What Happens After a Quality of Earnings Report?

For many first-time or early-stage acquirers, getting the Quality of Earnings (QoE) report feels like a big milestone—and it is. But it’s also the beginning of the most important conversations in your deal process. If you’re holding a fresh QoE and wondering, “Now what?”—this guide is for you.

Let’s walk through what you should do next, how to interpret the findings, and how to use the report to drive smart, strategic decisions.

Quick Recap: What’s a QoE Report?

A Quality of Earnings report is not an audit. Instead, it’s a financial deep-dive that analyzes and normalizes a business’s earnings—adjusting for one-time items, owner-specific expenses (add-backs), working capital anomalies, and operational risks.

The goal is to give you a clearer, more accurate picture of the company’s true earning power.

Step 1: Review Key Findings with Your Diligence Provider

Before you fire off revised terms or call your lender, pause and digest the report. The QoE will likely include:

• Adjusted EBITDA calculations
  
• Add-backs and normalizations
  
• Working capital analysis
  
• Revenue quality and customer concentration
  
• Red flags or financial risks

Set up a review session with your diligence provider and walk through each major adjustment—especially anything that materially moves the EBITDA number. Ask clarifying questions. If something doesn’t make sense to you now, it definitely won’t make sense when you’re explaining it to a seller, investor, or lender.

Focus on what’s material. Not every $5K adjustment matters—but a $200K working capital swing or disputed add-back definitely does.

Step 2: Assess the Deal Impact

Now that you’ve got the cleaned-up financials in front of you, ask yourself:

• Does the adjusted EBITDA align with what I based my offer on?
  
• Do any findings materially affect the valuation, structure, or risk profile?
  
• Are there any adjustments that feel like deal-breakers—or at least deal-discussers?
  

For example, if the seller claimed $1M in EBITDA but the QoE shows $800K, that’s a 20% difference. If your valuation was based on a 4x multiple, that’s an $800K swing in purchase price.

On the other hand, the QoE might validate the seller’s numbers or even uncover upside. Either way, it gives you the factual grounding to revisit your assumptions.

Step 3: Prepare for the Seller Conversation

If you need to revise your terms—or even just explain what you found—do it with data, not emotion. Sellers may push back, but when you can walk them through the math, the conversation becomes a lot more productive.

Frame it as collaborative:

• “Here’s what our financial review uncovered…”
  
• “We still like the business, but these findings impact our financing approach…”
  
• “Let’s work together to find a structure that reflects the adjusted numbers.”

Avoid sounding adversarial or accusatory. The QoE isn’t about catching the seller in a lie—it’s about understanding the business as it actually operates.

Step 4: Share the Report With Lenders, Investors, or Partners

Your capital stack cares just as much (if not more) about the QoE than you do. Here’s why:

• Lenders want to see that the business can comfortably service debt based on normalized earnings and working capital.
  
• Investors or equity partners may adjust their commitment or ask for revised terms based on risk exposure or lower projected returns.

Expect questions—and be ready to walk them through the implications:

• What’s changed since the initial model?
  
• How do the new numbers affect the debt service coverage ratio?
  
• Are there any risks that require mitigation before close?

A strong QoE adds credibility. A vague or confused explanation erodes it.

Step 5: Final Diligence and Closing Steps

Once the QoE has been reviewed, you’re into the final stretch. Next steps typically include:

• Wrapping up legal diligence (contracts, compliance, liabilities)
  
• Finalizing the purchase agreement (APA)
  
• Confirming the working capital peg
  
• Building your post-close integration plan

This is also the point where tax and legal advisors may re-engage—especially if the QoE revealed anything that affects deal structure, liabilities, or how you want to allocate purchase price.It’s also a good time to think ahead to post-close operations. Will you need to bring in new leadership, make immediate hires, or invest in updated systems? If the QoE flagged operational concerns, start planning now—not after Day One.

What Not to Do After a QoE

Plenty of buyers mishandle this stage—not out of malice, but from inexperience or fatigue. Here are a few things to avoid:

Don’t ghost your diligence team. They’re not just there to deliver the report—they can help you renegotiate, prep for capital conversations, or work through structuring changes.

Don’t treat the QoE as internal-only. Used thoughtfully, it’s a trust-building tool with your lenders, investors, and the seller.

Don’t skip straight to close without thinking. A clean report is great, but it doesn’t mean there’s nothing left to discuss. Use the findings to validate (or revise) your final terms and structure.

Final Thoughts: Your Next Move Matters

A QoE report isn’t the finish line—it’s a decision-making tool. Use it to:

• Pressure-test your assumptions
  
• Strengthen your negotiation position
  
• Build alignment with your financing partners
  
• Spot red flags before they become your problem

If the findings support the deal, move forward with clarity. If not, adjust now—before closing locks you in.

The takeaway: Getting a QoE is important. Knowing how to use it is essential.

We work with acquisition entrepreneurs every day to turn diligence findings into actionable strategies. Whether you’re reassessing valuation, preparing to renegotiate, or just need a second opinion—we’re here to help.

Contact us today or book a free consultation and learn how we can be a trusted partner on your next deal!