Quality of Earnings Reports (QoE)
How We Help
Historical Earnings Analysis
We analyze historical income statements, balance sheets, tax returns, and supporting financial information to identify trends in revenue, margins, expenses, and profitability.
Financial Reconciliation
We compare tax returns, financial statements, internally prepared reports, and other available records to identify material differences or inconsistencies that may require explanation.
Revenue & Margin Analysis
We evaluate revenue trends, gross margins, customer or sales concentrations, and unusual changes that may affect the sustainability of historical earnings.
Normalized Cash Flow
We assess normalized operating performance and cash flow to help determine the earnings available to support acquisition debt, refinancing, or other proposed financing.
EBITDA & SDE Adjustments
We evaluate owner compensation, discretionary expenses, one-time costs, and other proposed add-backs to determine whether adjustments to reported earnings are reasonable and supportable.
SBA & Commercial Lender Reporting
Findings are presented in a clear, lender-focused report designed to support underwriting of SBA and conventional commercial financing, including transactions subject to applicable SBA Quality of Earnings requirements.
When a QoE May Be Needed
SBA Acquisition & Expansion Financing
QoE analysis may be requested in connection with SBA financing and is required for certain qualifying 7(a) acquisition and expansion transactions under SBA SOP 50 10 8.1.
Conventional Acquisition Financing
Banks and other commercial lenders may request independent analysis of historical earnings, add-backs, and normalized cash flow when financing a business acquisition.
Refinancing & Recapitalization
A QoE can help support refinancing or recapitalization when the lender needs a clearer understanding of sustainable earnings and debt-service capacity.
Lender-Requested
Due Diligence
A lender may request additional financial analysis when reported earnings contain significant adjustments, unusual transactions, inconsistencies, or other items requiring further support.
Typical QoE Engagements
SBA Business Acquisition
A buyer seeking SBA financing may need independent support for the earnings being used to underwrite the acquisition. The QoE analysis can evaluate historical financial performance, proposed add-backs and adjustments, reconcile reported results to supporting records, and develop a supportable view of normalized earnings for lender review.
Conventional Business Acquisition
A commercial lender financing an acquisition may request additional analysis when the seller's reported earnings include significant owner expenses, nonrecurring items, related-party transactions, or other adjustments. A QoE provides an independent assessment of those adjustments and the sustainable earnings available to support the proposed debt.
Frequently asked questions
Service Overview
DirectPlan Consulting provides Quality of Earnings (QoE) analyses for small and middle-market businesses, with a particular focus on SBA and conventional commercial financing. A QoE provides lenders, buyers, and business owners with an independent assessment of the historical earnings and cash flow supporting a proposed transaction.
Financial statements and tax returns do not always provide a complete picture of normalized operating performance. Owner compensation, discretionary expenses, nonrecurring costs, related-party transactions, unusual revenue or expenses, and other adjustments can materially affect the earnings available to support debt service.
Our analysis examines historical financial performance, evaluates proposed adjustments and add-backs, identifies significant trends or inconsistencies, and develops a supportable view of normalized earnings. Depending on the transaction, the analysis may include EBITDA, Seller's Discretionary Earnings (SDE), working capital, revenue concentration, margins, operating cash flow, and reconciliation of reported results to supporting financial records.
Quality of Earnings analysis can be particularly valuable for privately held businesses that do not maintain audited financial statements. By examining tax returns, internally prepared financial statements, bank activity, and other supporting records, a QoE can provide lenders and buyers with additional insight into the reliability and sustainability of reported earnings.
Quality of Earnings reports are also commonly used in business acquisitions, SBA financing, conventional commercial loans, refinancing, and other transactions where lenders or buyers need additional support for the earnings and cash flow being relied upon.
New SBA Quality of Earnings Requirement
Effective October 1, 2026, SBA SOP 50 10 8.1 requires a Quality of Earnings analysis for certain 7(a) business acquisition and expansion transactions with a Business Purchase Price of $3 million or more. The analysis must be prepared by an independent, experienced financial professional for the benefit of the lender.
DirectPlan can work with SBA lenders to develop a transaction-specific scope designed to address applicable lender and SBA requirements.