For many business owners, especially those who have built, protected, and grown their companies over decades, the decision to sell is far more than a financial transaction. It’s emotional, overwhelming, and deeply personal. I’ve worked with countless owners, family-run businesses, and entrepreneurs through this stage, and one thing is always true: sellers deserve clarity, control, and confidence as they move through the process.

That starts with understanding how the business will be viewed through the eyes of buyers, lenders, and investors. While a Seller’s intuition, history, and hands-on knowledge of the business are invaluable, the market ultimately evaluates value through one lens: the quality and sustainability of the company’s earnings. My role is to make sure everything a seller knows about their business, every nuance, every challenge, every strength, translates accurately into the financials buyers will rely on.

A Quality of Earnings (QoE) report is one of the most effective tools to achieve that.

What a QoE Report Reveals About a Company’s Earnings

A QoE report provides a deeper understanding of the financial health of a business by focusing and highlighting:

  • Sustainable EBITDA – Adjusting earnings to remove on-time or non-operational items.
  • Revenue quality and concentration – Examining how reliable and diversified revenue streams are.
  • Working capital trends – Identify and understanding how much capital is required to operate the business
  • Customer and product profitability – Revealing which areas truly drive value.
  • Potential risks or red flags – Such as unusual accounting treatments, margin volatility, or customer dependency.

Ultimately, a QoE report translates financial statements into a clear narrative about how the business actually makes money and how reliable those earnings are going forward. This clarity helps reduce surprises during diligence and gives both buyers and sellers confidence in the numbers driving the transaction.

The Strategic Advantages Sellers Gain from a Sell-Side QoE

Sellers often benefit the most when they complete a QoE in advance. While many QoEs are performed during buyer diligence, completing one before going to market offers significant advantages.

  1. Establishing Financial Credibility: A sell-side QoE establishes financial credibility of financial statement from the outset. By presenting clear, objectively vetted financials, sellers help ensure the company’s performance is understood accurately, which strengthens their negotiating position.
  2. Identifying Potential Issues: Every business has complexities. Addressing them before buyers prevents last-minute surprises that can lead to valuation pressure, delays, or renegotiation. Early insight protects both value and momentum.
  3. Improving Efficiency: M&A processes can be exhausting. A QoE reduces repetitive requests and accelerates buyer diligence, making the entire process more predictable and less disruptive to the seller’s day-to-day operations.

Most importantly, sellers gain clarity. Selling a business is stressful enough, uncertainty shouldn’t be part of the equation.

How Buyers Use QoE Insights to Protect Value and Reduce Risk

Buyers rely heavily on QoE reports to validate assumptions and ensure the purchase price reflects true earnings capacity.

  1. Validating EBITDA: Because EBITDA drives valuation, buyers need to distinguish between sustainable earnings and items that are temporary, discretionary, or unique to the current owner. A QoE provides that clarity.
  2. Assessing Revenue Stability: Buyers evaluate customer concentration, churn, seasonality, and the strength of key relationships to understand how earnings may perform after the transaction.
  3. Understanding Working Capital Needs: Working capital directly affect deal structure and post-closing operations. A QoE helps buyers set appropriate working capital targets and avoid unexpected capital requirements after closing.

A More Informed and Predictable Path to a Successful Transition

A Quality of Earnings report is more than a financial exercise. It’s a way to ensure that the value owners have spent years building is accurately represented and clearly understood. It helps you enter the market prepared, reduces surprises, and supports better decision making at every stage.

If you are considering a sale or acquisition, speaking with Citrin Cooperman’s Transaction Advisory Services Practice can help you determine whether a QoE is the right next step and how to prepare for a successful, well-managed process.

Citrin Cooperman is the brand name under which Citrin Cooperman Advisors LLC and Citrin Cooperman & Company, LLP, independently owned entities, provide professional services in an alternative practice structure in accordance with applicable professional standards.

 

Marylyn Garcia, Citrin Cooperman

Marylyn Garcia provides buy-side and sell-side due diligence services to private equity groups and middle market companies. Her areas of expertise include analyzing quality of earnings, understanding key performance indicators, assessing working capital requirements, and identifying key deal issues and risk areas.

mgarcia@citrincooperman.com