What Is a Quality of Earnings Report? A Florida Seller's Guide

If you're preparing to sell your Florida business, at some point a buyer is going to ask for a Quality of Earnings report. Most owners have never heard of one. Some panic. Others try to push back. The sellers who do best are the ones who understand exactly what it is — and get ahead of it before buyers ever ask.

At CBH Business Group, we've guided business owners through dozens of transactions across Florida. The QofE is one of the most misunderstood pieces of the process, and handling it well can be the difference between closing at your asking price and watching a deal collapse at the finish line.

What Is a Quality of Earnings Report?

A Quality of Earnings (QofE) report is an independent financial analysis, typically conducted by a CPA firm or M&A advisory firm, that examines the true economic earnings of a business. It goes well beyond a standard financial review.

The goal is to determine whether the EBITDA you're presenting to buyers is real, recurring, and sustainable — or whether it's inflated by one-time events, accounting choices, or aggressive add-backs that won't hold up to scrutiny.

A QofE typically covers:

• Revenue quality: Are customer contracts recurring? Is revenue concentrated in one or two accounts? Are there seasonal patterns a buyer needs to understand?
• EBITDA normalization: What legitimate add-backs exist (owner salary above market, personal expenses run through the business, one-time legal fees, etc.) and are they defensible?
• Working capital analysis: What's the "normal" level of working capital the business needs to operate?
• Customer and revenue trends: Is the business growing, flat, or declining? What's driving the trend?
• One-time items: Were there any non-recurring revenues or expenses that distort the trailing twelve months?

The result is an adjusted EBITDA figure — often called "QofE-adjusted EBITDA" — that buyers can underwrite with confidence.

Why Do Buyers Require It?

Buyers aren't trying to catch you lying. They're protecting themselves from paying a premium for earnings that won't materialize after the sale closes.

In the lower-middle market — which is where most Florida business sales happen ($3M to $50M in revenue) — EBITDA multiples range from 3x to 7x or more depending on industry, size, and growth profile. If a buyer is paying 5x EBITDA and your reported EBITDA is $1.5M, they're writing a $7.5M check. A QofE that reveals your true EBITDA is $1.1M means they just overpaid by $2M. That's the kind of risk buyers will go to considerable lengths to eliminate.

Private equity firms almost universally require a QofE. Strategic acquirers (competitors, adjacent businesses, rollup platforms) increasingly do as well for any deal above $2M. In the current Florida M&A environment — with strong buyer demand across home services, trades, healthcare, and B2B sectors — sellers who arrive at the table with clean, well-documented financials move faster and command better prices than those who don't.

Seller-Initiated QofE vs. Buyer-Initiated QofE

There are two ways a QofE enters a deal. Understanding the difference matters.

Buyer-initiated QofE: The buyer hires their own CPA firm to conduct the analysis, usually as part of formal due diligence after a Letter of Intent (LOI) is signed. The seller has little control over the process, the timeline, or the findings. If the buyer's QofE uncovers problems — inflated add-backs, revenue concentration, earnings decline — the buyer re-trades the price or walks. Sellers are on the defensive.

Seller-initiated QofE: The seller proactively commissions a QofE before going to market. This is increasingly common among well-advised sellers in Florida. The advantages are significant:

• You find the problems first and have time to address them or frame them correctly.
• You control the narrative going into buyer conversations.
• Buyers move faster through due diligence because the work is largely done.
• You reduce the risk of a last-minute re-trade or deal fallout.
• In competitive processes with multiple buyers, a seller QofE signals professionalism and strengthens your negotiating position.

A seller-side QofE typically costs $15,000–$40,000 depending on business complexity. For a business selling at $3M+, that investment routinely pays for itself many times over in price preservation and deal certainty.

What QofE Adjustments Actually Look Like in Florida Deals

Here's a practical example of how QofE normalization works in a real transaction scenario.

A Florida HVAC company reports $800,000 in net income on their tax return. Their P&L shows $1.2M in EBITDA. But after a QofE analysis, the adjusted EBITDA comes out to $1.65M. How?

Item	Amount	Explanation
Reported EBITDA	$1,200,000	From financial statements
+ Owner compensation above market rate	$180,000	Owner pays himself $380K; replacement GM costs $200K
+ Owner's personal vehicle expenses	$28,000	Vehicles run through the business, personal in nature
+ One-time legal settlement	$55,000	Non-recurring expense from vendor dispute
+ Excess rent paid to owner-related entity	$36,000	Market rent analysis shows $84K over; owner pays $120K
- One-time equipment grant	($49,000)	Non-recurring income from state program
Adjusted EBITDA (QofE)	$1,450,000	Sustainable, recurring earnings

That $250,000 improvement in EBITDA, at a 5x multiple, translates to $1.25M more in sale price. The QofE isn't an accounting trick — it's a rigorous, documented exercise that makes your actual earnings visible to buyers.

Common QofE Red Flags That Kill Florida Deals

After working transactions across Florida for years, here are the issues we see surface in QofE reviews that most frequently create problems:

• Revenue concentration: More than 20–25% of revenue from a single customer is a material risk flag. Buyers discount heavily for it. If you have this, address it before going to market.
• Declining trends: Revenue or EBITDA declining in the trailing twelve months versus the prior year triggers immediate skepticism. Buyers want to understand the cause and whether it's resolved.
• Aggressive or unsupported add-backs: Add-backs that don't have documentation or that a reasonable buyer wouldn't accept (recurring "one-time" expenses, for example) get challenged hard.
• Owner dependency: If the business clearly can't operate without the owner — key customer relationships, technical knowledge, licenses — buyers reduce their offer or require extended earnout structures. Start reducing owner dependency at least 12–18 months before your planned exit.
• Messy books: Commingled personal and business expenses, inconsistent accounting methods, or tax returns that don't reconcile with financial statements create enormous friction and slow everything down.

How to Prepare for a QofE Before Selling in Florida

You don't need to hire a Big Four accounting firm to get your business QofE-ready. Here's what we advise Florida business owners to do in the 12–18 months before a planned sale:

1. Clean up the books. Work with your CPA to ensure your financial statements are consistent, accurate, and clearly separated from personal expenses. Three years of clean financials is the baseline.
2. Document your add-backs now. Build a spreadsheet of every legitimate add-back — owner compensation, personal expenses, one-time items — with supporting documentation. The easier you make this for a buyer's CPA, the smoother the process.
3. Reduce customer concentration. If one client represents more than 20% of revenue, actively diversify before going to market.
4. Build your management team. Buyers pay more for businesses that run without the owner in the day-to-day. Document processes, delegate key relationships, and demonstrate the company's independence.
5. Consider a seller-side QofE. Especially for deals expected at $3M or above, commissioning your own QofE 6–12 months before going to market gives you time to address findings and present a clean story.

CBH Business Group Can Help You Get QofE-Ready

At CBH Business Group, based in St. Cloud, FL, we work with business owners across Florida who are preparing for a sale — often 12 to 24 months before they're actually ready to go to market. Getting your financials and earnings presentation right is one of the highest-leverage things you can do to maximize your exit.

We offer a complimentary Broker's Opinion of Value (BOV) that gives you a realistic picture of what your business is worth today — and what changes between now and your sale could move that number materially. We can also connect you with QofE-experienced CPA firms who understand Florida M&A deals.

If you're curious about what your business might sell for or want to understand how QofE prep could affect your exit, schedule a free 15-minute call with our team or use our free business valuation calculator. We also have additional M&A resources for Florida sellers covering every stage of the sale process.

Reach us directly at (407) 908-3845 or visit our Florida business sale overview. We're here to help you exit at the number your business deserves.