How do we prepare our internal finance team for a sell-side Quality of Earnings review so we do not get blindsided by unexpected transaction adjustments?

Question

Tyler Smith · Accepted Answer

Preparing for a sell-side Quality of Earnings, or QofE, review requires running your finance department with the same discipline you apply to your weekly operations. Do not wait for the buyer to audit your books. Start by identifying your finance leader on the Accountability Chart and making sure they have the capacity to handle this intense process. They must own this project as a major Rock for the quarter. To ensure you are not blindsided, hire an independent accounting firm to perform a preliminary sell-side QofE at least six months before going to market. This audit will pinpoint revenue recognition issues, unrecorded liabilities, and cash-to-accrual conversion discrepancies. Use your weekly Level 10 Meeting to track progress on resolving these financial red flags. Your finance team must document every historical adjustment with clear, verifiable source data. When the buy-side accountants arrive, you want to hand them a clean ledger and well-supported adjustments. By proactively identifying and fixing these accounting anomalies, you protect your negotiated enterprise value and prevent the buyer from using dirty books as an excuse to chip away at your purchase price during due diligence.