A sell-side Quality of Earnings report is transaction-focused financial due diligence prepared for the seller before or during an M&A process. It reconciles reported financial performance to normalized EBITDA, evaluates the composition and sustainability of revenue and earnings, analyzes working capital and balance-sheet items, and identifies issues a buyer or lender is likely to investigate. The supporting workpapers and evidence are as important as the report itself.

Because the buyer will analyze the financials regardless. Preparing first gives the seller time to correct errors, support defensible add-backs, understand weaknesses, establish a working-capital position, organize evidence, and decide how issues should be disclosed. After an LOI, the buyer often has exclusivity and greater negotiating leverage, so unexpected findings can have a larger effect on price, structure, escrow, or timing.

A sell-side QoE is commissioned for the owner's preparation and presentation. A buy-side QoE is commissioned by the buyer or lender to validate the investment thesis and identify downside. The analyses overlap, but the objectives differ. A strong sell-side QoE does not eliminate buyer diligence; it gives the seller an evidence-backed baseline and makes confirmatory work more organized.

No. A QoE is not an audit, review, compilation, valuation, or attestation unless separate professional services are specifically engaged. Audits focus on whether historical financial statements are presented in accordance with an applicable reporting framework. QoE is transaction-oriented and focuses on sustainable earnings, revenue quality, working capital, cash flow, balance-sheet exposures, and the issues that may affect a deal.

No advisor or report can guarantee a higher valuation. A rigorous QoE can identify earnings that are supportable, prevent legitimate add-backs from being overlooked, strengthen credibility, clarify working capital and debt-like items, and reduce avoidable surprises. Those benefits can give buyers fewer reasons to discount or re-trade the transaction, but market conditions, business quality, growth, risk, structure, and buyer competition ultimately determine value.

Normalized EBITDA is an estimate of the business's recurring operating earnings after removing or adjusting for items that are nonrecurring, nonoperating, owner-specific, improperly timed, misclassified, or not expected to continue under a buyer. The calculation must be supported. Normalized EBITDA is not simply the highest possible number; it is the earnings level a buyer can reasonably evaluate and underwrite.

Potential add-backs may include certain owner compensation above a market replacement level, documented personal expenses, one-time professional or legal fees, discontinued activities, unusual casualty costs, nonrecurring transaction expenses, or other costs that will not continue. Pro forma adjustments may also reflect identifiable changes already implemented. Each item must be tested for amount, recurrence, transferability, timing, and available support. Buyers may challenge items that are ongoing, discretionary, speculative, or required to operate the business.

The working-capital peg is the normalized level of operating working capital the seller is expected to deliver at closing, subject to the transaction's definitions. Closing working capital above or below the agreed peg can change the seller's proceeds dollar for dollar. A sell-side analysis reviews monthly trends, seasonality, AR, AP, inventory, deferred revenue, accruals, and other adjustments so the seller understands the methodology before it is negotiated.

Debt-like items are obligations that a buyer may treat like debt or otherwise deduct from proceeds even if they are not labeled as bank debt. Examples may include unpaid taxes, accrued transaction or retention bonuses, deferred compensation, certain leases, related-party balances, aged payables, customer deposits, financing obligations, or other liabilities that do not represent ordinary normalized working capital. The definition is negotiated and transaction-specific.

Yes, subject to scope and available records. Many founder-owned businesses keep books primarily for tax compliance rather than institutional reporting. The team may need to reconstruct accrual schedules, correct account classifications, reconcile source systems, separate personal or related-party items, and create monthly reporting. The more incomplete or inconsistent the records, the earlier the process should begin.

Common inputs include three or more years of annual and monthly P&Ls and balance sheets, current YTD and trailing-twelve-month results, trial balances, general ledgers, tax returns, bank statements, payroll data, AR and AP aging, debt schedules, customer or payer detail, revenue and margin reports, fixed-asset and inventory records, material contracts, budgets, forecasts, and support for proposed adjustments. The final data request is tailored to the company and transaction.

The timeline depends on the quality and availability of data, number of entities and locations, accounting systems, industry complexity, and scope. A focused QoE for a well-organized business may be completed much faster than a full institutionalization project involving cash-to-accrual work, historical reconstruction, multi-entity reconciliations, SOPs, and data-room development. The schedule should be defined after a confidential diagnostic review.

Before an LOI and preferably before marketing begins. Businesses with significant cleanup, owner dependence, inconsistent close procedures, or missing documents should consider starting 6–12 months or more before launch. Even when the transaction is nearer, preparation can still reduce risk, but the options for remediation become more limited as the timeline compresses.

The team quantifies the issue, determines whether it is an error, timing matter, recurring weakness, balance-sheet exposure, or transaction risk, and recommends a response. Depending on the issue, the company may correct the books, change a process, gather support, adjust the valuation narrative, disclose the matter proactively, modify the transaction structure, or delay marketing until the risk is better controlled.

Trust depends on the qualifications and independence of the provider, transparency of the methods, quality of the workpapers, traceability to source data, and willingness to answer follow-up questions. Buyers may still perform their own work. Where greater independence is needed, the scope can include a third-party CPA or transaction-accounting provider while PRIME exits® integrates the findings into the broader sale process.

Financial and diligence records should be collected and shared through secure, permission-controlled systems. Access should be limited by role and transaction stage, and highly sensitive data may require redaction, a second confidentiality agreement, clean-team access, or delayed release. The engagement should clearly define file security, retention, authorized users, and disclosure protocols.

The engagement is scoped to the size and complexity of the business and quoted as a defined project fee. When the company subsequently completes its sell-side transaction with PRIME exits® under the applicable agreement, the eligible readiness fee may be credited toward the final success fee as stated in that agreement. The proposal should identify any third-party hard costs, exclusions, and refresh or buyer-support terms.