Prepare Your Earnings for Buyer Review
Before selling your business, bring your financial statements, tax returns, and bank deposits into agreement. Sailfish can help you identify the questions a buyer is likely to ask about recurring earnings and prepare the records your accountant will need.
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Why Choose Sailfish for Business Sale Preparation
Prepare for a quality of earnings review. Sailfish Equity Advisors helps Florida business owners organize financial records, explain adjustments to reported profit, and anticipate what buyers will ask about recurring earnings.
Understand what the findings mean for your sale. We work alongside your accountant and legal advisors to connect diligence findings to business valuation, buyer questions, and deal terms.
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Related Reading on Business Valuation and Sale Preparation
Make Your Earnings Easier to Understand—and Defend
A profitable Florida business can still have questions hidden between its bank deposits, tax returns, and monthly statements. A quality of earnings report tests how those records connect, which earnings are repeatable, and what could change after a sale. It is a financial investigation, not a promise of value.
For an owner, the useful question is what a buyer will need to understand before committing capital. That includes the way you bill customers, recognize revenue, pay employees, and explain unusual months.
Sailfish Equity Advisors helps Florida owners prepare for buyer scrutiny through boutique M&A advice and business brokerage. We work alongside your accounting and legal advisors to organize the financial story and keep decisions connected to your goals. An independent accounting professional performs the earnings review; Sailfish coordinates the sale process around it.
Your accounting records were built to run the company and meet reporting obligations. A buyer reads them for a different purpose: deciding whether the business can support its purchase price, operating needs, and financing after you leave.
A quality of earnings review, often called QoE, examines the evidence behind reported performance. Depending on the engagement, it may test revenue recognition, expense timing, customer trends, margins, and the relationship between profit and cash. The written scope matters as much as the report’s title.
This is useful for both owner-operated businesses and larger companies with a management team. An individual buyer may focus on the income available after taking over your working role. A strategic acquirer may want to understand sustainable EBITDA before considering integration. Neither question is answered by annual revenue alone.
What Does the Accountant Actually Test?
Start with the records that support the income statement. The reviewer should be able to trace material amounts to transactions, explain differences between reporting systems, and identify limitations in the available evidence.
Four areas deserve particular preparation:
Revenue timing. When was work completed, when was it invoiced, and when was payment received? A deposit for future service is different from revenue already earned.
Expense completeness. Have supplier bills, payroll obligations, refunds, and other costs been recorded in the correct periods?
Customer continuity. Does revenue come from repeat customers and transferable agreements, or from relationships and projects that may end after closing?
Margin consistency. Did a profitable period reflect ordinary operations, a price increase, a change in service mix, or a temporary reduction in costs?
Owner adjustments also need documentation, but identifying allowable add-backs is a separate exercise from testing the underlying financial records.
Ask the reviewer to distinguish findings from assumptions. Missing support does not automatically mean a transaction was improper. It does mean the parties need a clear resolution before they rely on the earnings figure.
Cash Proof Explains Differences; It Does Not Erase Them
A cash proof reconciles money moving through bank accounts with the financial records. It can help identify unrecorded expenses, transfers counted as receipts, customer payments applied to the wrong period, or unexplained differences.
Bank deposits do not equal sales in every business. Loan proceeds, owner contributions, transfers between accounts, and sales taxes collected can all appear in bank activity without representing earned revenue. Conversely, a completed sale on credit may produce revenue before cash arrives.
Consider a hypothetical Florida equipment distributor. December customer receipts total $240,000. Of that amount, $40,000 settles November invoices and $30,000 is an advance for January deliveries. December also includes $25,000 of completed, properly recognized sales still unpaid at month-end.
Under these simplified assumptions, December revenue is $195,000: $240,000 less $40,000 and $30,000, plus $25,000. The difference is timing, not necessarily a problem. The accountant still needs invoices, delivery evidence, receivables records, and the applicable accounting policy to establish the right treatment.
Prepare a reconciliation rather than telling the buyer that the numbers are “close enough.” Keep original records intact and document corrections through your accountant. A clear explanation is more persuasive than several competing versions of the same spreadsheet.
Which SBA Transactions Require a Lender’s QoE?
Under SBA SOP 50 10 8.1, effective October 1, 2026, qualifying 7(a) Initial Acquisition and Business Expansion transactions require a QoE when the business purchase price is at least $3 million. This is not simply a $3 million loan threshold. The defined business price excludes the appraised value of owner-occupied commercial real estate acquired in the transaction.
The policy includes exceptions, including Owner Buyout and ESOP/Cooperative transactions and a separate exception involving acquisition of qualifying owner-occupied Special Purpose Property. The lender must determine the applicable category and requirements for the actual transaction.
For a required QoE, the report must benefit the lender and cannot be prepared by or for the seller. The required cash proof covers the trailing twelve months and the last two fiscal years, with a reduced scope possible for a younger business. The lender uses the reviewed earnings in its debt-service analysis.
These rules do not make QoE irrelevant below the threshold or outside SBA financing. A buyer or conventional lender can request financial diligence based on its own needs. Likewise, a sale above $3 million does not automatically fall under SBA policy when SBA financing is not involved.
Who Orders the Report, and Who Pays?
The party ordering a report, the party paying its invoice, and the parties entitled to rely on it may be different. Settle all three points before the accountant begins.
A seller may commission a review to identify issues before marketing. A buyer may commission one to test an acquisition. A lender may require a separate engagement or an approved review process. A seller’s preparation report should not be presented as satisfying a lender’s independent requirement.
For the current SBA requirement, a buyer-commissioned report may be reviewed by a lender-approved vendor under the policy’s conditions. Acceptance is a lender decision. Ask before assuming an existing report will avoid duplicate work.
Payment is negotiated through the engagement and transaction documents. There is no universal rule that every seller must pay, or that the buyer always absorbs the cost. Request a written scope and fee proposal covering the entities, periods, locations, deliverables, revisions, and reliance rights involved.
If closing is delayed, ask whether the report needs updated interim results and what that update costs. A report prepared around one financial period may not answer questions raised by several later months of trading.
QoE, an Audit, and a Valuation Answer Different Questions
A financial statement audit is an assurance engagement with its own professional standards and objective. A QoE is generally a transaction-focused analysis with procedures defined by its engagement. It is not automatically an audit opinion, and it does not guarantee the absence of fraud.
A business valuation addresses value. A QoE helps test financial inputs that may inform that conclusion. For example, evidence that a major revenue stream will end can change the earnings a buyer considers sustainable, even if the company’s historical statements were properly prepared.
For an owner-operated company, seller’s discretionary earnings considers the economic benefit associated with one working owner. For a management-run company, EBITDA analysis generally retains the cost of the management needed to operate it. A buyer should not confuse either measure with cash available after debt payments, taxes, and capital spending.
Our South Florida business valuation guide explains how earnings, operating risk, and transferability fit into a defensible value discussion. The earnings review supports that discussion without setting the final negotiated price by itself.
Build a Review File Your Accountant Can Work With
Organize the records by entity and period before filling a data room. Keep a simple index showing the file owner, reporting basis, date prepared, and unresolved questions.
A practical starting file includes monthly income statements and balance sheets; general ledger exports; filed tax returns; complete bank statements; receivables and payables aging; payroll summaries; customer revenue by period; material contracts; and schedules explaining related-party transactions. Let the reviewer refine the list to the agreed scope.
Give the reviewer comparable periods. Comparing one seasonal quarter with a full-year monthly average can obscure the reason results changed. A trailing twelve-month view includes a full annual cycle, but its composition changes each month and still needs comparison with earlier periods.
For customer analysis, use consistent customer codes across the revenue schedule, receivables, and contract index. Share identifying details only as the authorized diligence process requires. An NDA and controlled access help manage disclosure, while careful permissions and an agreed communication plan reduce unnecessary exposure.
Designate one person to coordinate requests with your accountant. Keep a written question log and answer factual issues once, with supporting files. That reduces contradictory explanations and gives management more time to keep operating the business.
Turn a Finding Into a Decision Before It Becomes a Dispute
A useful report does more than produce an adjusted number. It should explain the reason for each material finding and identify what remains uncertain.
Suppose a reviewer finds that a supplier credit increased last year’s margin. The next question is whether the credit corrected an overpayment, rewarded recurring volume, or settled a one-time dispute. Each explanation has different implications for future earnings. The supporting agreement and payment history matter more than the label used in a presentation.
Discuss findings with your accountant before responding to the buyer. Correct mistakes, supply missing evidence, and distinguish a legitimate accounting difference from a commercial disagreement about the future. Preserve the original finding and the explanation so later reviewers can follow the conclusion.
If supported earnings change, revisit price, financing, working capital, and the owner’s proceeds together. Additional buyer equity may address a financing gap, but the buyer must still decide whether the economics justify the investment. A QoE is evidence for negotiation, not an automatic instruction to accept a lower offer.
How Sailfish Connects Preparation With Your Sale Goals
Our team brings 25 years of experience and more than 700 transactions across Florida to conversations about readiness and deal structure. Sailfish’s network includes more than 3,500 qualified buyers, private equity groups, and strategic acquirers. The appropriate audience depends on your business, financing needs, and priorities.
We help organize the questions that should be addressed before a buyer’s review controls the timetable. That can include identifying gaps in the financial package, coordinating professional responsibilities, and presenting documented strengths without overstating certainty.
You should understand the likely process before committing to a report. Schedule a confidential conversation with Sailfish to discuss the stage of your sale and the preparation most useful for your business.
FAQ: Questions Florida Owners Ask About Earnings Reviews
Does every Florida business sale need a quality of earnings report?
No. The need depends on the buyer, financing, transaction structure, and financial complexity. Current SBA policy requires QoE for specified acquisition categories at the defined $3 million business-price threshold, with exceptions. Buyers outside that requirement can still request a review. Confirm the proposed scope before commissioning work.
Who pays for a quality of earnings report?
Responsibility depends on the engagement and the negotiated transaction terms. A seller may pay for its own preparation review, while a buyer or lender arranges separate diligence. Confirm who commissions the work, who pays the invoice, who may rely on the report, and who funds any later update.
Is a quality of earnings report the same as an audit?
No. An audit provides an opinion on financial statements under the applicable auditing framework. A QoE typically addresses transaction-specific questions about earnings and their sustainability through agreed procedures. Its scope and limitations should be explicit. Neither the report’s title nor its length makes it a substitute for the other engagement.
Can my existing accountant prepare the lender’s required QoE?
Ask the lender before making that appointment. SBA’s required report must be performed by an independent, experienced financial professional for the lender’s benefit and must not be prepared by or for the seller. Your accountant can help assemble records and resolve questions even when another professional must perform the review.
How does Sailfish help Florida owners prepare for a QoE?
Sailfish helps connect financial preparation with the sale strategy: organizing the information buyers need, coordinating requests with your accountant, and evaluating how findings affect the proposed transaction. Independent professionals handle accounting conclusions. The aim is a clear, supportable financial story that lets you make informed decisions about timing and terms.
By Sarah Khatri, Managing Partner, Sailfish Equity Advisors.