For business owners, selling a company is more than a transaction – it’s often the culmination of years, if not decades, of dedication and hard work. Yet, many sellers enter the market unprepared for the level of financial scrutiny demanded by today’s sophisticated buyers.
In the current M&A environment, especially among private equity and institutional investors, historical profitability alone is no longer sufficient. Buyers seek a clear, data-backed understanding of earnings quality, sustainability, and underlying drivers of value. This is where a professionally prepared Sell-Side Quality of Earnings (QoE) report becomes a strategic differentiator.
For founder-led and lower-middle market companies in particular, a QoE bridges the gap between basic financial reporting and investor expectations. It allows sellers to present a credible, compelling financial narrative, reduce deal friction and uncertainty, and ultimately command stronger valuations.
Key Benefits of a Sell-Side QoE Report
1. Builds Financial Credibility
Through a third-party QoE provider, a QoE independently validates adjusted EBITDA, eliminating non-recurring, discretionary, and non-operational items to present a transparent view of the company’s true earnings power. In addition, a QoE report provides a deeper understanding of a company’s financial performance and its key drivers.
2. Reduces Deal Friction
By identifying potential red flags early—such as revenue recognition anomalies or inconsistent cost allocations—sellers can address issues proactively, reducing the likelihood of re-trades or late-stage surprises.
3. Defends Valuation Premiums
A well-prepared QoE highlights key value drivers and provides the analytical support needed to justify premium valuations confidently.
4. Accelerates Deal Timelines
Organized, verified financials allow for more efficient due diligence, often leading to shorter deal cycles and increased buyer competition.
5. Increases Marketability
A QoE report will act as a supplement to other marketing materials prepared by either a company’s investment bankers or management and provide additional commentary on key performance metrics.
6. Streamlines Working Capital and Debt-Like Item Negotiations
A clear articulation of net working capital targets, debt/cash adjustments, and post-close considerations minimizes negotiation friction and facilitates smoother closings.
7. Mitigates Post-Close Risk
Early identification of issues such as tax exposures, litigation contingencies, and potential inventory write-downs helps avoid post-transaction disputes and earnout conflicts.
Takeaways
A Sell-Side QoE report is far more than a financial checklist—it’s a strategic enabler. It empowers sellers to shape their stories, eliminate surprises, and maximize outcomes. In a market where buyers are increasingly data-driven and selective, a robust QoE isn’t just recommended—it’s expected.
Whether you’re eyeing a transaction in the next 12 months or planning for a longer-term exit, investing in a Sell-Side QoE today can yield measurable benefits in valuation, deal speed, and negotiating leverage tomorrow.
Authors: Akash Kauntia | [email protected], Andriy Sydorenko | [email protected]
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For more information on this topic, please contact a member of Withum’s Transaction Advisory Team.
