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What Is a Quality of Earnings Report? A Guide for Medical Practice Owners
October 30, 2026
How buyers test the earnings behind your practice’s price.
Estimated Read Time: 5 Minutes
A quality of earnings (QoE) report is an independent accounting review that checks whether your practice’s reported profit reflects the earnings a buyer can expect after the sale. Buyers value medical practices based on a multiple of EBITDA, which measures operating profit and plays a big role in every offer. Any change to that number can affect the sale price. Most physician-owned practices keep their books to lower their taxes, which often means personal benefits end up mixed in with business expenses.
A QoE normalizes revenue and expenses, and separates personal expenses from the practice’s actual operating costs to provide a clear picture of its earnings. It can also quantify growth initiatives and other operational improvements. When owners understand the purpose of a QoE review ahead of time, they can document potential adjustments and protect the value they have built over their careers.
In this article, you will learn:
- How a quality of earnings report differs from a financial audit
- The adjustments reviewers commonly make when reviewing a medical practice
- How an earnings adjustment can affect your sale price
- Why sellers should get their own report before putting their practice on the market
- Which records to gather before the review starts
How a Quality of Earnings Report Differs From an Audit
A financial audit and a QoE report both review your financial statements, but they cover different things:
- A QoE looks at how much profit a buyer can expect after the sale and adjusts the figures to reflect earnings under new ownership.
- A financial audit checks whether your statements follow accounting standards.
Most reviews cover the last 12 months and the previous one or two fiscal years, allowing the reviewer to compare results over time.
Here is how QoEs and financial audits compare:
| Factor | Financial Audit | Quality of Earnings Report |
| Central question | Do the statements follow accounting standards? | Will these earnings continue after the sale? |
| Primary reader | Lenders evaluating credit | Buyers pricing an acquisition |
| Time focus | Accuracy of past financial results | Earnings a new owner can expect going forward |
| Final output | A formal opinion on the statements | An adjusted EBITDA figure with supporting documentation |
Example Adjustments Reviewers Make in Medical Practices
Reviewers start with your reported EBITDA and adjust it for anticipated operations after the sale. Each adjustment affects EBITDA in a different way. Knowing what reviewers look for gives you time to gather supporting records before a QoE team asks for them. There are many potential adjustments, and they differ by company type and specialty. A few common ones are listed below.
| Adjustment | What the Reviewer Tests | Typical Effect |
| Physician owner compensation | Whether the owner’s pay matches the market rate for the specialty | Raises EBITDA when the owner draws pay above market rate |
| Related-party rent | Whether rent paid to an owner’s real estate company matches market rates | Adjusts EBITDA to reflect the rent a buyer would pay under a new lease at fair market value |
| Personal expenses | Whether each expense supports the practice’s operations | Raises EBITDA when the reviewer removes personal costs and benefits that won’t continue after the transaction |
| One-time costs | Whether a cost, such as an electronic health record (EHR) conversion, will happen again | Raises EBITDA when the reviewer removes costs a buyer will not face again |
| Revenue timing | Whether billed charges (and anticipated collections) match the cash collected from payers | Lowers EBITDA when recorded revenue exceeds accrual based collections, and vice versa |
| Provider changes | Whether a new provider will provide increased collections and profit in the future | Can increase EBITDA where the basis for future production is defensible |
How Earnings Adjustments Change Practice Value
A QoE can affect transaction value both directly and indirectly. Directly, since buyers multiply adjusted EBITDA by a valuation multiple to calculate the purchase price. For example, a $200k EBITDA change can increase enterprise value by $2M at a 10x multiple. Indirectly, since a QoE provides extensive and clear information. For example, a buyer may increase their multiple due to confidence in the financial figures presented via QoE, or because the QoE quantifies future growth opportunities effectively.
Why Sellers Commission Their Own Report
Private equity groups routinely hire accounting firms to run a buy-side QoE after they sign a letter of intent (LOI) with a seller. Practice owners can commission their own “sell-side” QoE report before going to market. Investment bankers at FOCUS recommend this step, since it allows sellers to complete a QoE with advisors working for their interests. A well-supported sell-side report also gives the buyer more confidence in the practice’s earnings and can speed up due diligence.
Here is how the two reports compare:
| Factor | Sell-Side Report | Buy-Side Report |
| Who hires the firm | The practice owner | The acquiring group |
| Timing | Before the practice goes to market | After the buyer signs an LOI |
| Main purpose | Establishes the earnings that a buyer should pay for | Confirms the earnings the buyer plans to pay for |
| Role in negotiation | Gives the seller documented support for each add-back or adjustment | Gives the buyer evidence for any price revision |
Records to Prepare for a QoE Review
Reviewers work faster when you organize your records, and buyers may reject unsupported adjustments. Practices that prepare clean monthly financial statements and know how to access other key reports, especially from billing and payroll systems, are best positioned. Today, many QoE firms can directly access your systems with a login you provide, cutting down the seller’s workload.
Practices should also collect key operating documents, such as leases, payor contracts, and physician employment agreements to prepare for a QoE.
Further Reading
- Medical Practice Valuation 2026 Guide
- Physician Practice M&A Multiples 2026
- Valuation Multiples by Industry: Healthcare Services, 2026
Get Expert Guidance Before Buyer Diligence Begins
FOCUS Investment Banking helps healthcare practice owners maximize transaction value by acting as the quarterback of the sale. Among our other roles, we coordinate the accountants who prepare your earnings review with the attorneys who draft the deal documents. If you would like to learn more about our healthcare investment banking services, contact Eric Yetter or Andy Snyder.
Written by
Eric Yetter
Managing Director
Eric Yetter is an investment banker focused on healthcare provider services. Eric has completed a variety of healthcare transactions, many with private equity firms and PE-backed companies. His past clients include leading physician and dental groups, behavioral health companies, healthcare facilities, and institutional healthcare investors.
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Written by
Managing Director
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