Usually, yes, though the reason depends on the kind of search. A traditional searcher answers to the investors who funded the search, and those investors commonly expect independent financial diligence before they put money into the acquisition. A self-funded searcher often finances the purchase with an SBA 7(a) loan, so the lender's requirements come first. On a business purchase price of $3 million or more, the SBA rule requires a QoE engaged by the lender. Below that, no rule requires one, and the decision turns on how much of the price rests on figures no one has tested.
The difference that matters here is who puts in money, and when.
| Self-funded search | Traditional search | |
|---|---|---|
| Who pays for the search | The searcher | Investors who fund the search |
| How the acquisition is commonly financed | An SBA 7(a) loan plus the searcher's equity, sometimes with outside investors | Investor equity, often alongside debt |
| Who commonly asks for a QoE | The lender, the searcher, and any outside investors | The investors, and the lender if there is one |
| Who engages it | The lender on SBA loans of $3 million or more; below that, the searcher or the lender | Usually the searcher, or the lender where the SBA rule applies |
| Who the report has to work for | The buyer and the lender | The investors and the lender |
In both cases the searcher is usually buying a first business and planning to run it. That shapes what the report needs to answer, covered below.
In a traditional search, investors fund the search itself and then commonly get the choice to invest in the acquisition once a deal is found. That choice is made on the diligence. Investors commonly ask for a third-party QoE because they are relying on a searcher who has spent months finding the deal and wants it to close.
The questions investors read most closely tend to be the same:
Investors also commonly want to read the company's own answers rather than a summary of them. A full management Q&A, with questions and answers recorded side by side and open items marked as open, gives them that.
A self-funded searcher often has fewer outside investors to satisfy, sometimes none. The lender takes their place as the party with requirements.
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. The QoE supplements the business valuation. It does not replace it. How the price is measured is covered in the $3 million SBA threshold, explained.
Below $3 million, the lender sets its own requirements, and either the searcher or the lender can engage the QoE. Ask the lender which it prefers before signing an engagement letter, and confirm with your lender how they apply the rule to your deal.
Either way, the report has to work for the buyer and the lender at the same time. The lender reads it for debt service coverage. The searcher reads it to decide whether to close at the agreed price.
Many CIMs for smaller businesses present SDE, which adds the owner's pay back to earnings. In a search deal, the searcher usually steps in as CEO and draws a salary. That salary is a real cost the business carries after closing. If the owner or a family member also covered other roles without market pay, such as keeping the books or managing the largest accounts, someone has to be paid to do that work too.
An illustration with round numbers. A CIM shows $900,000 of SDE, which includes $200,000 of owner pay added back. The searcher plans a $175,000 salary as CEO. The owner's spouse kept the books without pay, and replacing that role costs $60,000. The earnings left for debt service and investors are $665,000, not $900,000. The CIM figure may be accurate as SDE. It measures something different from what a searcher's investors and lender are paying for.
A QoE records these as documented adjustments, so the searcher, the investors and the lender work from the same figure and can see what sits behind it.
Often that is the goal, since nobody wants to pay for the same work twice. It depends on who engaged the report and what the lender and the investors will accept. On SBA loans of $3 million or more, the report has to be engaged by the lender, so a report the searcher ordered alone does not meet the rule.
Ask the lender early whether its report can be shared with the investors, and ask the investors whether a lender-engaged report gives them what they need. Getting both answers before engagement letters are signed avoids a second round.
At TAS, the scope and fee are the same whether a searcher, an independent sponsor or a lender engages us. The deliverable is a full report in a slide deck plus the workbook, walked through on a call. The workbook carries the monthly P&L, the reconciliations, the add-back support and a five-year monthly projection model, so investors can trace where the figures come from. Sample reports are available on request. More on how we work with searchers is on the who we serve page.
Commonly after the LOI is signed, often with a lender already lined up. Before the LOI, the documents a QoE needs are usually not available and the deal terms are not set. After the LOI, the exclusivity period is usually limited, and the QoE has to fit inside it alongside the lender's process and the legal work.
At TAS, the work generally takes two to four weeks from receipt of documents, and the company's response time sets most of the pace. Much of the searcher's job in that window is getting the company to send bank statements, tax returns and the general ledger quickly.
No. It is the same ten procedures listed on the quality of earnings page, starting with cash proof and reconciliation to three years of filed tax returns and IRS transcript data, and ending with a risks and opportunities summary and a full management Q&A.
Our fee is $7,500 flat for SBA-sized deals, whether or not SBA financing is used, with no hourly billing. Larger deals are scoped and priced to the work after a call, and the fee is quoted before work starts. 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.
No rule requires one. If there is a requirement, it comes from the investors. Going ahead without one is a judgment about risk, and it belongs to the buyer and the investors. The question by financing type is covered in do I need a quality of earnings report to buy a business.
No. A QoE tests earnings. Purchase agreement terms, entity structure and the tax treatment of the deal are for your attorney or tax adviser.