Why Smart Sellers Invest in Quality of Earnings Studies, with Emma Gergen [PODCAST]

In this episode of The Transaction Abstract Podcast, Joe Hellman sat down with Emma Gergen from Carlson Private Capital Partners to explore quality of earnings (QoE) studies and why they have become essential in M&A transactions.

Many business owners wonder if they even need a sell-side QoE if the buyer will already conduct one.

The answer, according to Gergen, is simple. She argues that you want to be armed with the same set of facts as the buyer, so that you’re comfortable with the agreed-upon valuation.

Understanding Quality of Earnings vs. Traditional Audits

A quality of earnings study is different from a standard audit. While an audit validates reported financial results, a QoE examines the normalized financial performance of your business. This process identifies and adjusts for:

• One-time expenses or income that will not recur
• Personal expenses run through the business
• Timing differences in revenue recognition
• Extraordinary items that distort your true earning capacity

Gergen notes that understanding these factors at a granular level—and presenting them to the buyer—helps the buyer better evaluate and value your business. 

Three Benefits of Sell-Side Quality of Earnings

1. Information Symmetry: Without a sell-side QoE, you are "flying quite blind" during valuation discussions. Buyers will have detailed insights into your financial performance that you lack.
2. Deal Certainty: Deals can die when buyers discover discrepancies during their due diligence. A credible sell-side QoE study speeds up the buyer's confirmatory diligence process, reducing the risk of valuation disputes or deal failures.
3. Faster Timeline: Gergen notes that sellers who obtain QoE reports have the buy-side process be faster, take less effort, and shorten deal timing. When buyers review a professional sell-side QoE, their own analysis becomes confirmatory rather than exploratory.

What Buyers Actually Look For

Quality buyers do not use QoE studies as "gotcha" tools to reduce valuations, despite seller fears. "Never have I come into a QoE with a mindset that we are going to find something that we want to adjust the valuation for," Gergen emphasizes.

Instead, sophisticated buyers—whether private equity or strategic acquirers—use QoE studies for confirmatory M&A due diligence, to validate the financial profile, and to gain deeper operational insights that help them plan for post-acquisition growth.

The Bottom Line

Quality of earnings studies have become standard practice in middle-market transactions. They help sellers prove their asking price and show buyers the business is financially sound.

As Gergen concludes: "Finding your partners early, who can help you think through financial presentation to be able to produce statements that an investor can look at and understand, is a really valuable exercise."

Explore more insights on the Transaction Abstract podcast, where we cover all angles of buying and selling businesses.