Best Quality of Earnings Provider for a $3 Million to $5 Million Business Purchase
Chris Barrett
Choosing the best quality of earnings provider for a $3 million to $5 million business purchase is one of the more important decisions a buyer makes before closing. The quality of earnings (QoE) report will shape your final purchase price, your financing and your negotiating position with the seller.
Picking a provider can be harder than it should be. A QoE is a consulting engagement, not an audit, so there is no required standard or set scope, and technically anyone can offer one. The result is a wide range of prices and scopes. Among experienced firms that focus on deals of this size, the core work and fees tend to be similar. What separates them is harder to see from a website: who performs the work, their experience with transactions of your size, whether your lender will accept the report, how they test cash and working capital, how they communicate, and whether they can support you after closing.
As a CPA firm that performs QoE engagements, Midwest CPA is not a neutral party. We’ve written this guide to be useful regardless of which firm you engage, and each section ends with questions you can put to any provider you’re considering.
What a Quality of Earnings Report Covers at This Deal Size
A QoE is an independent look at whether the earnings you’re paying for are real and whether they’ll keep coming after you own the business. On a $3 million to $5 million deal, that usually means testing three or so years of financials plus the trailing twelve months.
A solid QoE at this size should include:
- Adjusted EBITDA or SDE. Reported earnings, normalized for one-time items and owner add-backs, with each add-back tied to support.
- Proof of cash. Revenue and expenses tied back to bank statements, so you know the deposits match what the seller reports.
- Tax return reconciliation. The books compared to filed returns, with the differences explained.
- Revenue quality. Customer concentration, recurring versus one-time work, and trends by month.
- Net working capital. What the business normally needs to operate, and a working capital target (the peg) you can put in the purchase agreement.
If you want to see how a peg comes together, our free net working capital calculator walks through the math.
Why a QoE Matters on a $3 Million to $5 Million Deal
At a 3x or 4x multiple, every $100,000 of earnings that doesn’t hold up is $300,000 to $400,000 of purchase price. Most small business books are built for taxes, not for a sale, so overstated add-backs and revenue booked in the wrong period are common. A QoE is how you find that before you sign, while you can still renegotiate or walk.
There’s also a financing reason that matters a lot for deals in this range.
The SBA QoE Requirement for Purchases of $3 Million or More
SBA’s SOP 50 10 8.1, effective October 1, 2026, added a QoE requirement for 7(a) change of ownership loans. Here’s what the SOP says, in plain terms:
- For Initial Acquisition and Business Expansion transactions where the business purchase price is $3 million or more, the lender must obtain a QoE in addition to the business valuation.
- The $3 million is measured before buyer equity, seller notes, or other financing. It’s the purchase price, not the loan amount. Owner-occupied commercial real estate is excluded from the business purchase price.
- Owner buyouts and ESOP or cooperative transactions aren’t subject to the requirement.
- The QoE must be done by an independent, experienced financial professional, for the benefit of the lender, and it can’t be prepared by or for the seller.
- It must include a cash proof on a trailing twelve month basis and for the last two fiscal years, reconcile the financial statements to tax returns and IRS transcript data, document every add-back, and assess revenue quality, including customer concentration.
- The lender has to use the QoE earnings when it calculates debt service coverage.
One detail catches many buyers off guard. If you commission your own QoE before you line up financing, the SOP lets the lender have that report reviewed by one of its approved vendors, but the lender can’t rely on it without that review. So if you’re using an SBA loan on a deal of $3 million or more, talk to your lender before you hire anyone. Ask whether they’ll engage the QoE provider themselves, whether they have an approved vendor list, and whether they’ll accept a review of a buyer-commissioned report.
We cover this in more detail in our article on the SBA quality of earnings requirement.
How to Choose the Best Quality of Earnings Provider for a $3 Million to $5 Million Purchase
Once you’ve confirmed a firm covers the basics above, these are the things that separate one provider from another.
Who Actually Does the Work
Ask who will run your engagement day to day and who reviews it before it goes out. Some firms have a senior person on the sales call and a different team doing the analysis. Neither model is wrong, but you should know which one you’re getting, and you should know who will walk you through the findings and answer the seller’s pushback.
Questions to ask:
- Who leads the engagement, and what’s their background in transaction work?
- Who reviews the report before I see it?
- Will the same person present the findings to me and, if needed, to my lender?
Experience at Your Deal Size and Deal Volume
A $3 million to $5 million business is usually owner run, often on cash or modified cash books, with add-backs that need real support. That’s different from a private equity add-on with audited financials. Ask how many QoEs the firm has done at this size and how many in the last year. Volume matters because the people doing the work have seen the common problems before.
Questions to ask:
- How many QoEs have you completed on deals between $3 million and $5 million?
- How many deals have you worked on in the last 12 months?
- Have you worked in my industry, and what came up on those deals?
Whether SBA Lenders Accept the Report
If your purchase is $3 million or more and you’re using an SBA 7(a) loan, the report has to meet the SOP requirements described above, and the lender has to be able to rely on it. A report the lender won’t accept is a report you may end up paying for twice.
Questions to ask:
- Have you worked with my lender before?
- Are you on any lenders’ approved vendor lists?
- Does your report include everything the SOP requires, including the cash proof and the tax return and IRS transcript reconciliation?
Proof of Cash, Working Capital, and the True-Up
Two parts of a QoE carry particular weight at this deal size. The proof of cash ties reported revenue and expenses to the bank statements, which is where overstated earnings usually show up. The net working capital analysis sets the peg in the purchase agreement, and the peg is what the true-up after closing is measured against. A weak peg can cost you significantly in the months after you take ownership.
Questions to ask:
- Is a proof of cash included in every QoE, or is it an add-on?
- How do you set the peg, and how do you handle seasonality?
- Will you help me with the working capital true-up after closing?
Communication and Turnaround
Diligence has to fit inside your LOI exclusivity period. A good provider tells you early what they need from the seller, flags problems as they find them instead of saving everything for the final report, and gives you a timeline that starts when they have the documents. Be cautious about any timeline that doesn’t depend on the seller at all.
Questions to ask:
- What do you need from the seller, and when?
- How long after you have the documents do you deliver?
- Will you tell me about major issues as you find them?
Support After Closing
The first year after closing is often when deals run into difficulty. You’ll need to set up the books under your ownership, record the opening balance sheet, run first-year accounting and tax, settle the working capital true-up with the seller, and send your lender the financial reporting your loan requires. A provider that already knows the numbers from the QoE can make that much easier. If a firm doesn’t offer this, plan who will.
Questions to ask:
- Can you set up my books after closing?
- Do you offer monthly accounting and fractional CFO support?
- Can you prepare the business tax return and my personal return?
Questions to Ask and What a Good Answer Sounds Like
| Question to ask | What a good answer sounds like |
|---|---|
| Who leads the engagement? | A named person with transaction experience who will also walk you through the findings |
| How many QoEs have you done at my deal size? | A specific number, plus recent deals similar to yours |
| Will my SBA lender accept your report? | They know the SOP requirements and have worked with your lender or lenders like it |
| Is proof of cash included? | Yes, in every QoE, tied to bank statements |
| How do you set the working capital peg? | A normalized monthly average with seasonality explained, and help with the true-up |
| What’s the fee? | A fixed fee in writing, with a clear list of what would change it |
| How long will it take? | A timeline measured from when they have the seller’s documents |
| Can you help after closing? | Books setup, monthly accounting, fractional CFO, and tax, or a clear referral |
Other Options: Big 4, Your Local CPA, and Online Marketplaces
Big 4 and large regional firms
The large national firms do excellent transaction work, but it is usually more than a $3 million to $5 million purchase requires. Their fees and minimum engagement sizes are typically built for much bigger deals, and smaller deals can get less attention on their calendars. If your lender or investors insist on a large firm name, ask early what the engagement will cost.
A local CPA without deal experience
Your current CPA may be excellent at tax returns and still not be the right person for a QoE. Tax work is about reporting income correctly for the IRS. A QoE is about what the business will earn for a buyer, which means testing add-backs, tying deposits to revenue, and setting a working capital peg. Ask how many QoEs they’ve completed and ask to see a sample report.
Online marketplaces
Some online marketplaces let you post a project and get proposals from independent QoE providers. This can be a quick way to collect quotes. You’re still choosing a specific provider, so ask the same questions above of whoever you hire.
What Does a QoE Cost for a $3 Million to $5 Million Deal?
There’s no neutral industry survey of QoE fees, so we would be cautious about anyone quoting a single “typical” number. Expect any provider to ask for your LOI and a few years of monthly financials before they give you a firm number.
What actually drives the price:
- The state of the books. Clean accrual books are faster. Cash basis books, missing months, or books that need rebuilding add time.
- Number of entities and locations. Each additional entity or location adds reconciliation work.
- Scope. A cash proof alone costs less than a full QoE with working capital, revenue analysis, and a written report.
- Lender requirements. An SBA lender-ready report has specific requirements under the SOP, and some lenders want a particular format or a reliance letter.
- Timing. Rush timelines usually cost more.
- Seller responsiveness. Slow document delivery stretches the engagement, and some firms bill for that.
We recommend asking for a fixed fee in writing. With hourly billing, a slow seller or messy books becomes your cost, and you won’t know the total until the work is done. A fixed fee puts that risk on the provider and tells you up front what’s in scope.
The cheapest or fastest QoE isn’t always the best value. If an SBA lender has to accept the report, or you’ll be negotiating a working capital true-up with the seller, a report without a proof of cash or a defensible peg can cost you more than it saved. On a $4 million purchase, one bad add-back can cost you far more than the QoE.
Red Flags When Hiring a QoE Provider
- They can’t show you a sample report or describe their procedures.
- They won’t test add-backs against support and simply accept the seller’s schedule.
- There’s no proof of cash, or they describe it vaguely.
- The quote is open ended or hourly with no cap.
- They work for the seller or broker on the same deal.
- They promise a turnaround that doesn’t depend on the seller’s documents at all.
- They call a lighter review a “QoE” when your lender needs a full report.
- Nobody can tell you who will actually do the work.
Why Buyers Pick Midwest CPA for a $3 Million to $5 Million Purchase
At Midwest CPA, we’ve completed more than 350 QoEs on over $1 billion in combined transaction value, including 90+ deals in the last 12 months.
Every QoE we do includes a proof of cash and a net working capital analysis with a peg you can put in the purchase agreement. For SBA deals, we prepare a lender-ready QoE. We work remotely with buyers nationwide, most projects take 2 to 4 weeks, and we charge a fixed fee, quoted after a short call about your deal.
We also stay with you after closing. We help from the LOI through setting up your books under new ownership, and then we can keep doing the monthly accounting, act as your fractional CFO, and prepare both the business return and your personal return. You don’t have to start over with a new firm that has never seen the numbers. More detail is on our QoE page.
Frequently Asked Questions
Does the SBA require a QoE for a $3 million business purchase?
Yes, in most cases. Under SOP 50 10 8.1, effective October 1, 2026, 7(a) lenders must obtain a QoE for Initial Acquisition and Business Expansion transactions where the business purchase price is $3 million or more. Owner buyouts and ESOP or cooperative transactions are excluded. Your lender will confirm what your deal needs.
Is the $3 million SBA threshold based on the loan amount or the purchase price?
The purchase price. The SOP measures it before buyer equity, seller debt, or other financing, and it excludes owner-occupied commercial real estate.
Can I use a QoE I paid for myself on an SBA loan?
Possibly. The SOP lets the lender have a buyer-commissioned QoE reviewed by one of its approved vendors, and the lender can’t rely on it without that review. Ask your lender before you engage a provider so you don’t end up paying twice.
How long does a quality of earnings report take for a $3 million to $5 million business?
Plan on a few weeks once the provider has the seller’s documents. At Midwest CPA, most projects take 2 to 4 weeks. The biggest variable is how quickly the seller sends records and answers questions.
What’s the difference between a QoE and a business valuation?
A valuation estimates what the business is worth. A QoE tests whether the earnings behind that value are real and sustainable. For SBA deals of $3 million or more, the lender needs both.
Should I get a QoE if my deal isn’t using an SBA loan?
We still recommend one at this deal size. Without one, you’re relying on the seller’s numbers for one of the largest purchases you’ll make. Conventional lenders and investors often ask for one too.
Is a QoE the same as an audit?
No. An audit checks whether financial statements follow accounting standards. A QoE focuses on adjusted earnings, cash, and working capital, which is what a buyer needs to price the deal.
Picking the Right Fit
Start with your lender’s requirements, then use the questions above with every firm you talk to. Pay attention to who will do the work, how they handle proof of cash and the peg, and what help you’ll have once you own the business.
If you’d like to discuss your deal and whether we’re the right fit, we’d be glad to help.
Sources
- U.S. Small Business Administration: SOP 50 10 8.1, Lender and Development Company Loan Programs (Appendix 15, 7(a) Changes of Ownership)
Related Resources
Disclaimer
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.