In today’s M&A environment, buyers are looking beyond surface-level financial performance. While historical revenue and EBITDA remain important, sophisticated buyers increasingly rely on a deeper financial analysis before moving forward with a transaction. That’s where a Quality of Earnings (QoE) report comes in.
A QoE report is designed to evaluate the sustainability and accuracy of a company’s earnings. Unlike a standard financial review, it focuses on the underlying drivers of cash flow, revenue quality, working capital trends, and potential financial risks. For buyers, the report provides confidence that the numbers presented accurately reflect the business’s ongoing earning power.
Over the past several years, QoE reports have become increasingly standard in middle-market transactions, particularly in competitive sale processes. Buyers want to understand not only how the business performed historically, but whether those earnings are repeatable after the transaction closes. A strong QoE can reinforce valuation, while inconsistencies or unclear reporting can quickly create concern.
One of the most important functions of a QoE report is identifying adjustments to EBITDA. Buyers carefully evaluate one-time expenses, owner-related costs, unusual revenue spikes, and non-recurring events to determine what normalized earnings look like. Well-supported adjustments help buyers gain comfort with the financial story, while unsupported add-backs often lead to skepticism and valuation pressure.
A QoE also highlights operational and financial trends that may not be obvious in standard financial statements. Customer concentration, margin fluctuations, revenue recognition practices, and working capital needs all play a role in buyers’ risk assessment. The clearer and more transparent these areas are, the smoother the diligence process tends to be.
For sellers, preparation is critical. Businesses that proactively organize financial reporting, document adjustments, and address inconsistencies before entering the market are often viewed more favorably by buyers. In many cases, conducting a sell-side QoE in advance can help owners identify issues early, strengthen credibility, and reduce surprises during diligence.
Beyond validating financial performance, a QoE report also impacts deal confidence. Transactions move more efficiently when buyers trust the numbers and feel comfortable with the company’s reporting quality. That confidence can influence everything from valuation and deal structure to the overall likelihood of closing successfully.
Aberdeen Advisors is a boutique mergers and acquisitions firm. Our dedicated team is committed to helping business owners successfully navigate the intricacies of an ownership transition. Additionally, our team is made up of former business owners and C-suite executives who have run and sold companies. We pride ourselves on a successful track record of shepherding business owners through the M&A process to ensure a successful outcome.