What Is a Quality of Earnings Report and Do I Need One?

A Quality of Earnings (QoE) report is a financial analysis performed by an independent accounting firm that examines and validates your business’s reported earnings. While traditionally commissioned by buyers, more sellers are now proactively investing in seller-side QoE reports, and for good reason.

What Does a Quality of Earnings Report Include?

A QoE report typically examines: the sustainability of your revenue, the accuracy of your reported EBITDA, the validity of add-backs and adjustments, working capital trends, and any accounting policies that may make earnings appear higher or lower than they truly are. It’s a more in-depth analysis than a standard audit.

Why Buyers Value QoE Reports

Buyers (and their lenders) use QoE reports to confirm that the earnings they’re paying a multiple on are real and sustainable. A deal based on $800,000 of EBITDA that a QoE report confirms is actually $650,000 in adjusted earnings can fall apart or require significant renegotiation. Buyers who commission their own QoE report will do this analysis regardless, the question is whether they find surprises.

Should Sellers Commission a QoE Report?

A seller-side QoE report makes sense when your business has complex financials or significant owner add-backs that need explanation, you’re selling a business valued above $2–3 million where a QoE is expected by buyers, you want to move through due diligence faster and with fewer surprises, or you’ve made significant investments that temporarily reduced earnings.

What Does a QoE Report Cost?

Seller-side QoE reports typically cost $10,000–$50,000 depending on business complexity. For businesses valued above $2 million, this investment can more than pay for itself by preventing downward price adjustments or deal failures during due diligence.

Quality of Earnings vs. a Business Valuation

These two reports are often confused, but they answer different questions. A business valuation estimates what your company is worth and what a buyer should pay. A Quality of Earnings report goes a layer deeper and tests whether the earnings behind that number are real, repeatable, and accurately stated. In practice they work together: the valuation sets the price, and the QoE report gives a buyer the confidence to pay it. When the two line up, deals move faster and close nearer to the number you expected.

How a Seller-Side QoE Report Strengthens Your Position

Walking into negotiations with a QoE report already in hand changes the dynamic. Instead of the buyer’s team surfacing questions about your add-backs or margins midway through due diligence, you have already answered them. That removes the most common reason buyers ask for a price reduction late in the process, and it signals that your financials are organized and trustworthy. For owners in St. Augustine and across Northeast Florida selling a profitable, more complex business, that credibility often pays for the report many times over.

I help business owners in Northeast Florida evaluate whether a QoE report makes sense for their sale and connect them with the right accounting resources. Contact Ryan C. Winter for guidance.

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• Category: Northeast Florida