Most business owners don’t think about a Quality of Earnings (QoE) review until they have to—often when a buyer shows interest, a lender requests diligence, or an investor starts asking tougher questions.
The companies that move through transactions smoothly and achieve stronger valuations tend to do one thing differently: they prepare early. A proactive QoE gives you clarity into your true earnings and time to address issues that could impact value—before anyone else controls the timeline.
Summer often brings more flexibility for finance teams and professional service firms, making it an efficient window to complete a QoE. It also allows us to offer pricing advantages and complete the work with the audit team that already knows your business.
Below is an overview of what a QoE is, why it matters, and why starting now can put you in a stronger position.
What Is a Quality of Earnings (QoE) Review?
A Quality of Earnings analysis is a focused financial diligence engagement designed to answer one key question:
How much of a company’s earnings are sustainable, repeatable, and transferable to a new owner?
Unlike an audit—which provides assurance that financial statements are fairly presented under the applicable accounting framework—a QoE recasts earnings to reflect the normalized, ongoing economics of the business.
A typical QoE review includes:
- Normalization adjustments
Identifying non‑recurring or unusual items that distort earnings, such as one‑time legal settlements, unusual bonuses, temporary cost reductions, or insurance recoveries. - Revenue and gross margin analysis
Evaluating revenue recognition practices, customer concentration, pricing trends, and margin sustainability. - Expense and EBITDA adjustments
Reviewing owner‑related expenses, related‑party transactions, management compensation, and true run‑rate operating costs. - Working capital and cash flow trends
Identifying seasonal patterns and operational drivers that affect cash conversion. - Accounting policy consistency
Assessing whether accounting methods are consistently applied and aligned with buyer, lender, or investor expectations.
The result is a clearer view of adjusted EBITDA (or another normalized earnings measure), supported by analysis and narrative explaining key drivers, assumptions, and risks.
Why a Quality of Earnings Review Adds Value (Even If You’re Not Selling Tomorrow)
A Quality of Earnings (QoE) review isn’t just a transaction requirement. When completed proactively, it becomes a practical value‑creation and planning tool that benefits the business well before a deal is on the table.
Here’s how a proactive QoE adds value:
-
Reduce surprises in a future transaction
In a sale or capital raise, surprises almost always cost time and money. They often surface as:
- purchase price reductions,
- unfavorable deal terms such as escrows or holdbacks,
- expanded indemnities, or
- delayed closing timelines.
A proactive QoE helps identify and address potential issues early—before they become negotiation points under deal pressure.
-
Strengthen your story with buyers, investors, and lenders
A well‑supported earnings narrative—backed by clear schedules and consistent logic—can:
- increase confidence in your financial results,
- improve the credibility of your growth story, and
- support stronger valuation discussions.
Even if a transaction isn’t imminent, this process often improves reporting quality and helps management communicate performance more clearly and consistently.
-
Identify fixes before diligence begins
Many QoE findings are not deal‑breakers. More often, they’re operational or reporting issues that can be addressed with planning, such as:
- improving billing and cutoff timing,
- tightening capitalization policies,
- clarifying revenue recognition documentation,
- reducing customer concentration risk, or
- cleaning up related‑party transactions and owner expenses.
Addressing these items early provides more flexibility and typically lowers the cost and complexity of future diligence.
-
Improve internal decision‑making
A QoE often gives management clearer insight into:
- profitability by product line or customer,
- recurring versus non‑recurring margins,
- key cost drivers and efficiency opportunities, and
- cash flow conversion.
That insight supports better budgeting, forecasting, banking relationships, and strategic planning—whether or not a transaction is on the horizon.
Why Summer Is an Ideal Time to Complete a QoE
For many companies—and many accounting firms—summer brings more flexibility. That creates three clear advantages when it comes to completing a Quality of Earnings review.
-
You can do it before you “need” it
If you wait until a buyer or lender requests a QoE, you’re reacting to their timeline. Planning ahead allows you to stay in control of:
- scope,
- timing, and
- internal workload.
Completing a QoE proactively gives you time to address findings thoughtfully—without the pressure of an active transaction.
-
More favorable pricing during a slower season
Because this period is generally less congested than peak audit and tax seasons, the work can be scheduled more efficiently. That efficiency often creates an opportunity for more favorable pricing during a defined window, allowing you to complete high‑impact diligence work in a cost‑effective way.
-
Your audit team already knows your business
A major advantage of working with the team that already audits your company is speed and context:
- We’re familiar with your systems, accounting policies, and reporting rhythm.
- We already understand key risk areas and controls.
- We can focus more time on analysis and insight—and less time on onboarding.
This reduces friction, shortens timelines, and often leads to higher‑quality, more actionable recommendations.
What a Summer QoE Engagement Can Look Like
A proactive Quality of Earnings review can be scaled to fit your goals. Common formats include:
- Baseline QoE or readiness assessment (focused scope, faster turnaround)
- Full QoE‑style analysis with more comprehensive schedules and deeper dives
- Targeted earnings normalization, such as recurring EBITDA and working capital drivers
We tailor the scope based on whether your objective is:
- deal readiness within the next 6–18 months,
- lender or investor conversations, or
- internal value improvement.
Next Step: Let’s Talk
Interested in planning ahead? Let’s talk.
If a sale, recapitalization, or strategic transaction could be on the horizon—even a few years out—a proactive Quality of Earnings review can help you prepare on your terms. This is often the most efficient time to get started.
Reach out today to schedule a short planning call and discuss whether a QoE engagement makes sense for your business.