An independent read on whether the earnings you are buying are real, and whether they hold up after you own the business.
Buyers, lenders, sellers and brokers get the same scope. There are no tiers to choose between and no hourly billing.
Ten procedures, performed and reviewed in-house.
Balance sheet cash is tied to bank statement ending balances for the last two fiscal years and the trailing twelve months. Deposit and withdrawal activity is compared to reported revenue and expenses to confirm both completeness and accuracy.
The company's financials are reconciled to the last three years of filed tax returns and IRS transcript data, with book to tax differences explained.
Non-recurring revenue and expenses, above or below market owner compensation, related-party transactions, deferred maintenance and cash versus accrual differences are identified and documented, with the supporting detail behind the add-backs.
Multi-year revenue, margin and expense trends are reviewed to isolate seasonality, one-time swings and irregularities.
Customer concentration risk, contract continuity, and the likelihood that existing revenue and margins hold after the sale are evaluated period by period.
Work in progress, deferred revenue and other working capital categories are reviewed to produce a working capital recommendation and a full working capital analysis for the transaction.
When a CIM or other broker material was used to market the business, we reconcile the advertised earnings to our recalculated figures and explain the variances.
A five-year monthly projection model covering the P&L, cash flow and balance sheet is built from historical results, so buyers and lenders can test different growth and margin scenarios.
Key risks and opportunities affecting the durability of earnings are documented for the buyer and lender to evaluate.
Questions asked of company management and the answers received are documented in full, giving buyers and lenders a transparent record.
The work is completed and reviewed in-house by our CPA-led team. We do not outsource it.
Sample reports and the full engagement scope are available on request before you commit.
Below is how a typical Quality of Earnings engagement proceeds, generally within two to four weeks. We tailor the approach to the specific needs of the company and client, whether that means working within an existing data room, setting up our own for direct access, or whatever process suits the group best.
Once formally engaged, we send the company our full document request list. Companies may send documents ahead of engagement to help speed this step along.
The company gathers the requested records and sends them back to us.
We review the provided documents and send back our first round of questions.
The company works through our questions and sends back answers and context.
We review every answer and send back an updated list of open items and items requiring additional follow-up.
The company closes out the remaining items and sends back final answers.
We digest the final answers and finalize the Quality of Earnings report, preparing for the final client walkthrough.
We walk through the report with the company and deliver the final report to the client.
* Steps 5 and 6 may repeat if material issues surface. We keep that back-and-forth going with the company, before or after the walkthrough, until the open items are closed.
Pace is set by the company. Some engagements wrap up in about a week; others take several months.
Multiple entities or businesses involved in the transaction can add additional time.
Rebuilding the books from scratch typically adds about one extra week.
Book a call and we'll walk you through a real QoE report together, section by section, so you know exactly what you're getting before you commit.
Most buyers ask us the same three things: what it costs, how deep it goes, and whether their own accountant could just do it. Fair questions. We run about 40 of these a month and it is all we do, so the answers below are the ones we give on the phone.
A Quality of Earnings analysis is an independent check on whether the earnings you are buying are real and repeatable. We take the company's books apart and rebuild them from source documents: bank statements, filed tax returns, and the general ledger.
Most small business financials are not wrong on purpose. They are built for taxes, not for a sale. Personal expenses run through the business, revenue gets recorded when the cash lands, and one-time work sits right next to recurring work. All of that moves the number you are paying a multiple on.
What you end up with is the earnings the business actually produces, with the support behind the adjustments, before you are contractually committed.
For years this was a judgment call. It is less of one now.
Under SBA SOP 50 10 8.1, effective October 1, 2026, lenders are required to obtain an independent Quality of Earnings report on Initial Acquisition and Business Expansion loans where the purchase price is $3 million or more. The SBA looked at how these deals perform and concluded that a valuation plus a bank credit review was not enough on its own.
That is worth knowing even if your deal sits under the threshold. A valuation tells you what a set of numbers is worth. It does not go verify that those numbers happened. A bank underwrites debt service coverage against the financials it is handed. Neither one ties revenue back to deposits, reconciles the books to filed returns, or tests whether an add-back survives scrutiny. That forensic layer is the part that gets skipped.
The math is simple at this size. On a $2 million deal, an SDE overstated by 10 percent is a six figure error in what you should be paying. The report costs a fraction of that.
Pricing in this space is all over the map. National firms quote $25,000 to $50,000 for a lower middle market deal. At the other end, some shops will run one for a couple thousand dollars and hand you a spreadsheet.
Ours is $7,500 flat for SBA-sized deals, $10 million and under. Larger or more complex transactions get scoped after a call. Flat fee, no hourly billing, no change orders.
We can hold that number because of volume. We run about 40 engagements a month and have completed more than 600. When you have been through that many sets of small business books you are not starting from scratch. You know where owners bury personal spend, which add-backs a lender will push back on, and what clean books look like in one industry versus another. Our request lists, templates and review process are built out of that experience, and we pass the efficiency through instead of billing hours against it.
What the lower price does not buy you is a lighter scope. It is the same ten procedures, reviewed in-house by our CPA-led team.
A bank is answering one question: does this cash flow cover the loan payment. If the file clears their coverage ratio, it moves.
Your accountant is usually a tax accountant. They are good at what they do, and what they do is minimize taxable income on returns that are already filed. That is close to the opposite of what a buyer needs, which is what the business actually earns going forward.
Neither one is set up to tie deposits back to revenue, reconcile three years of returns to the books, or sit with management and document the answers. That is transaction work, and it is what we do every day.
No, and the difference matters for the decision you are making.
An audit asks whether financial statements comply with accounting standards. It looks backward, it is expensive, and almost no business at this size has one. It also treats the owner's full compensation as a normal operating expense, which is not how a buyer sees it.
A Quality of Earnings report asks whether the earnings are real and whether they hold up after you own the business. We work off a trailing twelve month view, not just fiscal years, and we bridge the bookkeeping back to bank statements and filed returns.
An audit gives you assurance. A Quality of Earnings report gives you a number you can negotiate with.
Most of the time it does not end the deal. It moves the price.
As an illustration, say a business is marketed at $900,000 of seller's discretionary earnings and we get to $760,000 once a personal vehicle, a family member on payroll and a one-time insurance settlement come out. At a 3.5x multiple that is roughly a $490,000 difference in value. That is a much easier conversation to have with a report behind it.
Sometimes a buyer walks instead. That is a good outcome too, and it is a lot cheaper than finding out in month four.
By testing the number instead of accepting it.
The figures in the recalculated SDE tie back to something: a bank statement, a filed return, an invoice, or an answer from management that we wrote down. If an add-back cannot be supported, it does not survive.
Small percentages are not small at this size. A 5 percent overstatement on $1 million of earnings, at a 3.5x multiple, is $175,000 of purchase price. You either pay it or you do not.
Yes, on larger deals. Under SOP 50 10 8.1, effective October 1, 2026, an independent Quality of Earnings report is required for Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more. The threshold is measured before equity injection and any seller note, and it excludes appraised real estate.
The report has to be independent and prepared for the lender. One the buyer or the company commissioned for its own purposes does not satisfy the requirement.
Below $3 million a lender can still require one, and many do when there are heavy add-backs, weak bookkeeping or customer concentration.
Two to four weeks from the day we have the documents, and we open with a request list so nothing is sitting on our desk.
What actually delays a Quality of Earnings report is the company taking three weeks to produce bank statements. We flag that early so you can push on it, and we keep the broker and the lender in the loop rather than going quiet and reappearing with a report.
