For any business owner, understanding the true financial health of your company is more than just a box to check. It is the foundation for making confident, informed decisions. Whether you are planning for growth, seeking outside investment, or exploring a potential sale, having clarity around your earnings is critical. That is where a Quality of Earnings (QoE) engagement comes in.
A QoE engagement goes beyond standard financial statements. It reviews your revenue and expenses through the lens of sustainability, adjusting for non-recurring income, unusual transactions, and accounting treatments that may distort your actual earnings profile. The central question it helps answer is whether your profits are repeatable, reliable, and reflective of normal business operations.
Bringing in a fractional CFO to lead the QoE process, support a lender or PE-mandated engagement, or interpret an existing QoE report during an M&A transaction adds significant strategic value. While a traditional accountant focuses on historical reporting, a CFO brings that plus operational expertise, transaction experience, and the ability to translate financial data into business intelligence. We interpret the numbers, uncover the underlying story, and identify what needs to be explained, normalized, or optimized.
How a Fractional CFO Adds Value During a QoE Engagement
Here are a few ways a fractional CFO adds value during a QoE review:
Focus Area #1: Strategic Expertise - Executive-level financial insight without the cost of a full-time CFO
Focus Area #2: Independent Perspective - Objective review of earnings quality, trends, and anomalies
Focus Area #3: Earnings Bridge - Clear reconciliation from reported to adjusted EBITDA
Focus Area #4: Risk Identification - Early detection of issues before buyer or investor diligence
Focus Area #5: Operational Insight - Recommendations to improve margins, cash flow, and financial readiness
A key part of the QoE engagement involves analyzing and adjusting EBITDA to reflect the true financial performance of the business. This can include stripping out one-time events, correcting for misclassifications, and accounting for timing differences. Even modest adjustments can materially affect valuation, especially when earnings multiples are applied.
Below are examples of some common adjustments by category identified during a QoE engagement:
Category #1: Revenue - Non-recurring sales, project pre-billings, aggressive revenue recognition
Category #2: COGS - Supplier rebates not recorded, inventory misstatements, incorrectly capitalized costs, normalization of discounts
Category #3: Opex - Personal or non-operating costs, one-off legal or advisory fees
Category #4: EBITDA - Add-backs for stock compensation, restructuring charges, or removal of investment income
Category #5: Cash Flow and Balance Sheet -
Working capital normalization, deferred revenue, lease adjustments
These adjustments not only ensure clarity but can also significantly influence deal value.
A QoE engagement is not simply a reporting tool. It is a roadmap for business owners to validate earnings, strengthen internal processes, and prepare for investor scrutiny. It also builds credibility by proactively addressing questions that typically arise during due diligence.
At Flexion Point, our fractional CFOs partner with leadership teams to interpret the financial story behind the numbers. We provide more than just analysis. We help shape your financial narrative, highlight key performance drivers, and offer practical recommendations that drive real business value.
If you are unsure whether your earnings fully reflect the health and sustainability of your business, a fractional CFO can help uncover the answer and prepare you for what comes next.
