Search Party Episode 5 | When Quality of Earnings Reveals Cold, Hard Truths

In “When Quality of Earnings Reveals Cold, Hard Truths,” host David Snow is joined by Ryan, Clay, Anthony Walker (Next Coast Legacy) and Bob Boniface (TransTech) to unpack the essentials of quality of earnings (QofE), a critical part of due diligence for lower middle-market acquisitions. Quality of earnings is an early form of due diligence, the importance and utility of which many first time entrepreneurs do not fully appreciate. Sellers, too, can be apprehensive about the process, because in translating cash accounting into accrual accounting, reported revenue and earnings can drop, often followed by a drop in the proposed transaction value, as well. Together, they discuss the criticality of QofE, dispel misperceptions and compare notes on best practices for keeping investors apprised of shifting numbers, as well as preventing the seller from experiencing disappointment and due diligence fatigue. They also discuss expectations around workload and timeline, as well as how a good quality of earnings process can inform and accelerate the post-acquisition plan for value creation.