Sample report
A Quality of Earnings report, annotated
This is what we hand a buyer. The company below does not exist and every figure is synthetic, but the analysis, the exhibits, and the verdicts are exactly the ones a real engagement produces. The seller wanted $1,050,000 of EBITDA to be true. Here is how much of it was.
Business
Commercial landscaping and snow removal
Geography
Two metros, upper Midwest
FY25 revenue
$6,480,000
Asking price
$4,200,000
Seller adjusted EBITDA
$1,050,000
Implied multiple
4.0x
Exhibit A
The adjusted EBITDA bridge
One row per step, from what the books reported to what we could defend.
Reported EBITDA, FY25
$712,000
Seller's claimed add-backsFive adjustments, presented in the CIM
+$338,000
Seller's adjusted EBITDA
$1,050,000
Add-backs that survived reviewTwo accepted in full, one reduced, two rejected. See Exhibit B
+$224,600
Diligence adjustmentsItems the seller did not flag, because they went the other way
($124,000)
Verified adjusted EBITDA
$812,600
$237,400 of claimed earnings did not survive review. At the 4.0x multiple this deal was priced on, that is $949,600 of purchase price.
Why this matters
Most reports hand you a normalized EBITDA figure and a methodology paragraph. A bridge is falsifiable: every step names an amount and points at the evidence behind it, so the seller's advisor can argue with a specific line rather than with your conclusion. Arguments you can win on one line are the ones that move price.
Exhibit B
Every add-back, with its verdict
Accepted, reduced, or rejected, with the evidence written next to it. No line survives on the broker's say-so.
Adjustment
Claimed
Allowed
Owner compensation above market
+$142,000
+$142,000
Owner drew $310,000. A general manager doing the same scope in this market benchmarks at $168,000. Tied to the payroll register and three comparable postings.
Spouse on payroll
+$64,000
+$64,000
No timecards, no duties identified in interviews, no email account. The position does not need backfilling after close.
Legal settlement, marked one-time
+$78,000
$0
Employment claims settled in FY23, FY24 and FY25. Three consecutive years is not one-time. This is a cost of operating a 60-person seasonal crew.
Vehicle and personal travel
+$34,000
+$18,600
Personal-use portion documented at $18,600 from mileage logs and card detail. The rest is fleet cost in a business that runs 14 trucks.
Equipment repairs, marked non-recurring
+$20,000
$0
The GL shows $19,000 to $24,000 of repairs in every year reviewed. Recurring by inspection.
Total
+$338,000
+$224,600
Why this matters
The two rejections share a shape: an expense labelled one-time that shows up in every year of the lookback. It is the most common add-back failure we see, and it is invisible if you only review the year the seller put in the CIM. We pull three years for exactly this reason.
Exhibit C
What the seller did not put in the CIM
A seller's add-back schedule is an argument, not an inventory. Adjustments that reduce earnings do not tend to appear on it.
Snow season normalization
($96,000)
FY25 snowfall ran 38% above the ten-year average and snow revenue ran with it. Normalized to the five-year average season. The seller did not flag this, because it went in their favor.
Fleet repair run-rate
($28,000)
Two units are past useful life and were held together rather than replaced in the year before sale. The maintenance line is understated against the fleet you would actually inherit.
Why this matters
The snow normalization is the single largest item in this report and no add-back review would have found it. It came out of comparing five years of seasonal revenue against weather data. A buyer who paid 4.0x on the unadjusted number would have paid $384,000 for one good winter.
Exhibit D
Proof of cash
Bank deposits reconciled to recorded revenue, every month, every account. Five of the twelve FY25 months are shown here. On a Comprehensive engagement the proof extends to the filed returns, a three-way tie between bank, books, and IRS.
| Month | Bank deposits | Recorded revenue | Variance | Disposition |
|---|---|---|---|---|
| Jan 2025 | $611,400 | $598,200 | $13,200 | ExplainedSpring contract prepayments, deferred correctly |
| Apr 2025 | $492,700 | $492,700 | $0 | CleanTies exactly |
| Jul 2025 | $704,100 | $704,100 | $0 | CleanTies exactly |
| Sep 2025 | $538,900 | $571,300 | ($32,400) | ExplainedTiming. Deposited October 2, cleared in the next period |
| Nov 2025 | $866,200 | $811,500 | $54,700 | FlaggedNo matching revenue entry. See F-03 |
| FY25 total | $6,534,700 | $6,480,000 | $54,700 | Net of timing, one unexplained item |
Why this matters
The November flag is the finding a buyer remembers. $54,700 landed in the operating account with no revenue entry behind it, and it traced to a snow subcontract billed and collected outside the accounting system. More revenue than reported sounds like good news for a minute. It is not: it means the books are incomplete, the same gap exists on the filed tax return, and the buyer would be assuming that exposure at close. It became an indemnity in the purchase agreement.
Exhibit E
The findings log
Every issue we hit, with severity and dollar impact. This is the consolidated view of the exhibits above plus the items that never touch EBITDA, and it is the part buyers actually take into the room. Each entry is either a price adjustment, a rep, or a reason to walk.
| Ref | Finding | Severity | Impact |
|---|---|---|---|
| F-01 | FY25 snow revenue ran 38% above the ten-year average season. Normalized to a five-year average. | High | ($96,000) EBITDA |
| F-02 | Legal settlements presented as one-time appear in each of the three years reviewed. | High | ($78,000) EBITDA |
| F-03 | $54,700 of November deposits have no matching revenue entry. Traced to a snow subcontract billed and collected outside the accounting system. | High | Rep and indemnity. Tax exposure |
| F-04 | Fleet repair run-rate understated. Two units past useful life. | Medium | ($28,000) EBITDA, roughly $180,000 of year-one capex |
| F-05 | Accrued PTO of $63,400 is not recorded on the balance sheet. | Medium | Working capital peg |
| F-06 | Largest customer is 22% of revenue on a contract that expires four months after close. | Medium | Diligence and deal structure |
| F-07 | Normalized working capital averaged $418,000 over the trailing twelve months against a proposed peg of $310,000. | Medium | $108,000 to the buyer at close |
What this did to the deal
The buyer did not walk. The business was still a good business: real contracts, real crews, a defensible route density in two metros. What changed was the price and the paper. $237,400 of the seller's claimed EBITDA did not survive, and at 4.0x that is $949,600 of purchase price to renegotiate with a document behind every line.
The working capital peg moved $108,000 in the buyer's favor. The off-system snow billing became a specific indemnity rather than a general rep. The customer concentration became a closing condition on a renewed contract.
None of that is exotic analysis. It is a lookback long enough to catch the recurring one-time expense, a cash proof run against every month rather than a sample, and somebody willing to write rejected next to a number the seller wanted very much to keep.
About this sample
The company, the figures, and the findings are synthetic. They were built to be internally consistent and to reflect the pattern of issues these engagements actually surface, not to describe any real client. We do not publish client work, anonymized or otherwise.
A delivered engagement includes the written report and the complete Excel workbook behind it: every reconciliation, every schedule, every flagged transaction. If you want to see the workbook structure on a live deal, ask us. For the pricing and scope of each tier, see Quality of Earnings.
Want this on your deal?
Send the financials or just the CIM. We will tell you which tier fits, what we would look at first, and exactly when you would have the report.