The buyer's preliminary LOI is conditioned on a buy-side Quality of Earnings review. Should we invest forty thousand dollars in a sell-side QoE before going to market, and how does pre-diligence EBITDA normalization protect our negotiating leverage?

Question

Tyler Smith · Accepted Answer

Yes, commission a sell-side Quality of Earnings report before marketing the business. A sell-side QoE flips the burden of proof. When a buyer commissions a buy-side QoE, their accounting firm is hired to hunt for earnings haircuts, working capital anomalies, and unearned revenue spikes to justify a purchase price reduction. Every dollar of adjusted EBITDA they strip away reduces your enterprise value by your deal multiple.

When you conduct your own sell-side QoE, you identify and audit every defensible add-back in advance. This includes owner compensation, one-time litigation fees, facility moves, and non-recurring tech migrations. More importantly, it surfaces revenue recognition flaws, such as improper accrual timing or unearned customer deposits, inside your own conference room rather than during high-stakes exclusivity.

Inside your EOS process, run your sell-side QoE as an Integrator-led Rock two quarters before listing. Use your weekly Level 10 Meeting to track data room population and reconcile historical financials against tax returns. When prospective buyers enter the process, you hand them a comprehensive, institutional-grade QoE report prepared by an independent accounting firm. This pins buyers to your reported EBITDA, eliminates their rationale for exclusivity-phase price chipping, and forces their buy-side analysts to disprove your numbers rather than invent their own baselines.