What is a Quality of Earnings Report?

A Quality of Earnings (QoE) report isn’t just a look at your financials; it’s a diagnostic that goes beyond your income statement, probing whether earnings are accurate, repeatable, and reliable.

In other words, it helps answer the buyer’s key question: Can I count on these earnings going forward?

What the report typically evaluates:

• Non-recurring revenues and expenses – one-time events that inflate or suppress performance
• Owner-related and discretionary spending – expenses that wouldn’t exist under new ownership
• Customer concentration, seasonality, and revenue trends – to gauge sustainability
• Working capital behavior and cash flow consistency – key to day-one operating health

These reports influence how buyers perceive your business.

How the Process Unfolds

The QoE process is detailed and invasive. Here’s what to expect:

1. Information Requests

It begins with a deep dive—monthly financials, payroll data, tax returns, and contracts. It’s a broad sweep.

2. Interviews and Follow-Ups

Next come interviews with the owners or finance leaders. They’ll ask about accounting practices, unusual expenses, and any business changes in recent years.

3. EBITDA Adjustments

The analyst will “normalize” earnings, removing items like personal expenses or nonrecurring costs to create a cleaner picture of operating performance.

4. Final Report

The completed QoE becomes a central tool in negotiations. It influences valuation, deal structure, and even the timeline to close.

Where Things Can Go Wrong

The numbers may be factual, but interpretation drives the outcome. That’s where Breneman Advisors comes in.

• We Know What Buyers Look For
  We’ve been through this process from both sides. We know what attracts buyers—and what gives them pause. That allows us to anticipate how your financials will be reviewed and prepare accordingly.

• We Help You Frame the Narrative
  Most businesses have unusual costs: one-time marketing pushes, equipment investments, or expansion-related expenses. Left unexplained, these look like red flags. We help frame them as forward-looking value, not liabilities.

• We Bring Transaction Experience
  This isn’t theoretical for us. We’ve worked on dozens of transactions where the QoE report made or broke the deal. Our job is to guide you through the process.

Final Thoughts

The outcome of a Quality of Earnings (QoE) analysis can significantly impact the success of your business sale. Partnering with an experienced advisor who can help validate and articulate the true value of your business is essential to achieving your desired outcome.

At Breneman Advisors, we help owners prepare well in advance, positioning their businesses in the best possible light and protecting the value they’ve worked hard to build.

If a sale is on your horizon, now is the time to talk.

Frequently Asked Questions about Quality of Earnings Reports

Q1. What is a Quality of Earnings (QoE) report?

A Quality of Earnings (QoE) report is a diagnostic review of a company’s financials that goes beyond the income statement. It evaluates whether reported earnings are accurate, repeatable, and reliable, helping buyers determine if they can count on those earnings going forward.

Q2. What does a Quality of Earnings report typically evaluate?

A QoE report examines non-recurring revenues and expenses, owner-related or discretionary spending, customer concentration and revenue trends, as well as working capital behavior and cash flow consistency.

Q3. Why is a Quality of Earnings report important in a business sale?

It influences how buyers perceive the sustainability of earnings, impacts valuation, shapes deal structure, and can even affect the timeline to close a transaction.

Q4. How can interpretation of a Quality of Earnings report affect outcomes?

While numbers may be factual, interpretation drives buyer perception. Unexplained unusual costs may appear as red flags, whereas properly framed, they can be positioned as forward-looking value.