Quality of earnings report: an annotated example, template and document checklist

Published October 25, 2026 · Rules checked against SBA and IRS sources as of October 2026

1. Summary

2. EBITDA bridge (TTM)

3. Cash proof (TTM)

5. Findings

• Earnings reconcile to tax returns and transcripts within immaterial differences.
• Cash proof supports reported revenue.
• Low concentration; recurring contracts transferable with notice.
• Fleet capex needed in year one; lender should consider in DSC.

Template version: QoE report template.

The template behind the example

A usable quality of earnings report template has eight parts: scope and basis, business overview, reconciliation of financial sources, EBITDA bridge with documented adjustments, cash proof, revenue quality, working capital and debt-like items, and findings. For SBA deals, the reconciliation must cover accountant-prepared statements, tax returns, internal statements and IRS transcripts, and the cash proof must cover the trailing 12 months and last two fiscal years.

The document request list

A QoE provider needs every source of financial truth for the trailing 12 months and the last two fiscal years: accountant-prepared statements, tax returns, monthly internal statements, general ledger, every bank and card statement, AR and AP agings, payroll reports, customer revenue detail and key contracts. SBA's cash proof reconciles bank data to the income statement and tax return for each period, so missing bank months are the most common cause of delay.

The checklist

Periods: the trailing 12 months (TTM) and the last two full fiscal years, unless the business is younger.

See how the proof of cash works.

How to read the example as a lender

A QoE report is long, but a credit officer can get most of what matters from four places, in this order.

1. The summary table. Compare reported and adjusted EBITDA across all three periods. A gap that grows over time, or an adjusted figure well above every reported year, deserves questions before anything else. In the example, adjustments reduce earnings in every period, by $30,000 to $60,000, which is a credible pattern.
2. The EBITDA bridge. Read each line and its evidence. Ask whether each add-back is truly non-recurring, whether each subtraction reflects a real cost the buyer will bear, and whether anything is missing (a market wage for a role the owner fills, market rent on a related-party lease).
3. The cash proof. Look at the unexplained variance in each period. In the example, a 0.1% difference is immaterial. A difference of several percent, or one that changes sign between years, needs an explanation before the earnings can be relied on.
4. Revenue quality. Concentration, recurring share and contract terms tell you whether the earnings will survive the sale. In the example, low concentration and a high share of recurring service contracts support the adjusted figure.

What the example would look like with problems

Suppose the same company's cash proof showed $4,250,000 of implied revenue against $4,400,000 reported, a $150,000 (3.4%) shortfall, and the top customer turned out to be a property manager owned by the seller's brother, providing 22% of revenue on a month-to-month arrangement. The report would flag both. The lender's response would be to ask for an explanation of the revenue gap (often timing, sometimes revenue recognized that was never collected), to test coverage with that customer's contribution removed, and to require a written agreement with the customer as a condition of closing, or to resize the loan. Each of those is visible only because the QoE reconciled cash and looked at who the customers are.

Turning the template into a work plan

The template sections map onto a sequence of work: collect the documents on the checklist, reconcile the sources, build the bridge, run the cash proof, analyse revenue, then write findings. Providers that follow this order catch reconciliation problems before spending time on adjustments that may turn out to rest on unreliable numbers.

Common gaps in reports that don't meet SBA's scope

• A cash proof for one period only, when SBA requires the trailing twelve months and the last two fiscal years.
• Reconciliation to tax returns but not to IRS transcript data.
• An EBITDA bridge with a single "owner adjustments" line instead of itemized, evidenced adjustments.
• No section on revenue quality, or one that lists the top customers without discussing contracts or continuity.
• No statement of who the client is, or a report addressed to the buyer with no lender vendor review.

Any of these can be fixed, but fixing it after the lender's credit committee has seen the deal costs time. Providers working to a template like the one above, and lenders checking reports against it on arrival, avoid most of them.

How long a QoE report should be

There is no required length. A QoE for a single-location service business with clean books can be short and still complete; one for a multi-entity business with cash sales and related-party arrangements will be longer because there is more to reconcile and explain. What matters is that every required element is present and that the summary lets a reader find the adjusted earnings, the cash proof result and the key risks in a few minutes.

If you are a seller, the most useful thing you can do is read this example before diligence starts and fix what you can: tidy the add-back schedule, gather every bank statement, and be ready to explain your largest customers.

Common questions

Related guides

• Quality of Earnings (QoE): what it is and what it tests
• Quality of earnings adjustments: the categories, with examples
• Proof of cash reconciliation: how it works in a lender-side QoE
• Documents required for an SBA loan, including the forms and business plan

This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.