Quality of Earnings Beyond Just the Numbers
A Quality of Earnings Built for the Transaction — Not Just the Historical Checklist
The real question isn't whether historical earnings are accurate.
It is whether those earnings can continue under new ownership.
At True North CFOs, the Quality of Earnings process starts with the financial foundation, then moves beyond the checklist. The work looks at the transaction itself, the economics behind the business, the sustainability of earnings, and the conditions needed to preserve performance after ownership changes.
A Quality of Earnings Should Do More Than Validate History
A traditional Quality of Earnings report focuses primarily on validating historical financial results. That work is essential. But for a buyer, lender, or investor, it is only part of the story.
At True North CFOs, our Quality of Earnings process begins with the historical financials and goes further. We work to understand the transaction itself, the economics behind the business, the sustainability of earnings, and what will be required to successfully operate the company after the transaction closes.
Start With the Financial Foundation
Our work addresses the financial analysis expected in a Quality of Earnings review: historical revenue and earnings; EBITDA normalization and adjustments; working capital; customer and revenue concentration; margin and profitability trends; balance-sheet review; and unusual or non-recurring items.
Those numbers establish the foundation. They should not be the end of the analysis.
Understand the Transaction
Every transaction is different. A useful QoE should answer the questions that actually matter to the deal: What is the buyer acquiring? Are earnings sustainable? Does cash flow support the proposed financing? Is the purchase price supported by underlying performance? What financial or operating risks could affect the company after closing?
Continuity After the Close Matters
One of the most overlooked areas of financial diligence is what happens the day after closing. A company can report strong historical earnings while still relying heavily on its founder, informal financial processes, key relationships, or institutional knowledge that may not transfer with ownership.
Our CFO and operating experience helps us identify issues that may not appear on a traditional accounting checklist. The goal is to understand not only what the company earned, but what it will take to preserve those earnings under new ownership.
Give Buyers and Lenders Information They Can Use
A transaction-focused QoE should help buyers, investors, and lenders finance the transaction, substantiate company value, understand normalized earnings, identify financial and operating risks, establish realistic working-capital requirements, prepare for ownership transition, and protect continuity after closing.
$12,000 Limited Quality of Earnings
Designed for SBA and transactions under $10 million Not every transaction requires a large institutional QoE engagement. True North CFOs offers a $12,000 Limited Quality of Earnings for smaller acquisitions, independent sponsors, search funds, individual buyers, and SBA-financed transactions. The engagement concentrates on the financial issues most important to the buyer and lender while retaining the practical transaction perspective of our broader QoE work. Contact True North for a sample report and discussion. |
QUALITY OF EARNINGS — WITH THE TRANSACTION IN MIND
Financial diligence. Transaction insight. Continuity after the close.
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