Business Lunch Mastering Business Valuation: The Power of Quality of Earnings
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Apr 16, 2026 They break down Quality of Earnings and why it changes deal pricing and risk. Recurring revenue, churn and net retention get attention as value drivers. Customer and channel concentration risks and creditworthiness are explored. Practical tactics for boosting recurring revenue and trimming low-margin offerings are discussed. The conversation covers how Q of E steers deal structures and multiple ranges.
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What Quality Of Earnings Actually Measures
- Quality of Earnings (Q of E) measures how durable and low-risk a company's reported revenue is for a buyer.
- A strong Q of E reduces buyer risk and directly increases the valuation and favorable deal structure, according to Roland Frasier.
Prioritize Net Retained Revenue
- Increase recurring revenue and improve churn/retention to make revenue more reliable.
- Track net retained revenue as the key metric showing whether existing customers grow spend year-over-year, Roland recommends.
Prepare For Deferred Deal Structures
- Expect weaker Q of E to shift purchase price into deferred components like seller financing, earnouts, CVRs, and roll-ins.
- Plan for up to 35% roll-in requirements and large earnout/holdback percentages that can drastically reduce upfront cash.
