Quality of Earnings (QoE)
A quality of earnings review is the accounting investigation a buyer runs before closing an acquisition. An outside firm rebuilds your reported earnings from source documents, settlement reports, bank statements, inventory records, and tests whether the profit is real, recurring and correctly measured. The output, a QoE report, either confirms the earnings the price was based on or gives the buyer ammunition to retrade. More ecommerce deals die or get repriced here than anywhere else.
QoE teams know exactly where seller books are weak, and they check those spots first: revenue booked from deposits instead of settlements, COGS without landed costs, addbacks with no documentation, inventory that doesn't reconcile. Every finding becomes leverage. A brand priced at 4x on $500,000 of claimed earnings that survives QoE at $410,000 just lost $360,000 of price, and that outcome is common, not rare.
The defense is boring and effective: accrual books that tie to settlement reports and 1099-Ks, a maintained addback schedule, and monthly inventory reconciliation, kept current for the two to three years a buyer will examine. Books like that turn QoE from a threat into a confirmation. We wrote up the whole process, including what the review costs and how long it takes, in our quality of earnings report guide, and cleaning up history before a sale is what catch-up bookkeeping is for.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Catch-Up Bookkeeping→