Know your earnings.
Before a buyer
questions them.

A quality of earnings report examines how a business generates its earnings, which adjustments are supportable, and what could affect their sustainability. In a transaction, it helps buyers and sellers understand the financial performance behind the headline EBITDA.

The agreed scope may include revenue and margin trends, accounting policies, earnings adjustments, cash reconciliation, and working capital. Read the scope and findings together; the report title alone does not tell you what was tested.

In an M&A conversation, QoE and QofE commonly mean quality of earnings. They can describe the analysis, the engagement, or its report. Ask what work is included, which period is covered, and who will stand behind the findings.

A short earnings review and a detailed transaction diligence engagement may use similar terminology while answering different questions.

A financial statement audit is designed to support an opinion on the financial statements under the applicable reporting framework. A QoE engagement is scoped around transaction questions, including earnings adjustments, trends, and operating risks. A QoE report does not provide an audit opinion.

Audited financial statements can be useful inputs. They do not automatically answer what earnings will continue under a new owner or which proposed adjustments a buyer will accept.

No. QoE examines the financial foundation that may inform a valuation. Valuation also considers risk, growth, market evidence, buyer fit, and transaction terms. A supported EBITDA figure is an input to that discussion, not a guaranteed price.

An adjustment can change the earnings baseline without changing the multiple in the same way. Buyers assess both the amount of earnings and their durability.

Quality of earnings is often a central part of financial due diligence. A broader diligence engagement may also analyze working capital, debt-like items, balance-sheet exposures, cash flows, and other financial issues. The engagement letter determines the actual coverage.

Tax, legal, commercial, technology, and operational diligence may require separate specialists. Identify those responsibilities before the process starts.

Sell-side QoE is commissioned by the seller to examine the company’s earnings before or during a sale process. It can identify accounting issues, document adjustments, and give the seller a clearer basis for presenting financial performance.

The practical benefit is time to understand and address findings. A seller-commissioned report does not remove the buyer’s right to conduct its own diligence.

Start financial preparation before presenting earnings to buyers. If the accounting needs cleanup, beginning early gives you time to reconcile the records and explain changes. Schedule the formal report around the intended marketing process and the period buyers will need to evaluate.

A readiness review can begin before you decide to sell. A report issued far ahead of a transaction may need a later-period update.

It may. The buyer and its lenders can require their own procedures, a different scope, or more recent financial information. A sell-side report can organize the discussion, but it does not guarantee reliance or eliminate follow-up questions.

Discuss permitted report sharing and reliance with the issuing firm. Keep a record of changes between the report period and the financial information used in negotiations.

Yes. Findings may change a buyer’s view of sustainable earnings, working capital, risk, or deal terms. A buyer may seek a price change, additional protection, or more investigation. The effect depends on the finding and the agreement being negotiated.

A documented adjustment is easier to evaluate than a surprise without an explanation. Preparation cannot guarantee a price, but it gives you a better basis for answering challenges.

The decision depends on transaction size, accounting complexity, buyer and lender requirements, and the cost of unanswered questions. A small company with project accounting or inconsistent records may require more work than its size suggests.

For Caldecott’s founder-led service-business focus, begin with the specific transaction and reporting gaps. An appropriately scoped readiness review can help determine what specialist work is needed.

Caldecott helps founders prepare for QoE: organizing financial information, building a proposed earnings bridge, documenting adjustments, identifying issues, and coordinating the accounting workstream. Independent accounting specialists perform the formal QoE engagement under a separately agreed scope.

Our role is to connect the operating story with its financial evidence and help the founder work through the findings. We do not issue an audit opinion or promise that a buyer will accept an adjustment.

Transaction accounting and financial due diligence specialists commonly prepare QoE reports. When selecting a provider, ask who will perform and review the analysis, what relevant industry experience they have, and how they will support questions after delivery.

The right fit depends on the business and the transaction. Project accounting, recurring contracts, multiple entities, and carve-outs can require different experience.

Compare the scope, experience of the assigned team, covered periods, required records, deliverables, timing assumptions, and follow-up support. Ask how the provider handles missing information, disputed adjustments, report updates, and changes in scope.

Also confirm who may receive the report and whether reliance requires a separate arrangement. A low quote is only comparable when the work and responsibilities are comparable.

Your CPA may be well positioned to help assemble and reconcile the records. Whether they should also perform the transaction engagement depends on their relevant experience, capacity, potential conflicts, and the buyer’s or lender’s expectations.

A specialist can work alongside the existing accountant. Agree who owns accounting corrections, supporting schedules, and responses so the founder is not left coordinating duplicate requests.

Yes. The initial scope can focus on financial readiness and the questions you need to resolve before a transaction. It should define the output, responsibilities, and fees without assuming a sale date or a broader sell-side engagement.

Tell us whether you are exploring a future exit, already speaking with buyers, or responding to a diligence request. That context determines the useful first step.

Cost depends on the provider, scope, covered periods, accounting quality, and business complexity. As one published reference, Midwest CPA lists $14,000–$23,000 for its mid-sized deals under $10M enterprise value, and starting at $25,000 for larger deals. These are that firm’s examples, not Caldecott pricing or a market-wide quote.

For a useful proposal, separate the formal report fee from accounting cleanup, advisory preparation, updates, and additional buyer questions. The dated source and fuller context appear in the cost section above.

Work increases when records do not reconcile, revenue recognition is complex, several entities or systems must be combined, or a business is being carved out. Broader analysis and additional reporting periods can also increase the fee.

Ask the provider to identify assumptions about data readiness and what triggers a change order. Confirm whether new monthly results and post-report calls are included.

Timing depends on the agreed scope, record availability, accounting cleanup, and the team’s capacity. A provider’s review timetable should be distinguished from the time needed to get the records ready. Ask for milestones tied to delivery of complete information.

Agree the start date, request-list owner, review meetings, draft date, and final delivery target. A promised turnaround is less useful if nobody has checked whether the inputs are available.

The party commissioning the engagement generally contracts for and pays for that work. A seller may commission sell-side QoE, while a buyer may separately commission its own diligence. Transaction agreements can allocate costs differently.

Confirm the contracting party, fee obligations, and what happens if the transaction pauses or stops. Do not assume the report fee depends on a successful sale.

A report covers specified periods and information. If the transaction takes longer or performance changes, buyers may request newer results or an updated analysis. Agree how a refresh will be scoped, priced, and connected to the original findings.

Keep monthly reconciliations and the adjustment schedule current. Explain new items rather than silently replacing the financial baseline used earlier in the process.

Normalized EBITDA is an estimate of earnings after adjustments intended to make the period more representative of ongoing operations. It begins with a defined reported baseline and identifies each proposed change, its amount, timing, evidence, and rationale.

Normalization can increase or decrease earnings. Replacement management costs, missing expenses, or revenue corrections can offset proposed add-backs.

Acceptance depends on the evidence and whether the expense is genuinely nonrecurring or would change under a new owner. Owner compensation, personal expenses, litigation costs, and unusual events each require a specific explanation rather than a blanket category.

For owner compensation, consider the cost of replacing the work the owner performs. Do not add back the entire salary while ignoring an ongoing role the business still needs.

Revenue recorded in the wrong period can distort both earnings and trends. Project businesses may need to reconcile billing, deposits, work performed, estimated completion, and job costs under the applicable accounting policy.

For contractors and security integrators, source records may include contracts, job schedules, labor records, change orders, and completion evidence. An invoice or cash receipt alone does not resolve every revenue-timing question.

The analysis should distinguish signed contracts, active services, billing, collections, cancellations, and revenue recognized. It can examine retention, concentration, contract terms, delivery costs, and the margin associated with the recurring work.

A contracted annual amount, a run-rate estimate, and revenue earned in the trailing twelve months are different measures. Label them clearly and reconcile the movement between periods.

A scoped financial diligence engagement may examine receivables, payables, inventory, deferred revenue, and the working capital needed to operate the business. Earnings and working-capital analyses address related but different transaction questions.

A proof-of-cash analysis reconciles recorded cash activity to bank activity; it does not by itself prove sustainable earnings. The purchase agreement determines which balances and adjustments affect closing proceeds.

Start with monthly income statements and balance sheets, the general ledger, bank reconciliations, revenue and customer detail, payroll, and support for proposed adjustments. The provider will tailor the request list to the business and the engagement.

Project-based and recurring-revenue companies need supporting operating schedules as well. The checklist above organizes the first pass; it is not a substitute for the provider’s complete request list.

A report may include an executive summary, scope and limitations, financial trends, an adjusted EBITDA bridge, explanations of adjustments, and additional schedules required by the engagement. The worked example above illustrates one earnings bridge and the evidence needed to support it.

That example is a simplified educational excerpt, not a complete report or a deliverable issued for a client. A useful report explains the findings and unresolved issues behind each number.

A template can organize records and proposed adjustments. It cannot replace the judgment, testing, and transaction experience required for a specialist engagement. Use a working schedule to record each item, supporting document, covered period, and open question.

Keep proposed adjustments separate from reviewed findings. The distinction matters when your internal working papers become part of a buyer conversation.

Start by identifying which balances, reports, and operating schedules do not reconcile. Assign an owner to each issue and agree the corrections with the accountant responsible for the books. Establish a consistent baseline before relying on a headline earnings figure.

Caldecott can help organize the work and translate business context for the accounting team. Corrections should have a documented basis and remain traceable to the underlying records.

Bring a description of the business, approximate annual revenue and EBITDA, your timeline, and the questions you already have about the numbers. Tell us who maintains the books and whether a buyer, lender, or accounting firm is already involved.

You can start without sending confidential records through the contact form. We will discuss the scope and the appropriate next step for sharing supporting information.