Quality of Earnings Reports for Buyers and Sellers

Thinking about buying or selling a business? Before you shake hands or sign a deal, you need to know if the earnings are real—and how solid they are.

That’s what Quality of Earnings (QoE) reporting is for. We take a deep look at where the money is coming from, how reliable it is, and what’s likely to change after the deal.

This isn’t basic bookkeeping. This is deal-level financial clarity.

Why QoE Reports Matter

When a business is for sale, the numbers might look fine on the surface—but that doesn’t mean they tell the whole story.

A Quality of Earnings report helps you:

Understand true operating income (not just what’s on the P&L)
Separate recurring revenue from one-time windfalls
Adjust for owner perks, personal expenses, or unusual activity
Identify customer or vendor concentration risk
Spot trends that might not hold up post-sale
See how cash flow really works behind the scenes

It’s about knowing what you’re really buying—or making sure your buyer sees the full value of what you’ve built.

What We Do

We take your financials and dig deep. Here’s what that looks like:

Clean and normalize the income statement
Adjust for non-operating income or expenses
Review working capital and cash flow
Analyze gross margins and profit trends
Flag any red flags (like late payments or over-reliance on one client)
Break down recurring vs. non-recurring revenue
Identify seasonality or growth factors
Package the data into a clear, credible report

We build reports that hold up under pressure—whether you’re presenting to buyers, investors, or internal stakeholders.

Who This Is For

QoE reports are critical for:

Business owners preparing to sell
Buyers doing due diligence
Investors evaluating a deal
Brokers or advisors needing clean financials to support valuation
Anyone doing M&A work who wants the real numbers—not just what’s on paper

Even if you’re not ready to sell yet, having a QoE report can help you understand how to build value.

Real-Life Example

A buyer in Seattle was looking at a marketing agency that claimed $400K in net income. Our QoE review found $100K of that was from one-time projects that weren’t likely to return. That gave the buyer leverage—and kept them from overpaying.

We also helped a seller in Memphis who had been running personal expenses through the business. We cleaned up the financials, adjusted for owner add-backs, and helped them justify a higher valuation to the buyer.

What We Review

We dive into:

QuickBooks or Xero files
Tax returns
Payroll and contractor reports
Sales and merchant data
Customer and vendor breakdowns
Financial statements going back 2–3 years
Forecasts and budgets (if available)

You don’t need to have everything perfect—we’ll help you get it there.

What Documents Does a Quality of Earnings Report Require?

A QoE engagement needs three to five years of financial statements, the general ledger and trial balance, filed tax returns, bank statements, receivable and payable aging, revenue broken out by customer, and written support for every add-back. The list scales with the deal. A 2 million dollar deal does not need what a 20 million dollar deal needs.

Below is what we ask for, and why each item is on the list.

Start with four documents, not forty

You do not need the full package to decide whether a deal deserves a full QoE. Four documents tell you most of what you need to know:

Three years of filed federal tax returns, with the matching profit and loss statements
Twelve months of business bank statements, downloaded from the bank
Revenue by customer, three years
Written support for every add-back over a couple thousand dollars

If deposits do not tie to reported revenue, or the profit and loss statement shows more profit than the tax return, or two customers turn out to be half the business, you have learned that before paying for a full engagement. You are renegotiating or walking away instead.

If those four hold up, the QoE starts from a foundation you already trust, and the work goes to the harder questions instead of the basic ones.

One more thing that is not on any checklist: how fast and how completely those four come back is itself a finding. A seller who takes six weeks to produce three tax returns is telling you something.

The full document request list

Financial statements and ledgers

Monthly income statements, balance sheets and cash flow statements, three to five years
Year-to-date financials with prior-period comparisons
General ledger and trial balances for the same periods
Budgets and forecasts, with explanations for material variances

Tax and filings

Federal, state and local business tax returns, three years
Forms 941 for the last eight quarters, alongside the payroll registers

Cash and independent verification

Business bank statements, 24 months rather than 12
Bank reconciliations
Merchant and card processor settlement statements, 12 months

Revenue and customers

Revenue by customer, product or service line, location and channel
Customer concentration, contracts, churn and recurring revenue schedules
Accounts receivable aging

Costs, payroll and people

Payroll registers, headcount, contractor payments and commissions
Owner compensation, distributions and related-party transactions
Accounts payable aging
Vendor concentration and major vendor agreements

Working capital and the balance sheet

Inventory reports, costing method, reserves and write-offs, if inventory applies
Deferred revenue, customer deposits and accrued expenses
Debt, leases, capital expenditures and fixed-asset schedules

Earnings adjustments

A schedule of every proposed add-back and EBITDA adjustment, each with documentation behind it
Unusual, non-recurring or out-of-period income and expenses

Native exports for the books. Issued PDFs for everything else.

Ask for the general ledger and trial balance as native exports from the accounting system, in Excel or as a direct QuickBooks or Xero file. A 400-page PDF ledger cannot be traced, sorted or reconciled, which defeats the point of requesting it.

Go the other way on bank statements, card processor settlements and payroll. Ask for the PDFs as issued, downloaded from the bank, processor and payroll portals. Their value is that the seller did not produce them. Accept a spreadsheet version of a bank statement and you are back to trusting the seller’s typing, which is the thing the reconciliation exists to get around.

Two comparisons this makes possible, both of which take about ten minutes:

Payroll registers against the Forms 941. The registers show what payroll was internally. The 941s show what was filed with the IRS. They should agree.
Bank deposits against reported revenue. If twelve months of deposits do not reconcile to the top line, that is the first question of the engagement, not the last.

Twelve months of bank statements gives you one seasonal cycle with nothing to compare it to. Twenty-four gives you two.

What if the books are a mess?

Most small business books are. Missing categorization, personal expenses run through the business, an inventory number nobody has touched in two years: none of that stops a QoE. It is what the normalization work is for.

What does stop a QoE is missing source data. No bank statements, no filed returns, a general ledger that cannot be exported. Those are gaps we cannot reconcile around.

Quality of Earnings: Frequently Asked Questions

What is a quality of earnings report?

A quality of earnings report tests whether a business’s reported profit is real and repeatable. It reconciles the financial statements back to source data, including bank activity, invoices, contracts, payroll and tax filings, then adjusts for owner perks, one-time items and non-operating activity to arrive at sustainable EBITDA.

Is a quality of earnings report the same as an audit?

No. An audit tests whether financial statements comply with accounting standards for a period that has closed. A QoE tests whether earnings will continue after the deal closes. An audit looks backward at compliance; a QoE looks forward at sustainability. A business can have a clean audit and a poor quality of earnings.

How far back should a quality of earnings analysis go?

Three years of financial statements and tax returns is standard, five for a business with meaningful cyclicality. We ask for 24 months of bank statements rather than 12, because one year of data gives you a single seasonal cycle with nothing to compare it against.

What is the difference between a buy-side and a sell-side quality of earnings report?

A buy-side QoE is commissioned by the buyer to verify the seller’s numbers and support price negotiation. A sell-side QoE is commissioned by the owner before going to market, to find and fix problems before a buyer finds them. Same analysis, different timing and different audience.

How much does a quality of earnings report cost?

It scales with deal size, transaction count and the state of the books. Clean books on a small deal cost a fraction of a messy multi-entity roll-up. We quote flat rates after reviewing the initial four documents, so you know the number before the work starts.

Do I need a quality of earnings report for a small acquisition?

Not always a full one. For smaller deals the range runs from a basic financial verification, meaning trial balance, bank statements and general ledger for the last twelve months, enough to confirm reported EBITDA and test the add-backs, up to a full QoE. We will tell you which one the deal warrants rather than selling you the larger engagement by default.

Local Expertise. Nationwide Support

We’re based in Seattle and work with buyers, sellers, and brokers across the U.S. Our QoE work is done remotely, with secure file sharing, clear timelines, and no jargon.

Know What You’re Getting Into—or What You’re Worth

A good QoE report can help you close the deal, avoid a bad one, or strengthen your position at the table.

We’ll help you see what’s real, what’s risky, and what needs fixing.

Flat-rate reporting. Honest feedback. Built for real-world deals.

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