What Does a Quality of Earnings Report Cost? What Drives the Fee

"How much does a QoE cost?" is usually the first question we hear from a buyer who just signed a letter of intent, or from an owner getting ready to sell. It is a fair question with an unsatisfying answer: it depends. The useful part is knowing what it depends on, because most of those factors are things you can see, and some of them you can control.

This article walks through what drives the fee for a quality of earnings analysis, what should be in scope, and how to keep the cost proportional to the deal.

First, What You Are Paying For

A quality of earnings report answers one question: what is the sustainable, recurring earning power of this business? The core work is the same on almost every engagement:

Adjusted EBITDA. Starting from reported earnings, we identify one-time items, owner-related expenses, and accounting adjustments, then build a bridge to an adjusted figure that buyers and lenders can rely on.
Revenue quality. Recurring vs. non-recurring revenue, customer concentration, contract terms, and whether revenue is recognized when it should be.
Net working capital. Monthly working capital trends, normalization for unusual items, and support for the working capital peg in the purchase agreement.
Risks and findings. The issues a buyer needs to price in, negotiate around, or cover in the purchase agreement.

Everything beyond that core is scope, and scope is where the fee moves.

The Seven Things That Drive the Fee

1. Size and complexity of the business

More revenue usually means more transactions, more customers, and more accounts to test. Complexity matters as much as size, though. A single-location company with one revenue stream is a very different engagement from a business with several entities, intercompany activity, and multiple service lines.

2. Condition of the books

This is the factor owners underestimate most. A company with monthly closes, reconciled balance sheet accounts, and accrual-basis financials gives us a clean starting point. A company on cash basis, with reconciliations a few months behind, needs more work before the analysis can even start. Converting cash-basis results to an accrual view for the periods under review is a common, and billable, part of many lower middle market QoEs.

3. Number of periods analyzed

Most reports cover two or three fiscal years plus a trailing twelve months (TTM). Adding periods, or refreshing the TTM because the deal timeline slipped, adds cost.

4. Number of entities and locations

Each legal entity has its own books, bank accounts, and often its own quirks. Multi-location businesses may also need location-level profitability, which many buyers ask for.

5. Add-on workstreams

Common add-ons include:

Add-on	When buyers ask for it
Working capital peg analysis	Almost always, if not already in the core scope
Proof of cash	When cash and reported revenue don't line up cleanly
Tax diligence	When historical filings, sales tax nexus, or entity structure are in question
Systems and IT review	When the buyer plans to integrate or replace the accounting stack
Pro forma and synergy analysis	When the buyer is combining the target with an existing business

Each one is valuable in the right deal. None of them should be included by default.

6. Deal timeline

A compressed timeline means more people on the engagement at the same time. That doesn't always raise the total fee, but it can, and it requires a provider who can actually staff it.

7. How organized the data room is

Every follow-up request takes time on both sides. A seller who can produce the general ledger detail, bank statements, payroll reports, and customer lists in the first week saves real money.

Buy-Side vs. Sell-Side: Who Pays, and Why It Matters

A buy-side QoE is commissioned by the acquirer to test the seller's numbers. The buyer pays, and the report is written for the buyer and often for its lender.

A sell-side QoE is commissioned by the owner before going to market. The seller pays, but the payoff can be significant: issues get fixed before buyers find them, the asking price is supported by defensible adjustments, and diligence moves faster because the hard questions already have answers. Many buyers will still commission their own report, but they start from a much better place.

If you are an owner thinking about a sale in the next year or two, the cheapest QoE you will ever buy is the one that tells you what to clean up while there is still time to clean it up. We cover the differences in more detail in buy-side vs. sell-side QoE.

How to Keep the Cost Down

Close the books monthly and reconcile every balance sheet account before diligence starts.
Gather the core documents up front: general ledger detail, trial balances by month, bank statements, payroll registers, customer and vendor lists, debt agreements, and leases.
Agree on scope in writing. Decide which add-ons you need and which you don't.
Name one point of contact on the company side who can answer questions quickly.
Ask what is driving the estimate. A good provider can tell you exactly which factors above are pushing the fee up.

What Not to Optimize For

The lowest quote is rarely the cheapest outcome. A thin report that misses a working capital issue or an unsupported add-back can cost far more at closing, or after it, than the fee difference ever saved. Look for a provider who will explain every adjustment, stand behind the working capital analysis, and walk your lender through the findings.

Talk to Us About Your Deal

Harbor View performs buy-side and sell-side quality of earnings work for owners, buyers, private equity groups, and lenders. Tell us about the deal and we will scope the work with you before anything starts.

Request a QoE quote or read more about our quality of earnings analysis.