What is a Quality of Earnings (QoE) report — and do you need one?

A Quality of Earnings report is an accountant's deep check that the profit a seller reports is real, repeatable and properly earned. It is not an audit and not a valuation, and on a small deal it usually costs more than most buyers expect.

What it actually does

A QoE team takes the seller's numbers apart and rebuilds them: revenue traced to bank deposits, income tested for the period it belongs to, every adjustment examined, customers whose loss would change everything identified, and earnings that repeat separated from earnings that happened once. The output is a normalised earnings figure with the reasoning attached — the number a lender or an investment committee will rely on.

What it is not

Not an audit. An audit opines on financial statements against an accounting standard. A QoE is a private, forward-looking analysis prepared for a buyer.
Not a valuation. It says what is being earned, not what the business is worth.
Not a legal review. The lease, the licences, the liens and the franchise agreement are somebody else's job.

Cost and time

For a small business, expect roughly $15,000–$25,000 and three to four weeks; the range quoted across the market is $15,000–$50,000 and rises with revenue and complexity. Those are advisory-market estimates, not published rates. Add an attorney and a valuation, and the full professional stack on a small acquisition commonly runs $30,000–$80,000 or more.

The sequencing problem — and the honest answer

On a $600,000 business a $20,000 QoE is about 3% of the purchase price. That is defensible once, on the deal you have decided to buy. It is not defensible on the three or four candidates you are still comparing, and that is the trap: buyers either spend $60,000 screening, or they spend nothing and sign an LOI on numbers nobody has checked.

The workable order is cheap first, expensive second. Establish whether a deal is worth professional fees at all — whether the earnings survive contact with the tax returns, whether the lease can be assigned, whether the licences transfer. Then buy the QoE for the survivor, and buy it properly.

A pre-screen does not replace a QoE. It decides which deal deserves one — which is exactly what DealLoupe is for.

Questions buyers ask

How much does a Quality of Earnings report cost for a small business?

Advisory-market estimates put a small-business QoE at roughly $15,000–$25,000, inside a wider quoted range of $15,000–$50,000 that rises with revenue and complexity. The full due-diligence stack — attorney, CPA, QoE and valuation — commonly runs $30,000–$80,000 or more.

Do I need a QoE to get an SBA loan?

Usually not on a small acquisition: SBA lenders underwrite from tax returns, interim statements and a debt-service calculation. A QoE is a buyer's protection rather than a lender requirement, and it matters most when the earnings lean heavily on adjustments.

Seller's Discretionary Earnings (SDE) — SDE is what a small business earns for one full-time owner-operator: net profit before tax, plus that owner's pay and benefits, plus interest, depreciation and amortisation, plus expenses that will not exist after the sale.
Add-backs — Add-backs are expenses a seller adds back to profit on the argument that they will not exist for the new owner.
Debt Service Coverage Ratio (DSCR) — DSCR is the cash a business produces divided by the loan payments it owes.

Checking a real deal? DealLoupe reads the documents a seller gave you and reports the red flags, the gaps and the questions to ask — before you spend anything on due diligence. See what a pre-screen costs →

Last updated: 2026-08-22