Quality of Earnings (QofE) for Small Business Buyers
What is a Quality of Earnings? A Quality of Earnings (QofE) is an analysis that checks whether a business really earns what the seller says. The Exit School coaches buyers to build their own QofE by reconciling tax returns, profit and loss statements and bank deposits, then calculating adjusted earnings and debt coverage.
Who it's for
- Buyers with an accepted LOI on a small business who need to confirm the numbers before committing to a loan, investors or a purchase price.
What's included
- A QofE kickoff session that shows which document feeds which part of the analysis
- Our QofE workbook, which covers deal overview, P&L trends, tax returns vs. P&L, bank reconciliation, adjusted earnings (add-backs), and working capital and debt service
- Weekly evening office hours with our finance coach
- Industry comparables review
- Final review and approval of your QofE by our finance coach
Documents you'll need from the seller
- 3 years of business tax returns (or all available for younger businesses)
- 3 years of full-year profit and loss statements
- P&L for the prior year and current year, January to current month
- Trailing 12 months (TTM) P&L
- 12 months of bank statements
- Balance sheets
How it works
- Collect the documents above from the seller.
- Attend the QofE kickoff and set up the workbook.
- Enter the data and reconcile tax returns, P&Ls and bank deposits.
- Get help at weekly office hours when numbers don't tie.
- Submit for review. Your QofE, growth plan and pro forma are finished within 3 weeks of receiving the seller's documents, when you reach your go/no-go decision.
Frequently asked questions
Do I need a Quality of Earnings to buy a small business?
It's not legally required, but it's the best protection against overpaying. Lenders and investors also expect you to know the business's true cash flow.
What's the difference between a QofE and an audit?
An audit checks that financial statements follow accounting standards. A QofE asks whether earnings are real and repeatable, and what cash flow a buyer can count on.
What if the numbers don't match?
That's what the QofE is for. Gaps between tax returns, P&Ls and bank deposits become questions for the seller, and sometimes a reason to renegotiate or walk away.
What if the seller won't share documents?
We coach you on how to explain the process to the seller. If they still refuse, that's a serious red flag.