Our advisors are recommending we pay for a sell-side Quality of Earnings assessment before we even list the company, but it feels like an expensive, redundant step since the buyer will do their own. Why should we invest in a sell-side QofE, and how does it protect our valuation multiple during diligence?

Question

Tyler Smith · Accepted Answer

Waiting for the buyer to perform the first Quality of Earnings assessment is a major strategic mistake. When a buy-side accounting firm conducts a QofE, their goal is to find adjustments that reduce your historical EBITDA, which directly lowers your purchase price. If they uncover these discrepancies during exclusivity, they will use them to re-trade your multiple when you have the least leverage.

An upfront investment in a sell-side QofE allows you to find and fix those financial issues before going to market. It is an offensive tool, not a defensive chore. A sell-side QofE reconciles your cash-to-accrual accounting, validates your net working capital requirements, and identifies non-recurring owner expenses that should be added back to your earnings.

By presenting a clean, third-party validated QofE report alongside your marketing materials, you establish immediate credibility. It signals to private equity and strategic buyers that your numbers are institutional-grade. This reduces transaction friction and significantly shortens the time from LOI to close.

Use your internal financial team and your EOS® reporting processes to support this project. Your leadership team should treat the sell-side QofE preparation as a corporate Rock. Use your weekly Level 10 Meeting™ to resolve issues that arise during the audit using the IDS® process. By taking control of the financial narrative early, you defend your valuation multiple and prevent the buyer from using diligence as a tool to chip away at your hard-earned equity.