Quality of Earnings
Know which earnings actually hold up.
Chief reconciles reported performance, tests proposed adjustments against source evidence, and establishes a normalized earnings base for valuation and underwriting.
01 · Reported
Reported EBITDA is the starting point.
Our analysis starts from underlying financial evidence, with key conclusions supported by their source documentation.
Historical performance
Harbor Manufacturing (illustrative)
| Metric | FY 2024 | FY 2025 | TTM | Source |
|---|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M | Tax return · P&L |
| Gross profit | $2.44M | $2.58M | $2.63M | P&L |
| Operating income | $496K | $470K | $441K | P&L |
| Reported EBITDA | $688K | $652K | $615K | P&L · GL |
| Net income | $362K | $331K | $298K | Tax return |
New to QoE?
Meet the QoE.
Our field guide for SBA 7(a) lenders explains what a QoE should test, how it differs from valuation, and what to look for in a provider.
Inside the report
What a Chief QoE actually contains.
Selected pages from an illustrative report built on the fictional Harbor Manufacturing example. Not a real client or transaction.
Quality of Earnings · Sample analysis
1 / 28
CHIEF
Quality of Earnings Report
Built to meet applicable SBA requirements | Detailed FDD upgrade when engaged
Harbor Manufacturing Co.
Illustrative example · Report date · Prepared for an acquisition lender
- Prepared for
- SBA acquisition lender
- Subject company
- Harbor Manufacturing Co.
- Review periods
- FY 2024 · FY 2025 · TTM
- Transaction
- Initial acquisition
Cover
Page 1
Section 1
Transmittal Letter and Independence
Chief Rebel Inc. performed quality of earnings services in connection with the proposed acquisition of Harbor Manufacturing Co.. This illustrative report is prepared for the benefit of the lender of record.
The procedures were performed independently from source documents. Any seller, broker or third-party earnings analysis would be shown only as a disclosed comparison point, not as the basis for the findings.
This is a non-attest engagement. It is not an audit, review or examination, and no opinion or assurance is expressed on historical or prospective financial statements, internal controls or future performance. This report is not a business valuation or legal, tax or investment advice.
Independence
| Statement | Status |
|---|---|
| No financial interest in the subject company | Confirmed |
| Fee is not contingent on loan approval or a stated result | Confirmed |
| Independent analysis and conclusions, free from conflicting interests in the transaction | Confirmed |
Transmittal letter and independence
Page 2
Section 1, cont.
Definition of Terms
| Term | Definition |
|---|---|
| Adjusted or normalized EBITDA | Reported EBITDA after independently supported adjustments |
| Cash proof | A reconciliation of reported revenue to operating bank deposits |
| Company | Harbor Manufacturing Co. |
| DSCR | Debt service coverage ratio |
| Historical period | FY 2024, FY 2025, TTM |
| Lender | The lender of record |
| Management | The subject company's management |
| QoE | Quality of Earnings |
| SBA SOP | SBA Standard Operating Procedure 50 10 8.1 |
| TTM | Trailing twelve months |
Definitions
Page 3
Section 1, cont.
Table of Contents
| Core SBA QoE report | Detailed FDD and QoE upgrade |
|---|---|
| 1. Cover, transmittal, independence, definitions | 10. Net working capital |
| 2. Key findings | 11. Net debt, debt-like and cash-like items |
| 3.1 to 3.8 Executive summary | 12. Balance sheet diligence |
| 4. Financial reconciliation | 13. Enhanced operating and financial analysis |
| 5. Quality of Earnings | 14. Other transaction-specific analysis |
| 6. Cash proof | Appendix E. Detailed FDD backup schedules |
| 7. Revenue quality | |
| 8. Owner and related-party analysis | |
| 9. Lender considerations and DSC | |
| Appendices A to D |
Table of contents
Page 4
Section 2
Key Findings
The findings that matter most to the credit decision are paired with the evidence behind them and the lender implication.
| Finding | Evidence | Lender implication |
|---|---|---|
| Normalized EBITDA | $811K, independently derived from $615K reported | Establishes the earnings base for DSC |
| Proposed adjustments | +$245K proposed and +$196K supported | Keeps unsupported earnings out of the credit file |
| Business value | $4.8M at 5.9x normalized EBITDA | Compare with the $5.1M purchase price |
| Debt service coverage | 1.34x using $605K annual debt service | Supports lender review of repayment capacity |
| Cash proof and concentration | Operating deposits reconcile within $4K; top customer is 21.8% of TTM revenue | Supports revenue while identifying concentration risk |
Key findings
Page 5
Core SBA QoE
Executive Summary
Sections 3.1 through 3.8
Executive summary divider
Page 6
Section 3.1
Business Overview
Company overview
Harbor Manufacturing Co. is a fictional metal fabrication company with $9.4M of TTM revenue and $811K of normalized EBITDA. The illustrative company employs 42 people from one Cleveland location and maintains accrual-basis books in QuickBooks Enterprise.
Transaction context
The proposed purchase price is $5.1M. The proposed structure includes a $3.6M loan, a $580K seller note and $920K of buyer equity.
Business overview
Page 7
Section 3.2
Transaction Overview and SBA Applicability
| Transaction item | Harbor Manufacturing |
|---|---|
| Transaction type | Initial acquisition |
| Purchase price | $5.1M |
| Senior loan | $3.6M |
| Seller note | $580K |
| Buyer equity | $920K |
| SBA threshold test | $3,000,000 before buyer equity or seller financing |
| QoE required | Yes, purchase price meets or exceeds threshold |
| Intended beneficiary | Lender of record |
This report is built to meet applicable SBA requirements under SOP 50 10 8.1. Final eligibility and the credit decision remain with the lender and SBA.
Transaction and SBA applicability
Page 8
Sections 3.3 to 3.4
Basis of Presentation and Scope
Scope
- •Financial reconciliation
- •Cash proof
- •Earnings normalization
- •Owner and related-party review
- •Revenue quality and sustainability
- •Lender and DSC considerations
Sources
- •General ledger
- •Monthly income statements
- •Balance sheets
- •Bank statements
- •Filed tax returns
- •IRS transcripts
- •Payroll records
- •Management interviews
| Basis item | Presentation |
|---|---|
| Entities in scope | Target company only |
| Periods covered | FY 2024, FY 2025, TTM |
| Currency | USD |
| Accounting basis | Accrual basis |
| Source data received | Complete through the TTM period |
| Open requests | None at report date |
Basis of presentation and scope
Page 9
Sections 3.3 to 3.4, cont.
Basis of Presentation and Scope
Limitations
- •This is a non-attest engagement and provides no audit opinion or assurance.
- •The financial information analyzed is provided by the company and tested only through the procedures described.
- •This report is not legal advice and is not a business valuation.
- •Conclusions are as of the report date and do not cover later events.
- •Legal, environmental, tax structuring, technology and insurance diligence are outside scope.
- •A full forecast or projection model is outside the core QoE scope.
If historical normalized earnings do not support the proposed structure, the lender determines what additional projection analysis is required before funding.
| Item | Status |
|---|---|
| Management interviews | Completed with seller and controller |
| Complete document set received | Received through TTM period |
| Subsequent-events update | Completed through illustrative report date |
| Reliance | Lender of record |
Scope limitations
Page 10
Section 3.5
Quality of Earnings Summary
Reported EBITDA of $615K is adjusted by +$196K of independently supported items to reach normalized EBITDA of $811K.
| Adjustment | Proposed | Supported | Conclusion |
|---|---|---|---|
| Owner compensation | +$120K | +$120K | Supported |
| One-time legal expense | +$45K | +$45K | Supported |
| Related-party rent | +$35K | +$35K | Supported |
| Non-recurring revenue | −$22K | −$22K | Supported |
| Vehicle / personal expenses | +$36K | +$18K | Partial |
| Growth investment | +$31K | $0K | Excluded |
| Total | +$245K | +$196K |
Reported to normalized EBITDA
Quality of Earnings summary
Page 11
Sections 3.6 to 3.7
Cash Proof and Revenue Quality Summary
Revenue by customer
| Customer | FY 2024 | FY 2025 | TTM | TTM share |
|---|---|---|---|---|
| Customer A | $1780K | $1910K | $2050K | 21.8% |
| Customer B | $1320K | $1410K | $1520K | 16.2% |
| Customer C | $980K | $1110K | $1180K | 12.6% |
| Customer D | $730K | $820K | $910K | 9.7% |
| Customer E | $610K | $690K | $760K | 8.1% |
| Customers 6 to 10 | $1500K | $1680K | $1760K | 18.7% |
| All other customers | $1180K | $1280K | $1220K | 13.0% |
| Total | $8.1M | $8.9M | $9.4M | 100% |
Proof of revenues
Cash received per bank statements is compared with revenue recorded in the accounting ledger. Reconciling items include accounts receivable timing, deferred revenue, refunds and non-operating cash.
| Test | Result |
|---|---|
| Reported revenue, TTM | $9.4M |
| Operating deposits tested | $9.414M |
| Unexplained difference | ($4K), or 0.04% |
| Conclusion | Reported revenue corroborated |
Expected versus operating deposits
Cash proof and revenue quality summary
Page 12
Section 3.8
Other Diligence Considerations
| Item | Status | Recommended follow-up |
|---|---|---|
| Pending litigation | None disclosed or identified | Confirm representation at closing |
| Related-party lease terms | Above-market rent normalized | Execute market-rate lease at closing |
| Data refresh | Completed through TTM period | Refresh if closing is delayed more than 60 days |
| Other open items | No material open items | See Appendix D for completed requests |
Other diligence considerations
Page 13
Section 4
Financial Reconciliation
Book results are reconciled to applicable tax returns, with differences investigated and dispositioned. Accountant-prepared statements and IRS transcripts are compared where available. The illustrative schedules below show the revenue reconciliation.
| $ in thousands | FY 2024 | FY 2025 | TTM | Source |
|---|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M | Tax return · P&L |
| Gross profit | $2.44M | $2.58M | $2.63M | P&L |
| Operating income | $496K | $470K | $441K | P&L |
| Reported EBITDA | $688K | $652K | $615K | P&L · GL |
| Net income | $362K | $331K | $298K | Tax return |
Revenue growth and margin conversion
Four-way reconciliation status, reported revenue
| Source | FY 2024 | FY 2025 | Status |
|---|---|---|---|
| Internal books | $8.1M | $8.9M | Reconciled |
| Accountant-prepared statements | $8.1M | $8.9M | Reconciled |
| Filed tax return | $8.1M | $8.9M | Reconciled |
| IRS transcript | $8.1M | $8.9M | Matched to filed return |
Financial reconciliation
Page 14
Core SBA QoE
Quality of Earnings
Section 5
Quality of Earnings divider
Page 15
Section 5
Quality of Earnings
The analysis adjusts reported EBITDA for supported non-recurring, non-operating and owner-related items. Management proposals are kept separate from Chief's conclusions.
| Adjustment | Proposed | Supported | Evidence |
|---|---|---|---|
| Owner compensation | +$120K | +$120K | General ledger · Payroll · Tax return |
| One-time legal expense | +$45K | +$45K | Legal invoices · Settlement · GL |
| Related-party rent | +$35K | +$35K | Lease · Market rent comparison |
Chief adjustments
- •Owner compensation: Seller salary exceeds the documented cost of a market-rate replacement general manager.
- •One-time legal expense: Dispute settled in FY 2025 with no activity in the TTM period.
- •Related-party rent: Rent paid to a seller-owned entity exceeds market. A market-rate lease is signed at close.
Quality of Earnings adjustments
Page 16
Section 5, cont.
Quality of Earnings
| Adjustment | Proposed | Supported | Evidence |
|---|---|---|---|
| Non-recurring revenue | −$22K | −$22K | Sales ledger · Invoice |
| Vehicle / personal expenses | +$36K | +$18K | Bank statements · GL · Management explanation |
| Growth investment | +$31K | $0K | Management explanation only |
- •Non-recurring revenue: One-time equipment resale removed from earnings because it isn't expected to repeat.
- •Vehicle / personal expenses: $18K traces to a vehicle used by the seller's family. The work truck remains an operating expense.
- •Growth investment: Trade-show and marketing spend recurs in all three periods, so it stays in operating expense.
Management proposed
+$245K
Chief supported
+$196K
Difference
$49K
Quality of Earnings adjustments continued
Page 17
Section 5, cont.
Quality of Earnings
Pro Forma Adjustments
Pro forma adjustments are shown only when they are separately identified, supported and appropriate to the engagement.
| Adjustment | Basis | Amount | Conclusion |
|---|---|---|---|
| Buyer salary step-up | Buyer operating plan | ($35K) | Shown separately from normalized EBITDA |
| Health insurance normalization | Post-close benefits quote | ($12K) | Shown separately from normalized EBITDA |
| Total pro forma adjustments | ($47K) | Pro forma EBITDA of $764K |
Pro forma adjustments
Page 18
Section 6
Cash Proof
Monthly cash inflows from bank statements are reconciled to reported revenue. Adjustments may include changes in accounts receivable, deferred revenue, refunds, transfers and non-operating cash.
| $ in thousands | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Reported revenue | $8.1M | $8.9M | $9.4M |
| Accounts receivable timing | $110K | $80K | $65K |
| Deferred revenue | −$20K | −$30K | −$25K |
| Refunds and other items | −$15K | −$18K | −$22K |
| Expected deposits | $8175K | $8932K | $9418K |
| Operating deposits | $8170K | $8937K | $9414K |
| Unexplained difference | −$5K | $5K | −$4K |
Cash proof by period
Cash proof
Page 19
Section 7
Revenue Quality and Customer Concentration
Revenue by customer
| Customer | TTM | Share |
|---|---|---|
| Customer A | $2050K | 21.8% |
| Customer B | $1520K | 16.2% |
| Customer C | $1180K | 12.6% |
| Customer D | $910K | 9.7% |
| Customer E | $760K | 8.1% |
| Customers 6 to 10 | $1760K | 18.7% |
| All other customers | $1220K | 13.0% |
| Total | $9.4M | 100% |
TTM customer concentration
Customer movement
| Measure | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Churn | $190K | $160K | $145K |
| New | $420K | $510K | $475K |
| Increase | $610K | $740K | $690K |
| Decrease | $270K | $300K | $310K |
Revenue quality and concentration
Page 20
Section 7, cont.
Revenue Quality, Mix and Seasonality
Revenue is reviewed by service line or segment, recurring versus project-based work, customer tenure and seasonality across the periods available.
| Product or service | FY 2024 | FY 2025 | TTM | TTM share |
|---|---|---|---|---|
| Precision assemblies | $2380K | $2660K | $2840K | 30.2% |
| Fabricated enclosures | $1760K | $1900K | $1990K | 21.2% |
| Machine components | $1420K | $1570K | $1680K | 17.9% |
| Repair and rework | $1010K | $1110K | $1180K | 12.6% |
| Tooling and setup | $850K | $910K | $930K | 9.9% |
| Other fabrication | $680K | $750K | $780K | 8.3% |
| Total | $8.1M | $8.9M | $9.4M | 100% |
Sustainability conclusions
| Question | Conclusion |
|---|---|
| Recurring versus project revenue | 78% from repeat customers in the TTM period |
| Seasonality | Monthly revenue stays within 9% of the TTM monthly average |
| Margin sustainability | TTM gross margin is 28.0%, below 29.0% in FY 2025 |
| Customer retention | Top five customers remained active in all periods |
Revenue mix and seasonality
Page 21
Section 8
Owner and Related-Party Analysis
Owner compensation, family payroll and related-party activity are isolated, tested against available evidence and checked for double counting.
| Item | Proposed | Supported | Evidence | Conclusion |
|---|---|---|---|---|
| Owner compensation | +$120K | +$120K | General ledger · Payroll · Tax return | Supported |
| Related-party rent | +$35K | +$35K | Lease · Market rent comparison | Supported |
| Vehicle / personal expenses | +$36K | +$18K | Bank statements · GL · Management explanation | Partial |
Owner and related-party analysis
Page 22
Section 9
Lender Considerations and Debt Service Coverage
Historical and normalized coverage are presented separately. Neither figure is a lending decision.
| $ in thousands | TTM reported | TTM normalized |
|---|---|---|
| EBITDA | $615K | $811K |
| Annual debt service | $605K | $605K |
| DSCR | 1.02x | 1.34x |
Transaction structure
| Source | Amount |
|---|---|
| Senior loan | $3.6M |
| Seller note | $580K |
| Buyer equity | $920K |
| Purchase price | $5.1M |
Lender considerations and DSC
Page 23
Core SBA QoE and Detailed FDD
Appendices
Appendices A through D support the Core SBA QoE. Appendix E supports the Detailed FDD upgrade only.
Appendices divider
Page 24
Appendix A
Detailed QoE Adjustment Schedule
| Adjustment | Proposed | Supported | Status | Evidence |
|---|---|---|---|---|
| Owner compensation | +$120K | +$120K | Supported | General ledger · Payroll · Tax return |
| One-time legal expense | +$45K | +$45K | Supported | Legal invoices · Settlement · GL |
| Related-party rent | +$35K | +$35K | Supported | Lease · Market rent comparison |
| Non-recurring revenue | −$22K | −$22K | Supported | Sales ledger · Invoice |
| Vehicle / personal expenses | +$36K | +$18K | Partial | Bank statements · GL · Management explanation |
| Growth investment | +$31K | $0K | Excluded | Management explanation only |
| Total | +$245K | +$196K |
Appendix A, detailed adjustment schedule
Page 25
Appendix B
Monthly P&L and Monthly Quality of Earnings
| $ in thousands | Jan | Feb | Mar | Apr | May | Jun |
|---|---|---|---|---|---|---|
| Revenue | 710 | 735 | 760 | 775 | 790 | 805 |
| Reported EBITDA | 42 | 44 | 48 | 47 | 51 | 54 |
| Supported adjustments | 14 | 15 | 17 | 16 | 18 | 17 |
| Normalized EBITDA | 56 | 59 | 65 | 63 | 69 | 71 |
| $ in thousands | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|
| Revenue | 815 | 800 | 785 | 825 | 790 | 810 |
| Reported EBITDA | 56 | 52 | 49 | 60 | 54 | 58 |
| Supported adjustments | 16 | 15 | 14 | 18 | 17 | 19 |
| Normalized EBITDA | 72 | 67 | 63 | 78 | 71 | 77 |
Monthly revenue and EBITDA margin
Appendix B, monthly P&L and QoE
Page 26
Appendix C
Cash Proof, Concentration and Tax Reconciliation Detail
| Procedure | Source | Result | Status |
|---|---|---|---|
| Cash proof | Bank statements and general ledger | TTM difference of ($4K), 0.04% | Completed |
| Customer concentration | Sales ledger | Top customer is 21.8% of TTM revenue | Completed |
| Tax return reconciliation | Filed returns and IRS transcripts | Revenue matched in FY 2024 and FY 2025 | Completed |
Approved financial anchors
| Measure | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M |
| Gross profit | $2.44M | $2.58M | $2.63M |
| Reported EBITDA | $688K | $652K | $615K |
| Net income | $362K | $331K | $298K |
Appendix C, cash proof and reconciliation detail
Page 27
Appendix D
Source Documents and Open Items
| Source document | Period | Status |
|---|---|---|
| Internal financial statements | FY 2024, FY 2025, TTM | Received and reconciled |
| General ledger | TTM | Received and analyzed |
| Bank statements | TTM | Received and cash proof completed |
| Filed tax returns | FY 2024 and FY 2025 | Received and reconciled |
| IRS transcripts | FY 2024 and FY 2025 | Received and matched |
| Payroll registers | TTM | Received and tested |
| Lease and related-party documents | Current and proposed | Received and tested |
| Transaction documents | Current draft | Received and reviewed |
Completed items and management Q&A
| Item | Owner | Status |
|---|---|---|
| Replacement manager compensation | Seller | Supported by market benchmark |
| Related-party lease at closing | Buyer counsel | Draft market-rate lease reviewed |
| Family vehicle expenses | Controller | $18K supported, remainder excluded |
Appendix D, source documents and open items
Page 28
Swipe, scroll, or use the arrows to turn pages.
The $15K QoE + Detailed FDD goes further than the SBA minimum, adding schedules like these.
QoE + Detailed FDD · Sample analysis
1 / 35
CHIEF
Quality of Earnings Report
Built to meet applicable SBA requirements | Detailed FDD upgrade when engaged
Harbor Manufacturing Co.
Illustrative example · Report date · Prepared for an acquisition lender
- Prepared for
- SBA acquisition lender
- Subject company
- Harbor Manufacturing Co.
- Review periods
- FY 2024 · FY 2025 · TTM
- Transaction
- Initial acquisition
Cover
Page 1
Section 1
Transmittal Letter and Independence
Chief Rebel Inc. performed quality of earnings services in connection with the proposed acquisition of Harbor Manufacturing Co.. This illustrative report is prepared for the benefit of the lender of record.
The procedures were performed independently from source documents. Any seller, broker or third-party earnings analysis would be shown only as a disclosed comparison point, not as the basis for the findings.
This is a non-attest engagement. It is not an audit, review or examination, and no opinion or assurance is expressed on historical or prospective financial statements, internal controls or future performance. This report is not a business valuation or legal, tax or investment advice.
Independence
| Statement | Status |
|---|---|
| No financial interest in the subject company | Confirmed |
| Fee is not contingent on loan approval or a stated result | Confirmed |
| Independent analysis and conclusions, free from conflicting interests in the transaction | Confirmed |
Transmittal letter and independence
Page 2
Section 1, cont.
Definition of Terms
| Term | Definition |
|---|---|
| Adjusted or normalized EBITDA | Reported EBITDA after independently supported adjustments |
| Cash proof | A reconciliation of reported revenue to operating bank deposits |
| Company | Harbor Manufacturing Co. |
| DSCR | Debt service coverage ratio |
| Historical period | FY 2024, FY 2025, TTM |
| Lender | The lender of record |
| Management | The subject company's management |
| QoE | Quality of Earnings |
| SBA SOP | SBA Standard Operating Procedure 50 10 8.1 |
| TTM | Trailing twelve months |
Definitions
Page 3
Section 1, cont.
Table of Contents
| Core SBA QoE report | Detailed FDD and QoE upgrade |
|---|---|
| 1. Cover, transmittal, independence, definitions | 10. Net working capital |
| 2. Key findings | 11. Net debt, debt-like and cash-like items |
| 3.1 to 3.8 Executive summary | 12. Balance sheet diligence |
| 4. Financial reconciliation | 13. Enhanced operating and financial analysis |
| 5. Quality of Earnings | 14. Other transaction-specific analysis |
| 6. Cash proof | Appendix E. Detailed FDD backup schedules |
| 7. Revenue quality | |
| 8. Owner and related-party analysis | |
| 9. Lender considerations and DSC | |
| Appendices A to D |
Table of contents
Page 4
Section 2
Key Findings
The findings that matter most to the credit decision are paired with the evidence behind them and the lender implication.
| Finding | Evidence | Lender implication |
|---|---|---|
| Normalized EBITDA | $811K, independently derived from $615K reported | Establishes the earnings base for DSC |
| Proposed adjustments | +$245K proposed and +$196K supported | Keeps unsupported earnings out of the credit file |
| Business value | $4.8M at 5.9x normalized EBITDA | Compare with the $5.1M purchase price |
| Debt service coverage | 1.34x using $605K annual debt service | Supports lender review of repayment capacity |
| Cash proof and concentration | Operating deposits reconcile within $4K; top customer is 21.8% of TTM revenue | Supports revenue while identifying concentration risk |
Key findings
Page 5
Core SBA QoE
Executive Summary
Sections 3.1 through 3.8
Executive summary divider
Page 6
Section 3.1
Business Overview
Company overview
Harbor Manufacturing Co. is a fictional metal fabrication company with $9.4M of TTM revenue and $811K of normalized EBITDA. The illustrative company employs 42 people from one Cleveland location and maintains accrual-basis books in QuickBooks Enterprise.
Transaction context
The proposed purchase price is $5.1M. The proposed structure includes a $3.6M loan, a $580K seller note and $920K of buyer equity.
Business overview
Page 7
Section 3.2
Transaction Overview and SBA Applicability
| Transaction item | Harbor Manufacturing |
|---|---|
| Transaction type | Initial acquisition |
| Purchase price | $5.1M |
| Senior loan | $3.6M |
| Seller note | $580K |
| Buyer equity | $920K |
| SBA threshold test | $3,000,000 before buyer equity or seller financing |
| QoE required | Yes, purchase price meets or exceeds threshold |
| Intended beneficiary | Lender of record |
This report is built to meet applicable SBA requirements under SOP 50 10 8.1. Final eligibility and the credit decision remain with the lender and SBA.
Transaction and SBA applicability
Page 8
Sections 3.3 to 3.4
Basis of Presentation and Scope
Scope
- •Financial reconciliation
- •Cash proof
- •Earnings normalization
- •Owner and related-party review
- •Revenue quality and sustainability
- •Lender and DSC considerations
Sources
- •General ledger
- •Monthly income statements
- •Balance sheets
- •Bank statements
- •Filed tax returns
- •IRS transcripts
- •Payroll records
- •Management interviews
| Basis item | Presentation |
|---|---|
| Entities in scope | Target company only |
| Periods covered | FY 2024, FY 2025, TTM |
| Currency | USD |
| Accounting basis | Accrual basis |
| Source data received | Complete through the TTM period |
| Open requests | None at report date |
Basis of presentation and scope
Page 9
Sections 3.3 to 3.4, cont.
Basis of Presentation and Scope
Limitations
- •This is a non-attest engagement and provides no audit opinion or assurance.
- •The financial information analyzed is provided by the company and tested only through the procedures described.
- •This report is not legal advice and is not a business valuation.
- •Conclusions are as of the report date and do not cover later events.
- •Legal, environmental, tax structuring, technology and insurance diligence are outside scope.
- •A full forecast or projection model is outside the core QoE scope.
If historical normalized earnings do not support the proposed structure, the lender determines what additional projection analysis is required before funding.
| Item | Status |
|---|---|
| Management interviews | Completed with seller and controller |
| Complete document set received | Received through TTM period |
| Subsequent-events update | Completed through illustrative report date |
| Reliance | Lender of record |
Scope limitations
Page 10
Section 3.5
Quality of Earnings Summary
Reported EBITDA of $615K is adjusted by +$196K of independently supported items to reach normalized EBITDA of $811K.
| Adjustment | Proposed | Supported | Conclusion |
|---|---|---|---|
| Owner compensation | +$120K | +$120K | Supported |
| One-time legal expense | +$45K | +$45K | Supported |
| Related-party rent | +$35K | +$35K | Supported |
| Non-recurring revenue | −$22K | −$22K | Supported |
| Vehicle / personal expenses | +$36K | +$18K | Partial |
| Growth investment | +$31K | $0K | Excluded |
| Total | +$245K | +$196K |
Reported to normalized EBITDA
Quality of Earnings summary
Page 11
Sections 3.6 to 3.7
Cash Proof and Revenue Quality Summary
Revenue by customer
| Customer | FY 2024 | FY 2025 | TTM | TTM share |
|---|---|---|---|---|
| Customer A | $1780K | $1910K | $2050K | 21.8% |
| Customer B | $1320K | $1410K | $1520K | 16.2% |
| Customer C | $980K | $1110K | $1180K | 12.6% |
| Customer D | $730K | $820K | $910K | 9.7% |
| Customer E | $610K | $690K | $760K | 8.1% |
| Customers 6 to 10 | $1500K | $1680K | $1760K | 18.7% |
| All other customers | $1180K | $1280K | $1220K | 13.0% |
| Total | $8.1M | $8.9M | $9.4M | 100% |
Proof of revenues
Cash received per bank statements is compared with revenue recorded in the accounting ledger. Reconciling items include accounts receivable timing, deferred revenue, refunds and non-operating cash.
| Test | Result |
|---|---|
| Reported revenue, TTM | $9.4M |
| Operating deposits tested | $9.414M |
| Unexplained difference | ($4K), or 0.04% |
| Conclusion | Reported revenue corroborated |
Expected versus operating deposits
Cash proof and revenue quality summary
Page 12
Section 3.8
Other Diligence Considerations
| Item | Status | Recommended follow-up |
|---|---|---|
| Pending litigation | None disclosed or identified | Confirm representation at closing |
| Related-party lease terms | Above-market rent normalized | Execute market-rate lease at closing |
| Data refresh | Completed through TTM period | Refresh if closing is delayed more than 60 days |
| Other open items | No material open items | See Appendix D for completed requests |
Other diligence considerations
Page 13
Section 4
Financial Reconciliation
Book results are reconciled to applicable tax returns, with differences investigated and dispositioned. Accountant-prepared statements and IRS transcripts are compared where available. The illustrative schedules below show the revenue reconciliation.
| $ in thousands | FY 2024 | FY 2025 | TTM | Source |
|---|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M | Tax return · P&L |
| Gross profit | $2.44M | $2.58M | $2.63M | P&L |
| Operating income | $496K | $470K | $441K | P&L |
| Reported EBITDA | $688K | $652K | $615K | P&L · GL |
| Net income | $362K | $331K | $298K | Tax return |
Revenue growth and margin conversion
Four-way reconciliation status, reported revenue
| Source | FY 2024 | FY 2025 | Status |
|---|---|---|---|
| Internal books | $8.1M | $8.9M | Reconciled |
| Accountant-prepared statements | $8.1M | $8.9M | Reconciled |
| Filed tax return | $8.1M | $8.9M | Reconciled |
| IRS transcript | $8.1M | $8.9M | Matched to filed return |
Financial reconciliation
Page 14
Core SBA QoE
Quality of Earnings
Section 5
Quality of Earnings divider
Page 15
Section 5
Quality of Earnings
The analysis adjusts reported EBITDA for supported non-recurring, non-operating and owner-related items. Management proposals are kept separate from Chief's conclusions.
| Adjustment | Proposed | Supported | Evidence |
|---|---|---|---|
| Owner compensation | +$120K | +$120K | General ledger · Payroll · Tax return |
| One-time legal expense | +$45K | +$45K | Legal invoices · Settlement · GL |
| Related-party rent | +$35K | +$35K | Lease · Market rent comparison |
Chief adjustments
- •Owner compensation: Seller salary exceeds the documented cost of a market-rate replacement general manager.
- •One-time legal expense: Dispute settled in FY 2025 with no activity in the TTM period.
- •Related-party rent: Rent paid to a seller-owned entity exceeds market. A market-rate lease is signed at close.
Quality of Earnings adjustments
Page 16
Section 5, cont.
Quality of Earnings
| Adjustment | Proposed | Supported | Evidence |
|---|---|---|---|
| Non-recurring revenue | −$22K | −$22K | Sales ledger · Invoice |
| Vehicle / personal expenses | +$36K | +$18K | Bank statements · GL · Management explanation |
| Growth investment | +$31K | $0K | Management explanation only |
- •Non-recurring revenue: One-time equipment resale removed from earnings because it isn't expected to repeat.
- •Vehicle / personal expenses: $18K traces to a vehicle used by the seller's family. The work truck remains an operating expense.
- •Growth investment: Trade-show and marketing spend recurs in all three periods, so it stays in operating expense.
Management proposed
+$245K
Chief supported
+$196K
Difference
$49K
Quality of Earnings adjustments continued
Page 17
Section 5, cont.
Quality of Earnings
Pro Forma Adjustments
Pro forma adjustments are shown only when they are separately identified, supported and appropriate to the engagement.
| Adjustment | Basis | Amount | Conclusion |
|---|---|---|---|
| Buyer salary step-up | Buyer operating plan | ($35K) | Shown separately from normalized EBITDA |
| Health insurance normalization | Post-close benefits quote | ($12K) | Shown separately from normalized EBITDA |
| Total pro forma adjustments | ($47K) | Pro forma EBITDA of $764K |
Pro forma adjustments
Page 18
Section 6
Cash Proof
Monthly cash inflows from bank statements are reconciled to reported revenue. Adjustments may include changes in accounts receivable, deferred revenue, refunds, transfers and non-operating cash.
| $ in thousands | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Reported revenue | $8.1M | $8.9M | $9.4M |
| Accounts receivable timing | $110K | $80K | $65K |
| Deferred revenue | −$20K | −$30K | −$25K |
| Refunds and other items | −$15K | −$18K | −$22K |
| Expected deposits | $8175K | $8932K | $9418K |
| Operating deposits | $8170K | $8937K | $9414K |
| Unexplained difference | −$5K | $5K | −$4K |
Cash proof by period
Cash proof
Page 19
Section 7
Revenue Quality and Customer Concentration
Revenue by customer
| Customer | TTM | Share |
|---|---|---|
| Customer A | $2050K | 21.8% |
| Customer B | $1520K | 16.2% |
| Customer C | $1180K | 12.6% |
| Customer D | $910K | 9.7% |
| Customer E | $760K | 8.1% |
| Customers 6 to 10 | $1760K | 18.7% |
| All other customers | $1220K | 13.0% |
| Total | $9.4M | 100% |
TTM customer concentration
Customer movement
| Measure | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Churn | $190K | $160K | $145K |
| New | $420K | $510K | $475K |
| Increase | $610K | $740K | $690K |
| Decrease | $270K | $300K | $310K |
Revenue quality and concentration
Page 20
Section 7, cont.
Revenue Quality, Mix and Seasonality
Revenue is reviewed by service line or segment, recurring versus project-based work, customer tenure and seasonality across the periods available.
| Product or service | FY 2024 | FY 2025 | TTM | TTM share |
|---|---|---|---|---|
| Precision assemblies | $2380K | $2660K | $2840K | 30.2% |
| Fabricated enclosures | $1760K | $1900K | $1990K | 21.2% |
| Machine components | $1420K | $1570K | $1680K | 17.9% |
| Repair and rework | $1010K | $1110K | $1180K | 12.6% |
| Tooling and setup | $850K | $910K | $930K | 9.9% |
| Other fabrication | $680K | $750K | $780K | 8.3% |
| Total | $8.1M | $8.9M | $9.4M | 100% |
Sustainability conclusions
| Question | Conclusion |
|---|---|
| Recurring versus project revenue | 78% from repeat customers in the TTM period |
| Seasonality | Monthly revenue stays within 9% of the TTM monthly average |
| Margin sustainability | TTM gross margin is 28.0%, below 29.0% in FY 2025 |
| Customer retention | Top five customers remained active in all periods |
Revenue mix and seasonality
Page 21
Section 8
Owner and Related-Party Analysis
Owner compensation, family payroll and related-party activity are isolated, tested against available evidence and checked for double counting.
| Item | Proposed | Supported | Evidence | Conclusion |
|---|---|---|---|---|
| Owner compensation | +$120K | +$120K | General ledger · Payroll · Tax return | Supported |
| Related-party rent | +$35K | +$35K | Lease · Market rent comparison | Supported |
| Vehicle / personal expenses | +$36K | +$18K | Bank statements · GL · Management explanation | Partial |
Owner and related-party analysis
Page 22
Section 9
Lender Considerations and Debt Service Coverage
Historical and normalized coverage are presented separately. Neither figure is a lending decision.
| $ in thousands | TTM reported | TTM normalized |
|---|---|---|
| EBITDA | $615K | $811K |
| Annual debt service | $605K | $605K |
| DSCR | 1.02x | 1.34x |
Transaction structure
| Source | Amount |
|---|---|
| Senior loan | $3.6M |
| Seller note | $580K |
| Buyer equity | $920K |
| Purchase price | $5.1M |
Lender considerations and DSC
Page 23
Detailed FDD upgrade
Detailed FDD / QoE Upgrade
Sections 10 through 14 appear only when the Detailed FDD product is separately engaged.
Detailed FDD divider
Page 24
Section 10
Net Working Capital
Net working capital is presented on a cash-free and debt-free basis. Non-recurring and non-operating items identified during the QoE are considered without treating the analysis as a purchase agreement peg.
| $ in thousands | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Accounts receivable | $1220K | $1335K | $1410K |
| Inventory | $860K | $925K | $980K |
| Other current assets | $110K | $125K | $130K |
| Accounts payable | −$740K | −$805K | −$860K |
| Accrued liabilities | −$290K | −$315K | −$335K |
| Adjusted net working capital | $1160K | $1265K | $1325K |
Working capital investment versus revenue
Adjustments to net working capital
| Adjustment | Treatment | Amount |
|---|---|---|
| Cash | Removed for cash-free presentation | ($275K) |
| Current debt | Removed for debt-free presentation | ($595K) |
| Slow-moving inventory reserve | Included in normalized inventory | ($38K) |
Net working capital
Page 25
Section 11
Net Debt and Debt-Like Items
Balances explicitly excluded from the transaction or related to prior ownership are identified for consideration in the purchase price adjustment.
| Item | Finding | Amount | Treatment |
|---|---|---|---|
| Equipment loans | Three secured equipment notes | $410K | Debt at close |
| Revolver | Operating line balance | $185K | Debt at close |
| Other overdrafts | None identified | $0K | No adjustment |
| Cash | Operating accounts | ($275K) | Cash-free presentation |
| Accrued interest | Equipment notes | $9K | Debt-like at close |
| Capital lease obligations | Two production assets | $96K | Debt-like at close |
| Pensions | No defined-benefit plan | $0K | No adjustment |
| Tax liabilities | Current payroll and sales tax | $34K | Working capital |
| Deferred income | Customer deposits | $72K | Working capital |
| Net debt and debt-like items | $425K | Excludes working-capital items |
Debt and debt-like composition
Net debt and debt-like items
Page 26
Section 12
Balance Sheet Diligence
Triggered sub-areas are tested based on the transaction and the records received.
| Assets | FY 2025 | TTM | Finding |
|---|---|---|---|
| Cash | $248K | $275K | Agreed to bank statements |
| Accounts receivable | $1,335K | $1,410K | Aging tested, no material exception |
| Inventory | $925K | $980K | Slow-moving reserve of $38K recorded |
| Property and equipment | $1,460K | $1,385K | Fixed-asset rollforward reconciled |
| Other assets | $142K | $151K | Prepaids and deposits supported |
| Liabilities | FY 2025 | TTM | Finding |
|---|---|---|---|
| Accounts payable | $805K | $860K | Aging reconciled to ledger |
| Accrued liabilities | $315K | $335K | Payroll and operating accruals supported |
| Deferred revenue | $64K | $72K | Customer deposits identified |
| Debt | $672K | $595K | Agreed to lender statements |
| Other liabilities | $88K | $91K | No material unrecorded items identified |
Balance sheet diligence
Page 27
Section 13
Enhanced Operating and Financial Analysis
| $ in thousands | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M |
| Gross profit | $2.44M | $2.58M | $2.63M |
| Operating income | $496K | $470K | $441K |
| Reported EBITDA | $688K | $652K | $615K |
| Net income | $362K | $331K | $298K |
Data-supported operating analysis
| Measure | FY 2024 | FY 2025 | TTM | Conclusion |
|---|---|---|---|---|
| Orders shipped | 3,840 | 4,120 | 4,310 | Volume increased 4.6% in the TTM period |
| Average order value | $2.1K | $2.2K | $2.2K | Price and mix contributed to growth |
| Machine utilization | 71% | 74% | 76% | Capacity remains available |
| Backlog | $1.15M | $1.28M | $1.34M | About seven weeks of TTM revenue |
| Average headcount | 39 | 41 | 42 | Labor scaled below revenue growth |
Enhanced operating and financial analysis
Page 28
Section 14
Other Transaction-Specific Analysis
- •Forecast versus actual, where the seller or buyer prepared projections
- •Budget to actual, where budgets exist and are used in the transaction
- •Other analyses specifically selected in the engagement
| Measure | Seller forecast | TTM actual | Variance | Conclusion |
|---|---|---|---|---|
| Revenue | $9.2M | $9.4M | +$0.2M | 2.2% above plan |
| Gross profit | $2.67M | $2.63M | ($0.04M) | Margin below plan |
| Reported EBITDA | $640K | $615K | ($25K) | 3.9% below plan |
Forecast versus actual and attainment
Other transaction-specific analysis
Page 29
Core SBA QoE and Detailed FDD
Appendices
Appendices A through D support the Core SBA QoE. Appendix E supports the Detailed FDD upgrade only.
Appendices divider
Page 30
Appendix A
Detailed QoE Adjustment Schedule
| Adjustment | Proposed | Supported | Status | Evidence |
|---|---|---|---|---|
| Owner compensation | +$120K | +$120K | Supported | General ledger · Payroll · Tax return |
| One-time legal expense | +$45K | +$45K | Supported | Legal invoices · Settlement · GL |
| Related-party rent | +$35K | +$35K | Supported | Lease · Market rent comparison |
| Non-recurring revenue | −$22K | −$22K | Supported | Sales ledger · Invoice |
| Vehicle / personal expenses | +$36K | +$18K | Partial | Bank statements · GL · Management explanation |
| Growth investment | +$31K | $0K | Excluded | Management explanation only |
| Total | +$245K | +$196K |
Appendix A, detailed adjustment schedule
Page 31
Appendix B
Monthly P&L and Monthly Quality of Earnings
| $ in thousands | Jan | Feb | Mar | Apr | May | Jun |
|---|---|---|---|---|---|---|
| Revenue | 710 | 735 | 760 | 775 | 790 | 805 |
| Reported EBITDA | 42 | 44 | 48 | 47 | 51 | 54 |
| Supported adjustments | 14 | 15 | 17 | 16 | 18 | 17 |
| Normalized EBITDA | 56 | 59 | 65 | 63 | 69 | 71 |
| $ in thousands | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|
| Revenue | 815 | 800 | 785 | 825 | 790 | 810 |
| Reported EBITDA | 56 | 52 | 49 | 60 | 54 | 58 |
| Supported adjustments | 16 | 15 | 14 | 18 | 17 | 19 |
| Normalized EBITDA | 72 | 67 | 63 | 78 | 71 | 77 |
Monthly revenue and EBITDA margin
Appendix B, monthly P&L and QoE
Page 32
Appendix C
Cash Proof, Concentration and Tax Reconciliation Detail
| Procedure | Source | Result | Status |
|---|---|---|---|
| Cash proof | Bank statements and general ledger | TTM difference of ($4K), 0.04% | Completed |
| Customer concentration | Sales ledger | Top customer is 21.8% of TTM revenue | Completed |
| Tax return reconciliation | Filed returns and IRS transcripts | Revenue matched in FY 2024 and FY 2025 | Completed |
Approved financial anchors
| Measure | FY 2024 | FY 2025 | TTM |
|---|---|---|---|
| Revenue | $8.1M | $8.9M | $9.4M |
| Gross profit | $2.44M | $2.58M | $2.63M |
| Reported EBITDA | $688K | $652K | $615K |
| Net income | $362K | $331K | $298K |
Appendix C, cash proof and reconciliation detail
Page 33
Appendix D
Source Documents and Open Items
| Source document | Period | Status |
|---|---|---|
| Internal financial statements | FY 2024, FY 2025, TTM | Received and reconciled |
| General ledger | TTM | Received and analyzed |
| Bank statements | TTM | Received and cash proof completed |
| Filed tax returns | FY 2024 and FY 2025 | Received and reconciled |
| IRS transcripts | FY 2024 and FY 2025 | Received and matched |
| Payroll registers | TTM | Received and tested |
| Lease and related-party documents | Current and proposed | Received and tested |
| Transaction documents | Current draft | Received and reviewed |
Completed items and management Q&A
| Item | Owner | Status |
|---|---|---|
| Replacement manager compensation | Seller | Supported by market benchmark |
| Related-party lease at closing | Buyer counsel | Draft market-rate lease reviewed |
| Family vehicle expenses | Controller | $18K supported, remainder excluded |
Appendix D, source documents and open items
Page 34
Appendix E
Detailed FDD Backup Schedules
| Schedule | Source | Status |
|---|---|---|
| Monthly net working capital | General ledger and balance sheets | Completed |
| Accounts receivable aging | AR aging | Completed, no material exception |
| Accounts payable aging | AP aging | Completed, no material exception |
| Debt and debt-like items | Trial balance and transaction documents | Completed |
| Balance sheet sub-area tests | Supporting ledgers | Completed |
Monthly net working capital
| Month | NWC | Month | NWC |
|---|---|---|---|
| Jan | $1260K | Jul | $1315K |
| Feb | $1275K | Aug | $1332K |
| Mar | $1288K | Sep | $1324K |
| Apr | $1296K | Oct | $1340K |
| May | $1308K | Nov | $1318K |
| Jun | $1290K | Dec | $1325K |
| Average | $1306K | TTM | $1325K |
Appendix E, Detailed FDD backup schedules
Page 35
Swipe, scroll, or use the arrows to turn pages.
02 · Adjustments
Every adjustment gets tested.
An addback isn't valid just because management proposed it. Each one is tested against source documents.
Adjustment review
| Adjustment | Borrower proposed | Chief supported | Evidence | Status |
|---|---|---|---|---|
| Owner compensation | +$120K | +$120K | General ledger · Payroll · Tax return | SUPPORTED |
| One-time legal expense | +$45K | +$45K | Legal invoices · Settlement · GL | SUPPORTED |
| Related-party rent | +$35K | +$35K | Lease · Market rent comparison | SUPPORTED |
| Non-recurring revenue | −$22K | −$22K | Sales ledger · Invoice | SUPPORTED |
| Vehicle / personal expenses | +$36K | +$18K | Bank statements · GL · Management explanation | PARTIALLY SUPPORTED |
| “Growth investment” | +$31K | +$0K | Management explanation only | EXCLUDED |
| Total | +$245K | +$196K |
03 · Bridge
See exactly how normalized earnings were built.
EBITDA bridge
TTM · $K
| Line | Amount |
|---|---|
| Reported EBITDA | $615K |
| + Supported adjustments | +$218K |
| − Normalizing items (non-recurring revenue) | −$22K |
| Normalized EBITDA | $811K |
$615K +$218K −$22K = $811K. Of +$245K proposed, $49K wasn't supported and stays in operating expense.
04 · Evidence
Evidence matters as much as the adjustment.
Vehicle / personal expenses
- Borrower proposed
- +$36K
- Chief supported
- +$18K
- Conclusion
- PARTIALLY SUPPORTED
Evidence
- Bank statements
- GL
- Management explanation
Analyst rationale
$18K traces to a vehicle used by the seller's family. The work truck remains an operating expense. The unsupported portion remains an operating expense.
05 · Into the deal
Normalized earnings flow directly into the deal analysis.
Chief is designed so the earnings analysis doesn't have to be rebuilt separately by every participant in the transaction.
- ↓→
Normalized EBITDA
$811K
- ↓→
Valuation
$4.8M at 5.9x
- ↓→
Debt service coverage
1.34x
Living Credit Record
Preserved after close
Built for SBA acquisition diligence
Designed around SBA change-of-ownership lending.
Chief's QoE workflow is built around the historical earnings, normalization, evidence, and transaction analysis relevant to SBA change-of-ownership lending, and built to meet applicable SBA Quality of Earnings requirements under SOP 50 10 8.1.
Lender-ready PDF
The familiar QoE report for the credit file, with schedules and source references. No integration required to start.
Structured data / API
- Reported EBITDA
- Adjustment
- Supported amount
- Adjustment status
- Evidence
- Normalized EBITDA
- Revenue
- Margins
- Working capital
- Concentration
- Key findings
The QoE doesn't have to stay trapped in the report.
Valuation + QoE
Two reports. One financial story.
The QoE supports the earnings. The valuation supports the value.
Quality of Earnings
- Reported EBITDA$615K
↓
- Supported adjustments+$196K
↓
- Normalized EBITDA$811K
Valuation
- Normalized EBITDA$811K
↓
- Valuation methods3
↓
- Concluded value$4.8M
Delivery
Built for the credit file.
Chief delivers lender-ready Valuation and Quality of Earnings reports with the schedules, support, and analysis needed to understand how the conclusion was reached.
PDF report
- Valuation
- QoE
- Supporting schedules
- Source references
Structured data / API
Available when the lender wants the underlying analysis delivered digitally.
Quality of Earnings
$10KUnder 2.5 weeks*
*Turnaround times assume all requested data is provided and Q&A is complete.