LenderHawk analysis. Not affiliated with or endorsed by Acquisitions Anonymous.
Elliot Holland of Guardian Due Diligence explains how quality of earnings helps buyers verify messy small-business financials before they close. The conversation focuses on what a good diligence process should uncover, how much it costs, how long it takes, and why buyers need to stay personally engaged throughout diligence rather than outsourcing judgment.
First-time business buyers, searchers, and SBA borrowers who need a practical view of how to verify financials and avoid overpaying.
Quality of earnings is most valuable in small deals where buyers are personally exposed through guarantees and cannot afford to trust sloppy financials.
A useful diligence package should reconcile tax returns, QuickBooks, and bank statements so lenders, investors, and buyers can read one coherent financial story.
For SMB deals, a typical financial QOE can cost about $15,000 to $40,000, while stripped-down analysis may run $5,000 to $10,000.
A good provider should get data in roughly 3 to 4 days and finish a standard QOE in about 4 weeks.
Sell-side QOE reports can reduce perceived uncertainty early and help buyers tighten their offer range before spending more time and money.
Buyers should not show messy financials to capital providers too early, because lenders and investors may anchor on bad assumptions before the numbers are cleaned up.
The buyer’s job is not just to read the report but to decide whether the business is worth the price and whether the seller is trustworthy.
Personal presence matters in diligence because many important signals come from site visits, employee behavior, and what the seller does not say.
Financial diligence, operational diligence, and commercial diligence are distinct layers of vetting a business. QOE sits inside financial diligence, while broader diligence also tests how the company runs and how its market is changing.
When to use: Use this when deciding whether a deal needs only financial verification or a broader diligence scope.
Typical engagements at Guardian are around $2 million to $3 million enterprise value, though the firm works on deals as large as $70 million and some $100 million transactions.
Elliot describes the size of the deals his firm serves and where the average client sits.
A basic third-party analysis can cost $5,000 to $10,000, while SMB quality of earnings work commonly lands around $15,000 to $40,000 or $45,000.
The discussion compares lighter-weight diligence with fuller QOE work.
Large accounting firms can charge more than $100,000 for a diligence engagement depending on scope and specificity.
Elliot contrasts SMB pricing with bigger-firm pricing.
Guardian says it can usually get data in 3 to 4 days and deliver the QOE in 4 weeks after receiving the documents.
The episode discusses turnaround expectations for smaller-deal diligence.
Week one of the process is used to eliminate about 80% of deal-breaker issues.
Elliot describes an early triage step in his workflow.
Elliot says most seller misstatements he sees are around 15% off, and in many cases buyers still proceed or renegotiate.
He distinguishes ordinary sloppiness from outright fraud.
He estimates that in about 70% of cases, the financials are imperfect but not so wrong that the deal must die.
The conversation frames how often errors are severe versus manageable.
Use a QOE provider who has worked on deals your size and industry recently.
Why: The relevance of the work depends on whether the team understands the specific deal mechanics and reporting quality in that market.
Ask to see a sample report before hiring a diligence firm.
Why: A buyer should know whether the output will be clear enough to drive an actual purchase decision.
Keep capital providers from seeing messy financials too early.
Why: Bad first impressions can cause lenders and investors to form negative conclusions before the financial story is cleaned up.
Stay present during diligence and spend real time on site.
Why: Many critical signals come from behavior, context, and what the seller avoids saying, not just from spreadsheets.
Treat sell-side QOE as a deal lubricant when a seller is willing to pay for it.
Why: A credible seller-side report can tighten uncertainty and speed up buyer underwriting.
Be prepared to pay meaningful diligence fees upfront rather than betting on rolling them to close.
Why: A provider who is being paid properly is more likely to stay focused on your interests if the deal gets stressful.
Elliot describes cases where taxes, QuickBooks, bank statements, and CIM numbers do not align, causing first-time buyers to worry that the business is broken or inflated. The lesson is that QOE often distinguishes ordinary bookkeeping mess from actual misrepresentation.
Lesson: Not every financial inconsistency is fraud, but every inconsistency must be reconciled before you price the deal.
He says some buyers showed lenders or investors rough financials before QOE had clarified the picture, and those capital providers became stuck on the first impression. In those cases the deal blew up because the financing side could not easily reset its view as the numbers became cleaner.
Lesson: Sequence diligence before broad capital outreach whenever the books are messy.
Elliot says buyers sometimes focus so hard on spreadsheets that they miss operational clues, such as whether the owner is actually on the truck all day or whether employees are comfortable around leadership. The episode uses that example to show why site visits matter.
Lesson: What the seller does in person can reveal transfer risk that the numbers will never show.