Our books are clean and we do our own monthly close, so why is the buyer insisting on a third-party Quality of Earnings audit, and how do we prevent their analysts from weaponizing adjustments to push down our historical EBITDA?

Question

Tyler Smith · Accepted Answer

A buyer insists on a buy-side Quality of Earnings review because standard financial statements, even compiled or reviewed ones, do not show the underlying cash generation capacity of the business. Their analysts are looking to convert your accrual-based accounting into a normalized EBITDA figure. This means they will aggressively seek to identify non-recurring revenue spikes, inventory valuation discrepancies, or understated operating expenses to justify a downward adjustment to your earnings, which directly slashes your enterprise value at your agreed multiple.

To defend against this, you must run a seller-side QofE before you ever go to market. This process exposes the same skeletons the buyer will look for, allowing you to control the narrative. If you run your business on EOS®, your leadership team should already have tight grip on your numbers through your weekly Scorecard. Use your Level 10 Meeting™ to review monthly financial variances.

When the buyer's analysts flag a negative adjustment, counter it with hard operational data from your weekly metrics. For instance, if they argue a major customer contract is at risk, show them the documented operational touchpoints and client health metrics tracked consistently over the past year. By proving your financial numbers align perfectly with daily operational realities tracked by your Accountability Chart, you neutralize their ability to weaponize adjustments and protect your agreed valuation.