Quality of Earnings
Quality of Earnings analysis for U.S. middle-market transactions.
An independent QoE report is now standard in almost every private-company sale between $5M and $150M. We prepare sell-side QoEs that hold up under buyer scrutiny, and buy-side confirmatory reviews that surface the risks before a Letter of Intent becomes a definitive agreement.
What we test
Four workstreams. One defensible number.
Normalized EBITDA
Rebuild adjusted EBITDA from the general ledger. Test every add-back — owner compensation, one-time items, personal expenses, discontinued lines — for defensibility.
Revenue quality
Verify recognition policy, contract terms, customer concentration, retention, and the recurring vs. one-time split. Reconcile bookings to billings to cash.
Working capital
Establish a normalized net working capital target using a trailing twelve-month average with seasonality adjustments — the number that ends up in the purchase agreement.
Proof of cash
Tie reported revenue and EBITDA back to bank deposits and disbursements. This is where most seller-prepared numbers begin to fall apart.
Sell-side vs. Buy-side
Two engagements, one methodology.
Sell-Side QoE
Commissioned by the seller before going to market. Establishes and defends adjusted EBITDA, working capital target, and revenue quality on the seller's terms — before a buyer's QoE firm gets to define the narrative.
- Neutralizes purchase-price renegotiation post-LOI
- Shortens buyer diligence by 3–6 weeks
- Supports a competitive process across multiple buyers
Buy-Side QoE
Commissioned by strategic acquirers, private equity sponsors, family offices, and independent sponsors under LOI. Confirms the seller's numbers, identifies debt-like items, and supports final purchase price adjustments.
- Tests the seller's adjusted EBITDA line by line
- Quantifies working capital and debt-like items
- Supports lender underwriting and IC approval
Our process
Four phases, typically four to six weeks.
1
Scoping
Confirm objectives (sell-side readiness vs. buy-side confirmatory), transaction perimeter, historical periods, and materiality thresholds.
2
Data request
GL detail, trial balances, revenue by customer, payroll registers, contracts, tax returns, and bank statements. Sent as a single controlled list.
3
Analysis
EBITDA normalization, revenue quality, working capital, debt-like items, and proof of cash — supported by a workbook the buyer's QoE firm can follow line by line.
4
Deliverable
A written Quality of Earnings report with the databook, ready to hand to buyers, lenders, and their advisors.
Considering a sale in the next 12–24 months?
A sell-side QoE is the single highest-leverage document you can commission before going to market. Let us scope one for you and give you a candid view on whether the numbers will hold up.