In the dynamic, information-driven world of mergers and acquisitions (M&A), numbers tell a story, but not always the full story. That’s where quality of earnings (QofE) comes in. At its core, QofE looks beyond a company’s reported profits to assess how reliable, sustainable, and repeatable those earnings really are. Or, as Chris Stone, Assurance and Advisory Director at SingerLewak, puts it, “It’s not just about what the numbers are, but where and how they get there.”
QofE has become especially relevant in today’s franchise market. With food, fitness, and beauty concepts experiencing steady M&A activity, 2025 is shaping up to be a strong year for franchise investments. Unlike industries hit by tariffs or supply chain disruptions, franchises are often locally sourced, service-based, and less exposed to global uncertainty. That makes them attractive targets for investors—and puts QofE front and center in the decision-making process.
Why QofE Matters for a Prospective Franchise Buyer of Existing Franchise
Location(s)
For a prospective franchise buyer (franchisee), the challenge isn’t just knowing whether the business is profitable but understanding the components that lead to profitability.
Are royalties, franchise fees, and marketing/advertising funds accounted for properly?
What will the new franchise agreement with the franchisor look like? Will it change with the transition to a new owner and approval process with the franchisor? Are there expenses, like an owner’s travel or other lifestyle-related expenses, that inflate costs but won’t continue under new ownership? Are revenues built on prepaid memberships that may not translate into future cash flow?
“These are the kinds of red flags we help uncover,” says Stone. “The last thing you want is to pay a five- or ten-times multiple on earnings that aren’t really there.”
In practical terms, a QofE engagement can certainly reveal more about the financial data than simply reviewing historical financial statements. A small discrepancy may be manageable, but uncovering hidden risks, such as family members on payroll who don’t actually work full-time at the business or unknown adjustments between cash to accrual basis accounting, can make significant impact on a fair price. We have seen these type of things leading to major adjustments in purchase price valuation.
The SingerLewak Approach
While national and international firms do provide QofE services, their work often comes with a hefty price tag and a one-size-fits-all approach. SingerLewak takes a different tack.
“We’re big enough to rely on, and flexible enough to adapt,” Stone explains. “We take to heart what clients actually need. Sometimes that’s a 30-page report, and sometimes it’s just an Excel workbook and a conversation. Either way, you’re working with the same team you met at the start, not being handed off to someone else.”
That flexibility resonates with middle-market buyers, especially multi-unit franchisees expanding into new industries. As Stone notes, a fast food/restaurant operator looking to buy into fitness or wellness may not have the same familiarity with that sector. A tailored QofE review helps them proceed more confidently.
Beyond the Numbers
QofE isn’t just about crunching data. It’s also about helping clients feel more comfortable with one of the most significant financial decisions of their careers. “At the end of the day, we’re there to make you more comfortable with finishing a transaction,” Stone says.
That blend of technical expertise and practical, human-centered service sets SingerLewak apart. Clients get the rigor of a CPA-backed analysis, often supported by professionals with backgrounds in bankruptcy and forensic accounting, without multilayers of bureaucracy. In today’s active M&A market, that balance of insight and approachability is a rare find. Or, to borrow Stone’s words, “We don’t just do it. We understand it.”
The best way to find out if SingerLewak is the right fit, is by having a conversation. And SingerLewak’s Chris Stone is exactly the right person to have that conversation with.
Chris Stone, CPA
Director, Assurance & Advisory – Franchise Client Service Group
SingerLewak
949.623.0471
[email protected]
