The Numbers Matter
Before someone values your business, understand the story behind the numbers.
Two companies can report similar earnings and still have very different financial realities.
One may have predictable recurring revenue. Another may rely heavily on one customer. A third may have temporarily elevated profits because of a one-time event. And a different one may have legitimate expenses obscuring its underlying earning power.
The question is not simply, “What did the business earn?”
A better question to ask is “How much of those earnings are sustainable, repeatable, and truly representative of the business?”
That is what our Quality of Earnings Analysis is designed to explore.
What Is a Quality of Earnings Analysis?
A Quality of Earnings (Q of E) analysis examines the financial and operational information behind a company’s reported results.
Rather than relying solely on net income, the analysis typically examines EBITDA and identifies adjustments that may provide a clearer view of ongoing business performance.
That may include separating recurring operations from unusual, owner-specific, out-of-period, or nonrecurring activity.
A Deeper Look at the Earnings Power of Your Business.
The objective is greater clarity around what the business may actually be capable of earning on a normalized basis.
Because value depends on more than a number. It depends on how credible that number is.
Beyond the Headline Number: What We Look For
A Quality of Earnings Analysis can examine several areas that may influence how a buyer, seller, lender, or investor views the business.
Normalized EBITDA
Identify and evaluate potential adjustments that may better reflect recurring operating performance.
Recurring vs. Nonrecurring Items
Separate unusual events from the ongoing economics of the business.
Revenue & Profitability Trends
Understand where revenue and margin are coming from, and whether those trends appear consistent.
Working Capital
Evaluate historical operating needs and potential working-capital considerations related to a transaction.
Debt-Like Items
Identify obligations or liabilities that may warrant additional attention.
Customer & Vendor Concentration
Understand whether the company relies heavily on a small number of relationships.
Accounting Consistency
Look for reporting practices or accounting issues that could affect interpretation of the financials.
Financial Controls & Reporting Quality
Identify areas where incomplete or inconsistent information could complicate due diligence.
Disclaimer: Tax preparation and planning services offered through STAXC, LLC. This firm is not a CPA firm and its services are not regulated by the Texas State Board of Public Accountancy.
For Business Sellers
A future buyer will examine your numbers. The question is whether you understand what they are likely to find before they do.
A sell-side Q of E Analysis can help you prepare before buyer diligence begins. This gives you time to identify potential questions, strengthen financial reporting, evaluate adjustments, and understand how the business may be viewed from the other side of the table.
Make your business story more credible, understandable, and defensible.
This analysis helps you to:
- Anticipate buyer questions
- Support normalized EBITDA adjustments
- Identify financial-reporting concerns earlier
- Prepare for working-capital negotiations
- Reduce avoidable surprises
- Present a clearer financial narrative
- Respond to diligence requests more efficiently
The best time to discover a financial surprise is before someone else does.
For Business Buyers
An acquisition can look attractive on paper, but what really matters is what remains true after the transaction closes.
A buy-side Q of E Analysis helps look beyond reported profit to better understand the underlying economics of the company you are considering.
Make a better, more informed decision before capital is committed.
We halp you get answers to:
- Is EBITDA supported by recurring operations?
- Are profits dependent on one large customer?
- Are certain expenses likely to return?
- Is working capital sufficient for normal operations?
- Are there accounting inconsistencies?
- Are there obligations or risks that deserve closer attention?
Your Business and Your Wealth
For many successful owners, the line between business wealth and personal wealth is surprisingly thin.
A business decision can affect your taxes.
A sale can reshape your investment strategy.
A succession decision can affect your estate.
And too much wealth concentrated in one company can create risks that are easy to overlook while everything is going well.
One Business. One Financial Life.
We help you think beyond the business itself so the company supports the life, financial independence, and legacy you are working to create.
Quality of Earnings Can Create Clarity for Major Decisions
You do not necessarily need to be weeks away from a transaction to benefit from understanding the quality of your earnings.
In some cases, the greatest value comes from understanding potential issues before there is a buyer waiting for answers.
Preparation creates options.
A Q of E analysis may also be valuable when considering:
- A recapitalization
- Partial sale
- Strategic investment
- Ownership transition
- Outside financing
- Acquisition
- Rapid expansion
- Business succession
- Future sale preparation
- Major valuation discussions
“When something you’ve spent years building is on the line, you deserve to know exactly what the numbers are saying. Clarity gives you confidence and confidence gives you a stronger place to stand when important decisions are made.”
Josh W. Strittmatter,
Chief Executive Officer and Chief Investment Officer
Q of E vs. Financial Audit: What's the Difference?
A financial statement audit and a Quality of Earnings Analysis are not the same thing.
An audit is generally focused on whether historical financial statements are fairly presented under the applicable accounting framework.
A Quality of Earnings Analysis is more transaction-focused.
It typically looks closely at recent financial performance, normalized earnings, trends, working capital, concentrations, and other factors that may help someone understand the sustainable economics of the business.
An audit asks, “Are these financial statements fairly presented?”
A Q of E asks, “What do these financials tell us about the ongoing earning power of this business?”
One does not necessarily replace the other. They serve different purposes.
Our Approach: Clarity Before Complexity
Our Quality of Earnings process is designed to turn financial detail into meaningful business insight.
Understand
We begin with the business, its history, ownership, goals, and the decision or transaction ahead.
Normalize
We evaluate reported earnings and potential adjustments that may affect a normalized view of performance.
Analyze
We examine trends, working capital, concentrations, financial reporting, and other relevant areas.
Identify
We surface issues, questions, and potential risks that may deserve attention.
Report
We organize the findings into a clearer financial picture designed to support informed decision-making.
Coordinate
We work alongside the professionals involved in the transaction, including attorneys, tax experts, lenders, and other advisors.
Is a Quality of Earnings Analysis right for you?
You May Be Preparing to Sell If:
- You expect to pursue a sale within the next several months
- You have received buyer interest or a Letter of Intent
- Your financial statements have not recently been independently reviewed or audited
- You want to identify potential issues before buyer diligence
- You expect adjustments to reported EBITDA
- You want a clearer understanding of normalized working capital
- You want greater confidence going into negotiations
You May Be Evaluating an Acquisition If:
- You want greater confidence in reported EBITDA
- You are concerned about sustainability of earnings
- Customer or revenue concentration may be significant
- Financial reporting appears inconsistent
- The transaction includes significant financing
- You want additional insight before committing capital
You May Simply Want Greater Business Clarity If:
- Your company has grown rapidly
- Performance has been affected by unusual events
- You are considering outside investment
- You may pursue a future sale
- You are preparing for succession
- You want a more objective view of the business before making a major decision
Do you know what your numbers are really telling you?
When a business you spent years building is approaching a major decision, uncertainty can become expensive.
Understanding the quality of your earnings before negotiations, due diligence, or capital commitments begin can help you enter the conversation with greater clarity.
Understand the numbers. Strengthen the conversation. Protect your options.
A Quality of Earnings Analysis can help reveal what the financials are saying, what others may question, and what deserves attention before the stakes rise.
