When buying or selling a business, one of the most critical steps is understanding the company’s true, sustainable earnings. A Quality of Earnings (QoE) engagement—often referred to as financial due diligence—provides that clarity, helping both buyers and sellers make informed decisions and avoid surprises during a transaction.
But not every deal requires the same level of analysis. At Kreischer Miller, we recognize that each transaction is unique in its size, complexity, and goals. That’s why we offer two levels of diligence—Full Scope QoE and QoE Lite—each tailored to fit your specific needs.
Understanding the difference between the two can help you select the right approach for your situation, ensuring you get the insight you need without overextending time or cost.
What Is a Quality of Earnings Engagement?
A QoE engagement goes beyond standard financial statements to evaluate the accuracy and sustainability of a company’s earnings. Unlike a traditional audit, it focuses on what truly drives ongoing profitability by normalizing EBITDA—adjusting for one-time, non-recurring, or discretionary expenses.
The goal is to present a clear, supportable picture of financial performance that reflects a business’s real earning power. For sellers, it’s a way to prepare for buyer scrutiny and defend valuation. For buyers, it’s essential for validating assumptions and mitigating risk.
Full Scope QoE: Comprehensive Analysis for Complex Transactions
A Full Scope QoE is designed for transactions that involve private equity firms, institutional investors, or strategic acquirers—particularly those requiring significant financing or involving higher risk and complexity.
This in-depth engagement includes a comprehensive financial analysis across key areas, such as:
- Normalized EBITDA adjustments: Identification of non-recurring, discretionary, or unusual items affecting profitability and identification of deviations from accounting standards
- Detailed income statement analysis: In-depth review of revenue, margins, cost of goods sold, and operating expenses to identify trends and anomalies
- Customer and supplier analysis: Examination of concentrations, dependencies, and relationship risks
- Balance sheet analysis: Understanding of all key accounts and reconciliations
- Net working capital analysis: Monthly trends, seasonal patterns, and deal mechanics to support NWC targets
- Debt and contingent liabilities: Identification of off-balance sheet obligations and exposure risks
Deliverables include a comprehensive narrative report and supporting Excel workbook, highlighting key risks, insights, and valuation considerations.
A Full Scope QoE is best suited for transactions where precision and transparency are paramount—and where buyers expect an investor-grade level of detail.
QoE Lite: Streamlined Insight for Lower-Middle-Market or Early-Stage Deals
QoE Lite offers a focused, cost-effective alternative for smaller or less complex deals, or when diligence is being performed at an early stage, such as before a letter of intent.
QoE Lite doesn’t mean less quality. It means a right-sized approach that delivers focused insights aligned with your transaction. This engagement provides a targeted analysis of key financial drivers without the depth of a full diligence review. A QoE Lite may include:
- EBITDA analysis: Customized for the user’s specific needs and concerns
- High-level trend analysis: Review of top-line revenues, margins, and expense categories
- Selective balance sheet procedures: Focused testing on significant accounts
- Optional working capital summary: Basic assessment of seasonal patterns and liquidity needs
- Limited customer/supplier review: Narrowed scope based on risk and relevance
- Concise deliverables: Excel-based report with summary findings and limited narrative discussion
QoE Lite is ideal for buyers conducting preliminary diligence to validate assumptions before committing to a full analysis or transactions involving limited size, risk, complexities, or financing.
Why It Matters
A well-scoped Quality of Earnings engagement can be the difference between closing a deal confidently and uncovering costly surprises too late. Selecting the right level of diligence helps protect value and streamline the transaction process.
The Bottom Line and Next Steps in Determining Which Tailored Approach is Right for Your Deal
Whether you choose Full Scope QoE or QoE Lite, the key is aligning the level of diligence with your transaction’s size, complexity, and objectives. Both options can be fully customized to fit your specific needs and offer meaningful insight into your company’s or target’s financial health—helping you build confidence, uncover value, and minimize surprises along the way.
At Kreischer Miller, our Transaction Advisory team tailors each engagement to your unique situation, ensuring you receive practical, actionable insights that help you achieve your strategic goals.
Interested in learning which approach is best for your deal? Click here to learn more and contact us for guidance on selecting the right level of due diligence for your M&A transaction.