In early 2025, O’Connell Advisory Group was engaged by a private equity client to perform a Quality of Earnings (QoE) analysis on a leading regional provider of custom glass and screen solutions based in Washington, DC. Our mandate was to deliver an objective assessment of the Target’s historical earnings, normalized profitability, and net working capital profile to support the buyer’s due diligence and acquisition decision.
Customer Profiling: Addressed the buyer’s key concern by developing a detailed customer profile, revealing that two-thirds of sales were cash (retail) transactions and only one-third came from B2B customers. This insight helped the buyer evaluate customer dependency and recurring revenue stability.
Seasonality Insights: Explained inherent seasonality in the home repair industry—peaks in warmer months and slowdowns in colder months—helping the buyer anticipate cyclical cash flow variations.
Revenue Concentration: Highlighted that glass repairs and replacement accounted for approximately 60% of total revenue, with the remainder from screens, storefronts, and new windows/doors—essential for understanding revenue stability and concentration risks.
Detailed Breakdown: Delivered a comprehensive analysis of direct and indirect costs, highlighting challenges from the mix of cash- and accrual-based recording.
Profitability Assessment: Identified that direct labor costs were rising faster than revenue, putting pressure on gross margins.
Cost Adjustments: Adjusted for non-recurring items and recommended better tracking of material costs by segment to improve margin visibility and profitability monitoring.
Seasonal Patterns: Conducted an in-depth review of accounts receivable (AR) and accounts payable (AP) cycles, highlighting how seasonal revenue impacts working capital needs.
Operational Opportunities: Identified ways to optimize procurement and inventory timing to enhance cash flow management during peak and slow seasons.
Proof of revenue and expenses: Reconciled revenue and expenses with bank statements, providing the buyer with critical proof of cash flows and additional assurance about the reliability of reported financial data.
Adjusted Earnings: Excluded small one-time professional fees to deliver a clear, normalized view of ongoing profitability.
Risk Mitigation: Highlighted potential future risks—such as related-party rent escalations and rising labor costs—enabling proactive decision-making by the buyer.
Customer & Revenue Insights: Empowered the buyer with a thorough understanding of customer profiles, revenue streams, and revenue concentration.
Cost & Profitability Clarity: Delivered a clear picture of the true cost structure, profitability drivers, and rising labor costs.
Seasonal Working Capital Analysis: Provided a reliable assessment of AR and AP cycles, giving the buyer confidence in managing seasonal cash flow challenges.
Proof of Cash Flows: Strengthened the buyer’s confidence in the accuracy of reported numbers for an unaudited business.
Normalized Earnings: Ensured a transparent view of sustainable earnings, adjusted for non-recurring items, and highlighted future financial risks for better decision-making.
The Quality of Earnings Analysis conducted by O’Connell Advisory Group provided the buyer with critical insights into the financial health and operational dynamics of the Target. By delivering a clear understanding of customer profiles, revenue streams, cost structure, and AR/AP trends, the analysis empowered the buyer to make an informed and confident acquisition decision. Key adjustments for non-recurring items and normalized earnings, along with thorough proof of cash, ensured the accuracy and sustainability of the Target’s earnings profile, giving the buyer a strong foundation for post-acquisition planning.
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