What a Quality of Earnings report from OTBC looks like.
A condensed example built on a fictional HVAC and mechanical services company. The full report runs about 40–60 pages plus an Excel data book. Every schedule is tied back to source documents.
Example Mechanical Co. — sell-side QoE, TTM June 2025
Key findings
- Adjusted EBITDA of $1,240K is supported; four add-backs and two deductions tested to source documents.
- Revenue ties to bank deposits within about 1% in every period (proof of cash).
- Gross margin improved from 38.4% to 41.2%, driven by service-plan mix and price increases.
- Customer concentration is the main risk: Customer A is 14.2% of revenue.
- Working capital is seasonal; the peg should use the 12-month average.
What this means for the deal
- Price discussions should start from adjusted EBITDA, not tax-return earnings.
- Expect buyers to ask for protection around Customer A (escrow, earnout or pre-close renewal).
- Owner-held vendor relationships should be transitioned before close.
- Debt-like items of about $184K will reduce the equity paid at closing.
EBITDA bridge, TTM June 2025
| Adjustment & support | Type | FY2023 | FY2024 | TTM Jun-25 |
|---|---|---|---|---|
| Reported EBITDA | $880K | $960K | $1,020K | |
| Owner compensation to marketOwner pay $310K vs. $190K market rate for a GM (salary survey, W-2s) | Management | $110K | $118K | $120K |
| One-time legal settlementSettlement agreement and invoices; not expected to recur | Diligence | – | $65K | $65K |
| Personal auto & travelGL detail and card statements; owner's personal vehicles and trips | Management | $41K | $46K | $48K |
| Non-recurring consulting projectERP implementation consultant; project closed in Q1 | Diligence | – | $37K | $37K |
| Related-party rent to marketOwner-held building leased below market; appraiser rent estimate | Diligence | −$28K | −$30K | −$30K |
| Pro forma staffing (open role)Controller role vacant 7 months; cost added back in | Diligence | −$18K | −$20K | −$20K |
| Adjusted EBITDA | $985K | $1,176K | $1,240K | |
| Adjusted EBITDA margin | 12.9% | 14.6% | 15.1% |
Management adjustment proposed by the owner and tested by us. Diligence adjustment identified in our review.
Trends, margin and seasonality
Who the revenue depends on
We rank every customer by share of trailing-twelve-month revenue and flag any above 10%. Buyers and lenders use this to size escrows, earnouts and loan covenants.
Revenue tied to the bank
Reported revenue is reconciled to bank deposits for every period, so a buyer knows the sales are real cash, not just entries in the books.
| Period | Revenue | Deposits | Variance | Result |
|---|---|---|---|---|
| FY2023 | $7.62M | $7.58M | 0.5% | Within tolerance |
| FY2024 | $8.04M | $7.95M | 1.1% | Within tolerance |
| TTM Jun-25 | $8.21M | $8.16M | 0.6% | Within tolerance |
Differences explained by timing of year-end receipts and customer deposits.
Monthly working capital and a proposed peg
What reduces the price at closing
| Item | Type | Amount |
|---|---|---|
| Bank term loan | Debt | $410K |
| Equipment notes (3 trucks) | Debt | $168K |
| Deferred revenue on prepaid service plans | Debt-like | $94K |
| Accrued but unpaid bonuses | Debt-like | $38K |
| Customer deposits | Debt-like | $52K |
| Cash on hand | Offset | −$160K |
| Net debt & debt-like items | $602K |
Findings by severity
Master service agreement renews in 5 months with no auto-renewal. Consider an escrow, earnout or pre-close renewal.
Top 2 suppliers deal only with the owner. Transition plan and introductions recommended before close.
NWC falls about $125K below the peg in December. Peg mechanics should use the TTM average, not a single month.
Prepaid plans were recognized upfront. Adjusted to deferred revenue; impact is timing, not total.
Year-end count tied out within 1.2%. Monthly reconciliation recommended going forward.
What you receive
This page is a condensed preview. A full OTBC Quality of Earnings report typically runs 40–60 pages, plus an Excel data book with every schedule, source tie-out and working file, and a live walkthrough of the findings with you, your broker or your lender.
Depends on company size, number of entities and locations, how clean the records are, the periods covered and whether the report must be SBA lender-ready. We quote a fixed fee after a short scoping call.
Get a scoped quote| # | Section | Pages |
|---|---|---|
| 1 | Executive summaryKey findings, adjusted EBITDA and deal considerations | 4–6 |
| 2 | Business overviewOperations, customers, team and how the numbers are produced | 3–4 |
| 3 | Quality of earningsEBITDA bridge, every adjustment with support and classification | 8–12 |
| 4 | Revenue analysisTrends, seasonality, customer and service-line mix, churn | 5–8 |
| 5 | Gross margin & operating costsMargin by line, payroll, overhead and run-rate changes | 4–6 |
| 6 | Proof of cashRevenue tied to bank deposits, cash conversion | 2–3 |
| 7 | Net working capitalMonthly NWC, seasonality and a proposed peg | 3–5 |
| 8 | Net debt & debt-like itemsDebt schedule and items that reduce price at close | 2–3 |
| 9 | Risks & diligence findingsFlags by severity with recommended deal protections | 3–5 |
| 10 | Excel data bookAll schedules, source tie-outs and working files | Live file |
Sample for illustration. OTBC is not a CPA firm, and a Quality of Earnings report is not an audit or other attest engagement. Actual scope, findings, length and fees vary by engagement and are set in a written agreement.