Buy-Side Quality of Earnings Reports: What to Expect and Why You Need One

bradgunter
Oct 3
2 min read

Updated: Nov 5

Considering buying a small or mid-sized business? A Quality of Earnings (QoE) report is one of the most important tools to validate what you're really getting — before you write the check.

In this article, we’ll break down what a buy-side QoE actually is, what it includes, and why it’s critical to protect your investment.

What Is a Buy-Side Quality of Earnings Report?

A buy-side QoE report is a deep financial analysis commissioned by the buyer during due diligence. Unlike a tax return or standard financial statement review, a QoE focuses on the true, recurring earning power of the business - adjusted for non-operational or one-time items.

This isn’t an audit. It’s a forward-looking, deal-focused report designed to help you:

Understand how the business actually makes money
Assess risks hidden in the financials
Avoid overpaying for inflated EBITDA

What Does a Buy-Side QoE Include?

While every report is tailored to the deal, a comprehensive QoE usually includes:

Adjusted EBITDA Analysis

Removes owner perks, one-time expenses, and non-core revenues to show sustainable earnings.

Revenue & Margin Trends

Breaks down customer concentration, seasonality, and revenue recognition issues.

Proof of Cash / Bank Reconciliation

Verifies that reported revenue was actually deposited.

Balance Sheet Review

Assesses working capital, debt, and off-balance-sheet liabilities.

Normalized Working Capital Target

Establishes the baseline working capital that must be left in the business at close.

Add-Back & Adjustment Review

Separates valid add-backs from aggressive or unsupported claims.

Why Buyers Should Always Get a QoE

If you're considering a six- or seven-figure investment, here’s why a QoE is worth every penny:

1. Avoid Overpaying

Many sellers present inflated EBITDA. A QoE brings it back to reality - before you commit.

2. Strengthen Your SBA or Bank Financing Package

Lenders often require financial validation. A QoE gives them confidence in your underwriting.

3. Uncover Deal Risks

Customer churn, misclassified expenses, or revenue recognition problems can kill a deal - or worse, sink your business post-close.

4. Support Negotiations

If earnings are lower than represented, a QoE gives you the facts to justify a price reduction or restructuring.

5. Save Time and Heartache

It’s far cheaper to walk away now than to buy a problem you didn’t see coming.

Why High Point Advisory Group?

At High Point Advisory Group, we bring the expertise of ex-Big 4 consultants and SMB-focused analysts to every engagement. Our buy-side QoE reports are:

Fast (most completed in 2–3 weeks)
Focused on deal-making, not deal-breaking
Tailored for Main Street, Lower Middle Market, and SBA-sized deals

We don’t just hand you a report — we walk you through it, help you ask the right questions, and support you through negotiations.

Ready to Protect Your Next Investment?

If you're under LOI or considering an acquisition, don’t go in blind. Let us help you verify earnings, spot risks, and buy with confidence.