We are about to sign an LOI, and the buyer wants to bring in a third-party accounting firm for a buy-side Quality of Earnings review. Should we run a sell-side QofE first, or is that just an expensive waste of time?

Question

Tyler Smith · Accepted Answer

Running a sell-side Quality of Earnings (QofE) report feels like an unnecessary expense until you experience a buy-side accounting firm tearing through your books during exclusivity. Waiting for the buyer to audit your financials gives them total narrative control. If their accountants find accounting inconsistencies, sloppy revenue recognition, or unsupported owner add-backs, they do not just adjust your EBITDA. They use those discoveries to re-trade the purchase price or demand massive indemnification escrows.

A sell-side QofE allows you to find and fix the problems before an acquirer sets foot in your data room. It reconciles your tax returns to your internal financial statements, analyzes customer concentration trends, tests proof-of-cash, and formalizes your pro forma adjustments. If you run your business on EOS®, your leadership team can assign this financial cleanup as a company-level Rock two quarters before taking the business to market.

When you hand a buyer an independent, vetted QofE report alongside your confidential information memorandum, you establish an anchored, defensible EBITDA number on day one. It shortens the diligence window, reduces closing risk, and deprives the buyer's deal team of easy leverage.

The cost of a sell-side report is trivial compared to the financial damage of a re-trade. If a buyer's auditor knocks out two hundred thousand dollars of disputed add-backs on a six-times multiple, you lose 1.2 million dollars in enterprise value at the closing table. A sell-side QofE protects that value by ensuring every dollar of adjusted EBITDA is bulletproof, documented, and defensible before letters of intent are signed.