QUALITY OF EARNINGS FOR SMB ACQUISITIONS
A seller's reported earnings are a starting point. We test how much of that performance is reliable, recurring, and likely to continue after the acquisition, so buyers and lenders can evaluate the business with a clearer view of its cash flow.
Our team includes licensed CPAs focused on transaction diligence. You work directly with a senior professional, with progress tracked through our Live Deal Tracker and material findings raised as they emerge. We confirm the scope, review period, and reporting needs at the start of each engagement.
Using SBA financing?
Our Quality of Earnings offering can be scoped around the applicable SBA 7(a) requirements. Introduce us to your lender early so we can coordinate the report, reliance, and any required review.
SBA financing and lender requirementsWHAT YOU'LL RECEIVE
Quality of Earnings Report
A clear PDF report with normalized earnings, supporting analysis, and findings relevant to the acquisition. We explain the adjustments and risks that can affect purchase price, financing, and deal terms.
Excel Databook
An analyst-ready Excel databook with the supporting financial schedules. Buyers, advisors, and credit teams can follow the calculations and evaluate the findings using workable data.
Direct CPA Access
Work directly with your senior diligence lead to discuss the numbers and address questions. We coordinate with the buyer, lender, and transaction team as agreed in the engagement.
3-4 Week Turnaround
Most engagements take approximately three to four weeks, depending on document readiness and deal complexity. We confirm timing at kickoff and keep you informed through our Live Deal Tracker.
Ongoing Support
A readout of our findings and follow-up support as the transaction progresses. For lender-involved engagements, we agree on report delivery, reliance, and any additional review requirements before work begins.
WHAT WE REVIEW
- Analyze monthly revenue, expenses, margins, and normalized EBITDA across the agreed historical and trailing twelve-month periods.
- Test seller add-backs and deductions against supporting records, including owner compensation, related-party transactions, non-recurring items, and cash-versus-accrual differences.
- Assess the quality and sustainability of earnings and explain findings relevant to the proposed acquisition debt.
- Reconcile cash receipts and disbursements across the relevant bank accounts to reported revenue and expenses, accounting for balance sheet activity.
- Compare internal financials, tax returns, accountant-prepared statements, and required IRS transcript data within the agreed scope.
- Investigate differences such as unrecorded expenses, revenue that has not been collected, and deposits from owner contributions or financing.
- Analyze working capital needs, seasonality, and fluctuations to inform a normalized net working capital target.
- Review receivables, payables, inventory, and other balance sheet items that affect operating cash needs.
- Identify potential debt-like exposures, including accrued PTO, unpaid taxes, deferred revenue, and related-party balances, and assess their treatment in the transaction.
- Analyze customer concentration, revenue trends, retention, and contract continuity.
- Review gross and EBITDA margin trends and operating ratios for signs of changing performance.
- Consider capital expenditure needs and other financial risks that can affect earnings and cash flow after closing.
- Flag potential tax and off-balance-sheet exposures within the agreed financial diligence scope.
Using SBA Financing?
For qualifying SBA 7(a) Initial Acquisitions and Business Expansions with a business purchase price of $3 million or more, the lender must obtain a QoE in addition to a business valuation. We can structure our Quality of Earnings work around the applicable requirements of SOP 50 10 8.1, Appendix 15.
- The $3M threshold is measured before buyer equity or seller financing and excludes owner-occupied commercial real estate. It is a purchase price test, rather than a loan amount test.
- The updated SOP applies to applications received by SBA on or after October 1, 2026.
- Exceptions include Owner Buyouts, ESOP and Cooperative transactions, and qualifying owner-occupied Special Purpose Property transactions. Confirm applicability with your lender.
Independent Earnings Analysis
An independent, experienced financial professional examines the reliability, sustainability, and accuracy of historical and projected earnings for the lender's benefit. The required report must not be prepared by or for the seller.
Buyer and lender coordination
Buyers can involve us early, and lenders can work with us directly. For a buyer-prepared report, we can discuss a reliance letter and coordinate any lender-required review, including review by a different firm where required. Lender acceptance depends on the report, provider, and applicable review process.
Lending teams can also speak with us about provider onboarding and recurring engagements. Scope, reliance terms, report access, and any additional review or fees are confirmed for the transaction.
Free ConsultationCOMMON QUESTIONS
Our standard turnaround time for most deals is 3-4 weeks from kickoff to final report. However, this can vary depending on the complexity of the business and the responsiveness of the seller.
We also offer expedited delivery in as little as one week for an additional fee, subject to our team's availability and the specifics of the deal.
Our full QoE includes a written PDF report and supporting Excel databook. QoE Lite focuses on an Excel workbook with less written commentary.
Choose the format around the transaction's needs. Where a lender is involved, confirm the required scope, report format, and reliance process first; QoE Lite should not be assumed to satisfy an SBA-required QoE report.
No. A full QoE is generally required for qualifying Initial Acquisitions and Business Expansions with a business purchase price of $3 million or more, excluding owner-occupied commercial real estate. Exceptions apply to certain transaction types, including qualifying owner-occupied Special Purpose Property acquisitions.
Below $3 million, financial due diligence requirements still apply. Confirm the scope your lender needs for the transaction.
Potentially. We can discuss a reliance letter and coordinate the lender's review of an existing buyer-prepared report. The report must meet the applicable requirements, and your lender must approve the provider and complete its required review.
Reliance terms, report access, any additional review, and related fees are agreed for the transaction. A reliance letter does not guarantee that every lender will accept the report.
Not automatically. One appropriately scoped report may address the buyer's diligence needs and the lender's requirements, subject to the lender's acceptance and the agreed reliance and review process.
Connect us with your lender early so we can coordinate the engagement and help avoid unnecessary duplication.
The borrower may bear or reimburse the cost, depending on the lender's process and engagement terms. Confirm payment arrangements, reliance terms, and any additional review fees before kickoff.
SOP 50 10 8.1 with Technical Policy Updates applies to applications received by SBA on or after October 1, 2026. Your lender should confirm the applicable rules for your application.
Yes. We coordinate scope, supporting information, lender review, report delivery, and readout expectations. Lending teams can also contact us about provider onboarding and recurring QoE engagements. Book a free consultation.