A Quality of Earnings (QoE) report is an independent financial analysis that checks whether a company’s reported profits are real, steady, and backed by actual cash flow. It’s a useful tool for buyers because it adjusts Seller’s Discretionary Earnings (SDE) for addbacks and one-time events. It verifies earnings and takes a deeper dive into how a company actually makes its money. It also flags creative accounting that might be a sign of other issues with the business or the owner’s trustworthiness.
For most small business owners, a QoE report was not part of the diligence process. Buyers used P&L statements and tax returns to verify the company’s financial position. But a recent rule change by the SBA beginning October 1, 2026 requires lenders to obtain an independent Quality of Earnings report for change-of-ownership transactions involving initial acquisitions and business expansions with a purchase price of $3 million or more. That will impact the speed and cost of deals for many HVAC companies.
Buyers will bear the cost of obtaining the QoE report.
Quality of Earnings reports are time-consuming and expensive. Most accounting firms charge between $15,000 and $50,000 for small- to midsize business acquisitions, though prices can reach $150,000 or more for large enterprise deals. A detailed report takes at least four to six weeks to complete, and disorganized books or complexity within the business structure can add more time. That gives cash buyers a sharp competitive edge over buyers who use SBA funding for acquisitions.
Many accountants may be unfamiliar with the HVAC industry, which can cause the process to take even longer.
It’s worth a buyer’s time to seek out an accounting firm with experience in HVAC and the trades. Their learning curve is much shorter, and the buyer won’t have to pay for hours of on-the-job training. They may not understand how to value the recurring revenue model of maintenance agreements, for example, or how the difference between commercial and residential businesses may affect the company’s value. They may spend time looking for issues that simply don’t apply to HVAC companies.
It’s helpful to know a few accounting firms that understand the industry and use them whenever a QoE report is needed, just as it’s important to know lenders who understand the business and can approve funding more quickly.
Selling a business is already complex and time-consuming for a seller. The QoE requirement will make it much more so.
A seller already spends many hours a month responding to the diligence process, including meetings, gathering documentation, and responding to requests for additional information beyond the typical tax returns and other financial records. A QoE report includes three years of financial statements, general ledger data, tax returns, customer contracts, AR/AP reports, payroll records, revenue schedules, and other operational documentation needed to validate earnings.
The seller must deal with all of this while maintaining confidentiality within the company so that news of the possible sale does not circulate among the staff, customers, or vendors.
For all these reasons, the QoE requirement will make deals more complicated and take longer to complete. The earlier a seller prepares for this eventuality by cleaning up books, removing addbacks and personal expenses, and organizing documents, the less painful the process will be for both parties.
