How to Prepare an ABA Practice for a Quality of Earnings Review

To prepare an ABA practice for a quality of earnings review, build a traceable story from scheduled and delivered services through documentation, claims, contractual adjustments, recognized revenue, collections, refunds, payroll, and the general ledger. Reconcile each period and location, support every proposed adjustment, explain payer and workforce concentration, keep unresolved claims and liabilities visible, control access to sensitive data, and assign one response log. Preparation should improve evidence and explanations, not rewrite clinical or billing records to make the practice look cleaner.

A quality-of-earnings review is not a compliment or a verdict

For many ABA owners, the phrase arrives after years of running the practice without a finance department. A buyer or lender asks for monthly financials, revenue bridges, payroll files, claims aging, adjustments, and explanations for every unusual month. It can feel as though ordinary messiness is being treated as wrongdoing. Usually, the reviewer is trying to understand how reported earnings were produced and how likely they are to continue.

There is no single government-defined quality-of-earnings procedure for an ABA sale. The scope comes from the engagement, transaction, buyer, lender, accounting framework, and facts. A careful seller therefore prepares for the actual questions without calling the result an audit, assurance opinion, valuation, or guarantee of future performance.

Build a small team before opening the request list

Name one internal coordinator who understands finance and operations, plus a qualified accountant and transaction counsel. Bring in revenue-cycle, payroll, HR, payer, clinical, privacy, security, and technology leaders only for their lanes. Decide who can answer, who can approve a response, where support is stored, and how conflicting explanations are resolved.

The SBA sale guidance recommends qualified advice, valuation, and a comprehensive sales agreement, including the buyer's access to information before close. It does not define a QoE scope or require the seller to accept every request. Counsel should align the engagement, confidentiality, permitted use, recipients, privilege, data security, and transaction stage before sensitive information moves.

Start with source records, not a polished EBITDA schedule

Collect the chart of accounts, monthly trial balances, general ledger, bank statements, tax returns, payroll registers, accounts receivable and payable detail, debt, leases, owner transactions, and financial statements for the requested periods. Preserve the original files and make transformations reproducible. Create a data dictionary for fields, accounting basis, period cutoff, location, entity, and system of record.

The IRS recordkeeping page says a business record system should provide a complete and accurate record, including summaries of cash receipts, disbursements, depreciation, and employee compensation. Publication 583 discusses journals, ledgers, supporting documents, and consistent records. These are tax recordkeeping resources, not a QoE standard. They support the basic principle that a financial conclusion should trace to contemporaneous evidence.

Reconcile the ABA revenue journey

Create a monthly bridge from scheduled hours to delivered services, completed documentation where relevant, submitted claims, allowed amounts, payments, contractual adjustments, denials, write-offs, refunds, and recoupments. Explain differences by payer, service line, location, credentialing status, and clinician type without mixing definitions. If the accounting system recognizes revenue before cash arrives, document the policy and reserve methodology.

Review cutoff around month- and year-end. A late claim batch, retroactive payer rate, posting backlog, system conversion, or one-time settlement can make a period look unusually strong or weak. The reviewer needs the event and its financial effect, not a narrative designed to move every unfavorable item outside adjusted earnings. Keep unresolved balances labeled unresolved.

Make payroll and clinician capacity understandable

Payroll is often the largest expense and the operating engine behind revenue. Reconcile payroll registers to the general ledger and explain regular wages, overtime, bonuses, payroll taxes, benefits, contractors, recruiting, supervision, paid training, leave, owner compensation, and accrued obligations. Tie headcount and full-time-equivalent definitions to actual employment dates rather than a slide.

Then connect capacity to earnings without turning clinicians into production units. Show hiring and vacancy periods, supervision structure, cancellations, utilization definitions, location coverage, and the work required to support care. If adjusted earnings assume an owner role disappears or a vacancy stays unfilled, identify who performs the work and what replacement cost is reasonable. Qualified HR, wage-and-hour, accounting, and clinical reviewers should evaluate the assumptions.

Treat add-backs as claims that need evidence

A seller may propose adjustments for one-time legal costs, owner perks, unusual repairs, startup expenses, nonrecurring bonuses, excess owner compensation, or investments expected not to recur. For each one, state the period, account, amount, source document, business reason, why it is nonrecurring or nonoperating, and whether a replacement cost remains. Apply the same standard to favorable and unfavorable adjustments.

Avoid labels such as “normalization” when the evidence is a hope about future hiring, collections, rates, or productivity. A defensible adjustment lets an independent reader reproduce the amount and understand what would change after closing. The buyer may still disagree; that is a valuation and negotiation issue, not permission to alter the source record.

Show concentration and durability without hiding the denominator

Prepare revenue, allowed amounts, collections, authorizations, outstanding receivables, and delivered services by payer, location, service line, referral channel, and clinician cohort using clearly defined periods. Explain contract terms, enrollment dependencies, rate changes, authorization practices, timely filing, disputes, and renewal or termination facts only from current written sources. Do not describe a payer relationship as secure because it has lasted a long time.

Similarly, show which results depend on the owner, a few supervisors, one referral source, a landlord concession, or temporary overtime. Concentration is not automatically a defect, and diversification is not automatically healthy. The purpose is to let the reviewer understand what produces the earnings and what might change when ownership or operations change.

Keep denials, refunds, and compliance exposure visible

Reconcile claims aging to the ledger and identify stale receivables, appeal status, credit balances, refunds due, recoupments, audits, extrapolation risk, payer disputes, and reserves. Separate operational backlog from collectibility. A receivable is not worth its face value merely because it remains open, and a write-off is not necessarily evidence that the original service or claim was improper.

The OIG General Compliance Program Guidance is voluntary and nonbinding. Its discussion of risk assessment, reporting, auditing, incentives, investigation, and corrective action can inform how the practice describes its compliance system. It does not determine whether a specific claim is payable or an amount is material. Qualified billing, payer, compliance, accounting, and legal reviewers should assess unresolved issues without converting diligence into an accusation or a cleanup exercise.

Do not repair the numbers by rewriting care records

A transaction review may reveal missing signatures, inconsistent timestamps, uncertain service locations, or documentation questions. Preserve the record, route the issue to qualified clinical, compliance, privacy, billing, and legal owners, and follow controlled correction or late-entry policies where appropriate. Never backdate, overwrite, manufacture, or clinically reinterpret a record to make a financial reconciliation work.

The CASP Organizational Guidelines overview connects business, clinical, risk-management, human-resources, and quality infrastructure. The detailed guidance is sold separately and the public page does not prescribe a QoE process. Its cross-functional framing is useful: financial diligence depends on operational evidence, but financial reviewers do not become the authority for clinical content or professional judgment.

Design a data room that answers the question safely

Create a request log with the requester, purpose, document owner, period, version, approver, response date, restrictions, and follow-up. Use folder and file names that survive download. Give each recipient only the access needed, enable logs, set expiration, and plan return or deletion. Provide aggregated, redacted, or de-identified data when it answers the financial question.

45 CFR 164.501 includes certain sale, transfer, merger, consolidation, and related due-diligence activity within health care operations when stated conditions are met. That is not blanket permission for every bidder, lender, accountant, affiliate, or consultant to receive PHI. HHS business-associate guidance also explains that accounting and legal services involving PHI may create business-associate relationships. Privacy and security leaders must analyze the actual parties, purpose, agreements, data, and route.

Let a fictional month expose the weak links

Maple Shore ABA is fictional. Its March financial statement shows a sharp increase in revenue and adjusted earnings. The first explanation credits a successful expansion. The source-to-cash bridge reveals three separate events: a late posting batch from February, a retroactive payer rate adjustment, and real new volume at one location. Payroll also includes training for clinicians who did not begin delivering services until April.

The practice does not erase the increase or call all of it recurring. It separates the components, corrects a posting classification, supports the rate adjustment, and shows April capacity. The reviewer can now see which earnings came from current delivery, timing, and a nonrecurring catch-up. The explanation is less dramatic and more credible.

Finish with a bridge the owner can explain

Learning how to prepare an ABA practice for a quality of earnings review comes down to an evidence bridge the owner can explain. Before management meetings, reconcile reported earnings to each proposed adjustment and to the final adjusted result. Prepare a short operating narrative for major period changes, source support, unresolved questions, and the person qualified to answer each one. Rehearse questions without scripting false certainty. If the data is weak, say what is known, what is not, and how the practice is fixing the process prospectively.

The strongest preparation is not a spotless data room. It is a reliable chain from service and expense events to financial statements, with clear definitions and honest exceptions. That work remains valuable if the buyer walks away because it improves cash forecasting, staffing decisions, compliance follow-up, and the owner's ability to understand the practice.