Preparing to sell your business in the next 1-2 years? One of the smartest steps you can take to streamline your eventual exit and maximize value is to obtain a quality of earnings (QofE) report. This specialized financial analysis not only smooths the due diligence process but also helps avoid common pitfalls that can delay or derail a deal.
In today’s M&A landscape, obtaining a QofE report is becoming increasingly standard—if not essential—for sellers. Most serious buyers and investors expect this independent third-party analysis of your company’s earnings quality and sustainability during due diligence.
What is a Quality of Earnings Report?
A QofE report is a detailed audit of your financial statements that goes beyond traditional accounting reviews. It identifies and adjusts for one-time or non-recurring items, analyzes revenue and profit trends, evaluates working capital against industry benchmarks, and assesses key accounting policies for any irregularities.
The result is clear, normalized earnings that reflect your business’s sustainable economic performance, giving buyers invaluable assurance.
Why Getting a QofE Report Early is Beneficial
Many private businesses have never undergone this level of financial scrutiny before entering the market. Without a QofE, buyers conduct their own due diligence, often discovering surprises that can slow negotiations, reduce sale prices, or cause deals to fall through.
Getting your QofE early helps:
How a QofE Report Protects Your Business Value
A QofE report critically reviews revenue recognition, expense capitalization, and working capital fluctuations to flag risks buyers care most about. By proactively addressing these, you reduce the chance of late-stage renegotiations or price reductions.
While there is a cost involved, the investment often pays off by accelerating the sale timeline and protecting your business’s value through a clearer financial story.
From the initial preparation phase to closing, a Quality of Earnings report is a powerful tool for building both seller confidence and buyer trust. For business owners planning to sell, commissioning a QofE report with your M&A advisors is an essential step toward a successful and profitable sale.
Where Can You Get a QofE?
Many CPA firms provide QofE reports as part of their service offerings, and some specialize exclusively in this work for M&A transactions. These firms bring the financial expertise needed to perform detailed analyses that withstand buyer due diligence. If you are considering obtaining a QofE report and want referrals to qualified providers, please contact us.
QofE Report Cost
The cost of a QofE report generally ranges from $25,000 to $75,000, depending on your business complexity and size. While this investment may seem significant, it often pays off by supporting stronger valuations and smoothing negotiations. In the long run, a well-prepared QofE can deliver a major return on investment by helping maximize your business’s value when it’s time to sell.
About ACT Capital Advisors
ACT Capital Advisors is a premier mergers & acquisitions firm representing lower to middle-market companies across all industries. ACT has a 40-year history of deal-making, closing 250+ transactions, and unlocking over $2.5 billion in wealth for its clients. For more information, visit https://actcapitaladvisors.com.
