SBA Quality of Earnings Reports

Independent Quality of Earnings Reports for SBA Business Acquisitions

Helping SBA lenders and business buyers understand the true earnings and cash flow of an acquired business.

Our firm specializes in preparing independent Quality of Earnings (QoE) reports for SBA-financed business acquisitions, with a focus on the requirements and documentation standards associated with SBA SOP 50 10 8.1.

A Quality of Earnings report provides an independent analysis of a business's historical financial performance, identifying the recurring and sustainable earnings that support the proposed purchase price and debt-service capacity.

Why a Quality of Earnings Report Matters

Financial statements and tax returns tell you what a business reported. A Quality of Earnings analysis helps determine what the business actually earns on a normalized, recurring basis.

Our analysis may examine:

Historical revenue and expense trends
Revenue concentration and customer dependency
Gross profit margins
Recurring versus non-recurring revenue and expenses
Owner compensation and discretionary expenses
Personal and non-business expenses
One-time or unusual expenses
Related-party transactions
Changes in operating expenses
Working-capital considerations
Cash-flow trends
Normalizing and adjusting entries
Sustainability of reported earnings
Reconciliation of financial statements to tax returns and actual Bank deposits
Other factors that may affect the business's ability to generate sustainable cash flow

SBA SOP 50 10 8.1 Focused

Our reports are designed specifically for transactions involving SBA 7(a) financing and are prepared with the documentation needs of SBA lenders in mind.

We understand that an SBA-financed acquisition requires more than simply reviewing a seller's financial statements. Lenders need confidence that the historical earnings used to support the transaction are reasonable, sustainable, and adequately supported by the underlying financial records.

Our QoE reports provide lenders and buyers with an organized, independent analysis that can help identify potential financial risks before the transaction closes.

Independent Analysis. Clear Conclusions.

Our approach is designed to provide an objective assessment of the company's financial performance—not to justify a predetermined purchase price.

We distinguish between:

Reported Earnings

What the company's financial statements and tax returns show.

Adjusted Earnings

Reported earnings after evaluating appropriate adjustments for unusual, non-recurring, or owner-specific items.

Normalized Earnings

The level of earnings that reasonably represents the company's ongoing operating performance.

This distinction can be critical when determining whether the business's cash flow can support the proposed acquisition financing.

Serving SBA Lenders and Acquisition Professionals

Our Quality of Earnings reports can be used by:

SBA lenders
Banks and financial institutions
SBA loan underwriters
Business buyers
Business brokers
CPAs and accounting firms
M&A advisors
Attorneys
Private investors

Whether you are evaluating a $500,000 acquisition or a multi-million-dollar transaction, our goal is to provide a clear, well-supported analysis that helps the parties understand the financial condition and earning capacity of the business.

A Practical, Lender-Friendly Process

Our process typically includes:

1. Financial Data Collection
We obtain the financial statements, tax returns, general ledgers, bank information, and other relevant financial records.

2. Financial Analysis
We analyze historical revenue, expenses, margins, operating trends, and other significant financial relationships.

3. Earnings Normalization
We identify and evaluate potential adjustments to determine sustainable earnings.

4. Supporting Documentation
Significant adjustments are evaluated against available financial records and supporting documentation.

5. Quality of Earnings Report
We prepare a comprehensive report presenting our findings, adjustments, assumptions, and conclusions in a format designed to be useful to SBA lenders and transaction participants.

Protecting the Transaction Before Closing

A Quality of Earnings report can identify issues that may not be apparent from tax returns or internally prepared financial statements.

Our independent analysis can help uncover:

Overstated earnings
Declining revenue trends
Margin compression
Customer concentration
Unusual expense adjustments
Unsupported add-backs
Owner expenses that may not be transferable to a new owner
Non-recurring income
Related-party transactions
Inconsistent financial reporting
Other factors affecting sustainable cash flow

Identifying these issues before closing can give lenders and buyers the information they need to make better-informed decisions.

Independent. Objective. SBA-Focused.

Our firm is committed to providing objective, well-documented Quality of Earnings analysis for SBA-financed acquisitions.

We work to give lenders and buyers a clear answer to a fundamental question:

“What level of earnings can reasonably be expected to continue after the acquisition?”

FOCUS LENDERS SERVICES GROUP