat the revised terms.
Start with the report, not the conclusion. A QoE shows the findings next to the source documents they were tested against, and the full management Q&A shows what the company said about the adjustments. That gives both sides the same facts and a stated difference to work from.
The company often has an answer. Some differences close when the company produces an invoice, a contract or a bank record that was not in the first set of documents. Others stay open. Our report states the remaining difference on anything that cannot be tied to a source document rather than estimating it, and the Q&A is where the company's responses are recorded for the buyer to review. The layout of the CIM comparison and the Q&A is on the sample report page.
Keep the conversation on the items. A list of specific adjustments, with the source and the remaining difference for the items, is easier to negotiate than a single lower number.
Buyers commonly walk when the gap is in revenue rather than in add-backs. An add-back with no support is a disagreement about presentation. Revenue that does not tie to bank deposits or to the filed tax returns raises a different question about the books, and it is harder to fix with structure.
Other reasons buyers often give: earnings trending down across the three years, a large share of revenue from one or two customers that the CIM did not show, or working capital that will need cash right after closing. None of these decide the question alone. The decision is the buyer's, made with an attorney and the lender.
Usually not. Most gaps come from add-backs without support, recurring costs listed as one-time, and cash-basis timing. The report describes what was tested and what the documents show. It does not assign intent.
It can, when the testing finds documented adjustments the CIM left out. It is less common, and the report treats it the same way: the source and the difference.
That depends on the LOI and the closing timeline. Our work generally takes two to four weeks from receipt of documents, and the company's response time sets most of the pace, including the time to answer the Q&A.
Our fee is $7,500 flat for SBA-sized deals, whether or not SBA financing is used. Larger deals are scoped and priced to the work after a call, with the fee quoted before work starts. There is no hourly billing. An added fee applies when the company has no financial statements and they have to be built, or when the deal includes more than one business, quoted once the documents are in. Details are on the pricing page, and the ten procedures are on the quality of earnings page.