QoE (quality of earnings) on add-backs over $50k

What it is

A quality of earnings (QoE) report is an independent accountant's review of the seller's claimed "add-backs" — the personal car, the one-time legal bill, the family member on payroll — that get added back to reported profit to arrive at the adjusted earnings number a buyer pays a multiple on. Rather than take the seller's or broker's list at face value, a QoE traces each add-back to source documents: bank statements, invoices, contracts, and payroll records.

For deals in the price range most SBA buyers are looking at, a QoE typically runs a small fraction of the deal size and is usually ordered once you're under LOI (a signed letter of intent), not before — it's a validation step, not a shopping tool.

Why it matters

Every dollar of add-back inflates the purchase price, because small businesses are typically priced as a multiple of earnings — price equals earnings times an agreed multiple. An unsupported $50,000 add-back at a 3x multiple isn't a rounding error — it's $150,000 you paid for earnings the business never actually generated.

Add-backs are also where sellers most often round generously in their own favor without intending outright fraud. A spouse listed as an "office manager" earning above-market pay for genuinely part-time work is a real add-back, but only for the gap between what's paid and what the role actually costs at market rate — not the whole salary.

What to look for

• Add-backs with no receipts, invoices, or other documentation behind them
• Personal vehicle, travel, or entertainment expenses added back in full when part of the spending was plausibly business-related
• Family salaries added back entirely when the role still needs to be filled by someone, at some real cost
• Recurring costs — insurance, software, subscriptions — mislabeled as "one-time"
• Whether an independent QoE firm has actually reviewed the number, versus only the seller's own broker