Quality of Earnings reports for small business acquisitions

Before a single number moves, we put the deal in writing: assets or equity, whether the real estate is included, who runs the business after close, which years we analyze, and who will rely on the report. These answers change the earnings figure materially, so they get settled first rather than discovered later.

We tie the seller's financials to the filed tax returns, mine the data room for what the P&L doesn't show, and recast thirty six months of results onto a clean, consistent basis. Where the seller's adjusted statements and the tax returns disagree, we use the returns and say so.

Each seller addback is grouped, evaluated on the evidence, and rated one to three stars in a standalone Seller Addback Evaluation. Ordinary costs that continue under new ownership do not quietly inflate the number. You review the ratings and confirm which addbacks carry into the report.

You receive a clear report on one Adjusted EBITDA basis, with the key insights, red flags, and financing math laid out. Before it reaches you or your lender, every figure is recomputed and tied back to the workpaper, because two earnings definitions in one report is the failure that costs a deal its credibility.

Where the books are unreliable, incomplete, or missing, we rebuild the income statement from the bank and credit card statements themselves, coding every transaction across the analysis period. It gives a business whose bookkeeping cannot be trusted an earnings figure that holds up.

We reconcile reported revenue and expenses to the bank statements month by month. It is the strongest single test that the books reflect real money moving, and it is the one that matters most in a cash-heavy business.

We review assets, liabilities, and equity to test financial stability and liquidity, and flag the related-party balances, owner loans, and year-end oddities that will not survive the close.

We normalize working capital across the analysis period to establish the level of receivables, inventory, and payables the business actually needs to operate, which is the figure a purchase agreement pegs against.

We age receivables and payables to test collectability, stretched vendor terms, and whether the profit on the income statement turns into cash that actually arrives.

We measure revenue by customer and spend by vendor to size the risk that one relationship carries the business. It is the first question a lender asks and the last thing a seller volunteers.

We reconcile the books to the filed returns and explain every difference, so the earnings figure you are buying and the tax record the IRS holds tell the same story.

We tie payroll registers and the quarterly and annual filings to the labor lines in the financials, confirming that the largest cost in most small businesses is stated correctly and that everyone on the payroll actually works there.