THE SELLER SAID $1.2M. THE REAL NUMBER WAS $840K.
I've reviewed dozens of P&Ls for business buyers over the last few years.
The pattern is the same every time.
Seller says EBITDA is $1.2M. You look at the CIM, the broker's deck, the trailing twelve months. Everything lines up. Clean business. Good margins. Fair multiple.
Then you dig in.
Revenue that came from a one-time contract that won't recur. Add-backs the seller swears are legitimate, but half of them require you to also be the seller's cousin to realize. A lake house categorized as a "corporate retreat."
The real EBITDA is $840K.
At a 5x multiple, that's the difference between paying $6M and paying $4.2M.
$1.8 million. That's what bad diligence costs.
And the worst part? Most buyers in the lower mid-market either skip this step entirely or don't know it exists.
What a Quality of Earnings Report Actually Catches
A Quality of Earnings report is the financial diligence that happens before you close on a business acquisition. It's not an audit. It's not a tax return review. It's a forensic look at whether the earnings the seller is claiming are real, recurring, and yours to keep after close.
Here's what gets caught:
Inflated add-backs. The seller adds back $200K in "one-time legal fees," but they've had "one-time" legal fees three years running. That's not an add-back. That's an operating expense.
Revenue that won't transfer. A customer that buys because they golf with the owner every Saturday. A contract that expires 60 days after close. Revenue tied to relationships that walk out the door with the seller.
Working capital surprises. The business needs $400K in working capital to operate, but the seller is pulling $500K out in distributions. You're buying a business that's underfunded on day one.
Internal control issues. The owner's grandson has a company gas card. Personal expenses are buried in COGS. None of it is fraud — it's just bad accounting. But it tells you the books aren't clean, the margins aren't real, and you need more diligence before you trust any number on the P&L.
Some of these adjustments push the number down. Some push it up. The point isn't that every surprise is bad — it's that you need the real number in both directions before you price the deal.
Why Nobody Is Built for the $1–30M Deal
The big QoE firms will take your deal. But their process was designed for $100M+ transactions. You're getting an army of associates, a six-figure fee, a 200-page report three weeks late, and a team that treats your acquisition like a rounding error on their quarterly revenue.
The generalist local firms will take your deal too. But they don't have real QoE depth. They're stretching up from compilations and audits into transaction advisory work they don't do every day.
One group is overbuilt for your deal. The other is underbuilt. Neither is purpose-built.
The $1–30M acquisition market has grown massively. Search funds, ETA buyers, independent sponsors, small PE shops — there are more serious buyers in this range than ever before. And the diligence infrastructure hasn't caught up.
Introducing Bedrock
Today I'm announcing Bedrock — a Quality of Earnings firm I'm building with Michael Girdley, Robyn Smith, and our CEO Will McCurdy.
Will was trained at PwC and RSM — the same firms running diligence on billion-dollar deals. He brought that playbook to Bedrock and built it for the $1–30M buyer. Same rigor. None of the overhead.
We built Bedrock to be the firm that's purpose-built for this market. Same quality as the big firms. None of the bloat. Priced and scoped for buyers who are writing serious checks but aren't PE megafunds.
What that means in practice:
Big firm quality work. The same analysis the top firms run. Normalized earnings, working capital analysis, revenue sustainability, add-back validation. Without the bloated process.
Priced for your deal size. Not a six-figure fee designed for deals twenty times your size. Pricing that makes sense for the deals you're actually doing.
Tech that makes it faster. Purpose-built tools that accelerate the diligence process without cutting corners. You get the report faster. The quality doesn't move.
The Worst Four Words in Acquisitions
"The numbers seem right."
If you're buying a business, or thinking about it, the QoE is the one piece of diligence you cannot skip. It's the difference between buying a $4.2M business and accidentally paying $6M for it.
Get the real number before you close: bedrockqoe.com