Community Spotlight

Q&A: Elliott Holland on What Quality of Earnings Reveals Before a Deal Closes

Elliott Holland is the founder and managing director of Guardian Due Diligence, a firm that produces quality of earnings reviews and financial diligence for searchers, independent sponsors, and buyers of small and lower middle market companies. He first worked in private equity to learn how the best acquirers evaluate businesses, and spent six years as an independent sponsor buying companies in the automotive, industrial, and healthcare sectors. He started Guardian after struggling to find diligence providers who were both competent and affordable for smaller deals. His team has evaluated more than 1,500 deals and worked on over $600 million in transactions, almost all of it focused on deals under $5 million, a part of the market most large accounting firms ignore.

His central teaching is that a quality-of-earnings review exists to close the gap between the financial statements a seller presents and how the business actually generates cash. A standard audit checks whether the statements are accurate. A quality-of-earnings review goes further by normalizing EBITDA, stripping out nonrecurring items, owner expenses, and unusual revenue, and showing how reported profit converts to free cash flow. Holland points out that the numbers a seller or broker hands over are often unintentionally misconstrued, so the work is about understanding what a buyer is actually purchasing and whether the earnings will hold up once the current owner is gone.

He encourages buyers to write a specific list of dealbreakers before diligence begins, the findings that will make them walk away rather than rationalize. An example he gives is a buyer admitting they could not run the business from day one without the seller. He also describes the difference between a serious acquirer and someone simply trying to escape a job. The serious buyer takes twenty red flags and sorts them, deciding which are mitigated, which do not matter, and which still need answers. The buyer who is in a hurry explains all twenty away with information they do not actually have. Holland is candid that part of his job is sometimes producing a report that recommends a client not do the deal at all, and he sees real value in that outcome.

He is equally clear that in deals this size the qualitative parts of a review matter as much as the spreadsheet. Customer concentration, owner dependence, supplier relationships, and how the business runs day-to-day shape whether earnings survive a change of ownership. A clean set of numbers attached to a business that only works because the founder is in the building every day is a different risk than the same numbers attached to a business with depth in its team. For buyers using SBA financing, a quality-of-earnings review also gives the lender confidence and reduces the risk of surprises that could stall the loan.

For sellers, the message points the other way. Clean and reconciled financials, a sell-side quality-of-earnings review, and clear documentation reduce surprises during diligence and limit last-minute price cuts when a buyer finds something late. The same work that protects a buyer from a bad deal protects a seller from a retrade. In a market where buyers are scrutinizing every assumption and walking from anything they cannot verify, the seller who has already done that work walks into the room with more leverage and a credible story about where the cash actually comes from.

Governance Feed

1. GF Data reports that the valuation gap between larger and smaller platforms widened to 2.8x in the first nine months of 2025, the widest in over a year. Platforms above $100 million traded near 9.8x EBITDA, while those under $100 million traded at 7.0x EBITDA, and the premium buyers pay for strong financial performance compressed to 2 percent, the lowest in GF Data's history.

2. Viking Mergers makes the case that when income statements, tax returns, and supporting records reconcile and hold up under scrutiny, a buyer can trust the numbers enough to pay full price, secure financing through a bank, and close without built-in protections. Messy books invite larger escrows, longer earnouts, and attempts to reduce the price after the LOI is signed.

3. Auxo Capital Advisors lays out how business brokers, M&A advisors, and investment banks differ on buyer access, typical deal size, diligence preparation, fees, and structure. For a founder weighing a sale, matching the type of intermediary to the size of the business and the likely buyer universe shapes both the price and how the process runs. The wrong fit can mean a narrow buyer pool or a process the seller is not equipped to handle. .

Thesis Principle

SBA 7(a) financing can change what a seller actually gets from a deal. A buyer may offer seller notes, earnouts, or other structures to bridge a valuation gap, but SBA rules can limit how those terms work. Seller notes may be delayed, subordinated to the SBA lender, or harder to collect if the deal runs into trouble. Earnouts may also be difficult to use in many SBA-backed acquisitions. The key point is that sellers should not focus only on the purchase price. They need to understand how much cash they receive at close, how much payment is delayed, and how much risk they are accepting after the sale.

Resources & Events

📅 Future of Dealmaking Summit (New York, NY - November 16-17, 2026)

The M&A Advisor’s Future of Dealmaking Summit brings together around 500 M&A practitioners, corporate dealmakers, private equity professionals, and restructuring advisors for a full day of content sessions, one-on-one networking, and the Annual M&A Advisor Awards program. The summit focuses on the strategic, financial, and operational dimensions of dealmaking across the market, with faculty drawn from active professionals representing the full transaction ecosystem. For advisors, investors, and operators looking to benchmark practices and build relationships across the deal advisory community, the event combines content depth with peer-level access. Details →

📅 Smart Business Dealmakers Conference (Minneapolis, MN - October 29, 2026) 

The Smart Business Dealmakers Minneapolis Conference brings together CEOs, private equity investors, lenders, and M&A advisors for a day of dealmaking content and peer-level networking. Sessions cover buying and selling businesses, raising capital, and ownership transitions, with content tailored to the dynamics of the Minneapolis and broader Upper Midwest deal market. The conference draws a concentrated audience of regional dealmakers and advisors actively engaged in transactions across the region. Details →

📊 Report Spotlight: M&A Market Report Q1 2026 (Sellside Group)

Sellside Group's Q1 2026 report finds that US middle-market activity was softer than the start of the year had promised, with DC Advisory reporting a middle-market deal count down roughly 20 percent year over year in January and February, and a further decline in March. Announcements fell about 22 percent year over year early in the quarter while completed transactions rose roughly 7 percent as late 2025 pipeline converted. The report notes that the average time from announcement to close now approaches 150 days, so closing data understates how much was actually happening in real time. Read → 

For the Commute

Buying an Excavation Business with $4.2M Revenue (Acquisitions Anonymous)

In this episode, the hosts break down a 30-year-old excavation, grading, and hauling business near Wilmington, North Carolina, that generates $4.2 million in revenue and is listed at $3.6 million. The core analytical challenge the hosts work through is how to separate true EBITDA from the maintenance capital expenditure required to keep aging heavy equipment operational. In equipment-intensive businesses, the difference between accounting depreciation and the actual cash cost of keeping the asset base functional is often significant, and buyers who model the business using depreciation alone will overpay. The episode also covers the SBA’s 12-month seller transition requirement and how that timeline interacts with relationship transfer risk in a 13-person operation where the owner has been the primary point of contact for most customer relationships.