White-Label Quality of Earnings and Business Valuation for CPA Firms

The call usually comes on a Thursday. A long-time client has a signed LOI from a private equity group, the buyer wants a quality of earnings report, and the exclusivity window is 60 days. Can your firm do it?

Most firms that do tax and CAS work could, technically. They know the client's books better than anyone. What they don't have is three people free for six weeks in the middle of whatever season it is. So the work goes to a regional firm or a deal shop, and the relationship walks out with it.

White-label quality of earnings and valuation support is meant to fix exactly that. Your firm keeps the engagement and the client. A team that does diligence work all year does the heavy analysis behind you. Before getting into how, it's worth being clear on what the work actually is, because "QoE" gets used loosely.

Buy-side, sell-side, and what a QoE isn't

A quality of earnings report answers one question. Are this company's earnings real, repeatable and correctly stated? Buyers pay a multiple of EBITDA. So if a dollar of it turns out to be a one-off, or sitting in the wrong account, or just wrong, they've overpaid by that multiple.

Buy-side, the buyer brings in accountants to go hunting. Sell-side flips it. The owner pays for the report before the business goes to market, so any skeletons turn up early, while there's still time to fix them or at least tell the story first. For a CPA firm, sell-side is usually the more natural fit. You already know the client. Starting three to six months before launch is the usual advice.

A QoE isn't an audit. There's no opinion on the financial statements and no assurance, and it isn't a valuation either. It tells the buyer what normalized earnings and working capital look like. What the business is worth is a separate question, answered separately.

What does it cost? BD Emerson published numbers this year. For a business worth $5 million to $15 million, they put a standard buy-side QoE somewhere between $25,000 and $50,000. Move up to $15 million to $75 million and it's more like $45,000 to $90,000. Sell-side usually costs a bit more, 10% to 30% on top.

EBITDA normalization: the adjustments that move the price

Here's a made-up but very typical bridge for a services company a buyer is valuing at six times EBITDA.

The owner's version was $2.32 million. The diligence version is $2.03 million. At six times that, that's roughly $1.7 million off the price, and nobody did anything dishonest. Some of the add-backs were just wishful.

A few patterns show up over and over. Owner compensation gets normalized to what a hired CEO would cost, which can cut either way. Personal expenses run through the business (the lake house, a family member on payroll who doesn't work there) get added back, but only with receipts. "One-time" costs are the most argued line in any QoE. A lawsuit settlement might be truly one-time. A "one-time" consultant hired three years running isn't. Revenue gets its own scrutiny too: cutoff at year end, customer concentration, and any big deal booked in the last month before the LOI.

Then there are the adjustments sellers forget. Rent paid to an owner-controlled entity at below-market rates gets adjusted up. A key employee who'll leave at closing has to be replaced, at market pay. Deferred maintenance on equipment shows up later as capex the buyer will price in.

The working capital peg, where deals quietly lose money

If EBITDA sets the headline price, the working capital peg decides how much of it the seller actually keeps. SRS Acquiom's 2026 study, covering more than 1,500 private-target deals, found working capital purchase price adjustments in more than 90% of transactions, up from roughly half of deals ten years earlier. It's standard now, and it's where a lot of post-closing fights happen.

The idea is simple enough. The buyer expects the business to come with a normal level of working capital, enough receivables, inventory and payables to keep running without a cash injection on day one. That normal level is the peg. At closing, actual working capital is measured against it. Deliver more and the seller gets paid more. Deliver less and the price drops dollar for dollar.

Say the peg is set at $1.2 million, based on a trailing twelve-month average. In the final month, the seller chases every receivable and sits on the bills, hoping to pull out as much cash as possible before closing. Closing working capital comes in at $1.05 million. That's a $150,000 cut to the purchase price, on top of whatever got argued over in the EBITDA bridge.

Most peg disputes come from three places. Definitions are one: is that customer deposit working capital or debt? Seasonality is another, since a twelve-month average can be wrong for a business that peaks in Q4. And accounting policy changes between the peg period and closing, like switching to accrual for bonuses right before the sale, can move the number with no real change in the business. A QoE that builds the peg month by month, with every account defined in writing, heads off most of that.

Valuation reports: standards, credentials and one independence trap

Valuations play by different rules. Once a CPA puts a number on what a business is worth, AICPA VS Section 100 kicks in (plenty of people still call it SSVS 1). There are two flavors. A full valuation engagement leaves the methods up to the analyst, who ends with a conclusion of value. A calculation engagement is narrower. Client and analyst agree on the methods first, less work gets done, and what comes out is a calculated value. Whichever it is, the report has to say so, with the disclosures that go with that type (Journal of Accountancy).

Clients tend to shrug at the difference. They shouldn't. A calculation report might be fine for an owner's internal planning. For a gift or estate tax filing, a buy-sell dispute or anything headed to court, you'll usually want a full valuation engagement, signed by someone with a recognized credential like the ABV or CVA.

Now the trap. If your firm audits or reviews the client, valuation work can impair independence. Under the AICPA's independence rules, it's impaired when the valuation results would be material to the financial statements and the work involves a significant degree of subjectivity. That describes most business valuations. So before saying yes to valuing an attest client, check with whoever owns independence at your firm. It may be a job for a different firm altogether.

So where does a white-label team fit into CPA valuation services? Behind the scenes, on the prep. They'll normalize the numbers and build out the DCF, and they'll go hunting for comparable transactions. The conclusion, and the signature under it, belong to a credentialed person at your firm.

When the business being sold is an accounting firm

Here's the twist a lot of CPAs are living through right now. The deal on the table might be for their own firm. Private equity has been buying into accounting, and owners thinking about a CPA firm acquisition, on either side, run into the same questions they'd ask for a client.

Buying an accounting firm means normalizing partner pay first. Partners at small firms tend to pay themselves most of the profit. On paper, then, EBITDA looks skinny. Swap the partner out for what a salaried manager would cost and the real number shows up. Then come the questions any buyer asks. How much revenue walks out the door if one partner leaves? Do the top ten clients account for half the billings? And the recurring revenue. Is it monthly work clients pay for all year? Or is it really just a pile of returns that lands every April?

Those answers drive accounting firm valuation multiples more than size does. Auxo Capital Advisors' 2026 guide gives directional ranges. For a small practice that leans on its owner, mostly tax or bookkeeping, think somewhere around 0.6 to 1.1 times revenue. Firms with several partners and a management layer that can run things are valued on EBITDA instead, at about 4 to 6.5 times. CAS, outsourced accounting and outsourced CFO firms sit higher, at about 4.5 to 8 times, because buyers like monthly, contracted revenue that doesn't depend on one partner's relationships.

That last point has a practical edge. Firms that have built CAS capacity, including through a white-label team, can look more like the higher-multiple profile, since the work keeps running without a partner doing all of it. We'll go deeper on that in a separate post. For now, if you're advising on these deals, our piece on M&A consultants covers who else usually sits at the table.

What a white-label quality of earnings engagement looks like

Your firm signs the engagement letter and owns the client conversation. The white-label team gets read-only access to the general ledger, the data room and the bank statements, and starts with a proof of cash: does the cash in the bank actually match the revenue on the P&L, month by month? That one test catches more problems than almost anything else in diligence.

From there it's the EBITDA bridge, the monthly working capital build, customer and vendor concentration, and a list of open questions for management. Your manager reviews each draft. The final report goes out on your letterhead, and when the buyer's team calls with questions, your people are the ones who answer.

Timing is usually the hard part. Buy-side work typically runs four to six weeks and sell-side five to eight, per BD Emerson. If your senior staff are mid-season, a team that's already set up for this is often the only way to hit the dates without turning the engagement down.

Quick answers

What is a quality of earnings report? Think of it as a stress test on the earnings. Accountants strip out the one-offs and the owner's personal spending, fix anything that isn't at market rates, then work out how much working capital the business normally needs.

Is a QoE the same as an audit? No. There's no opinion and no assurance. It's an analysis for the buyer or seller, often of numbers that were never audited.

How is the working capital peg set? Usually from a trailing twelve-month average of net working capital, adjusted for seasonality and anything unusual. Clear account definitions matter as much as the number.

Can our firm value a business we also audit? Be careful. Independence is impaired if the valuation would be material to the financial statements and involves significant subjectivity, which is common. Check with your independence lead first.

What are accounting firm valuation multiples right now? They depend heavily on the type of firm. Auxo's 2026 ranges run from about 0.6 to 1.1 times revenue for small, owner-dependent practices up to roughly 4.5 to 8 times normalized EBITDA for CAS and outsourced accounting firms.

Work with DNA Growth

DNA Growth's transaction advisory team works behind CPA firms and fractional CFOs on sell-side and buy-side QoE, EBITDA normalization, working capital analysis and valuation support. You keep the client and sign the work. We do the heavy lifting on your timeline. Got a deal on the calendar? See how our white-label quality of earnings and valuation support works, or browse the rest of our transaction advisory services.