When a serious buyer looks at your company, the first number they want is not revenue and it is not the profit on your tax return. It is adjusted EBITDA — earnings before interest, taxes, depreciation, and amortization, corrected for everything in your books that will not carry over to a new owner. The document that establishes that number is a Quality of Earnings report, or QoE, and on most deals it does more to set the price than any negotiation tactic.
What the report actually contains
A QoE walks through your financial statements line by line and asks one question: does this number reflect the true, repeatable earning power of the business? Where the answer is no, the analyst records an adjustment — an "add-back" if it increases earnings, a deduction if it lowers them. Common examples in owner-operated companies:
- Owner compensation above or below market. If you pay yourself $150,000 more than a hired general manager would cost, that difference is earnings the buyer will actually receive. It gets added back.
- One-time items. A legal settlement, a flood repair, a large bad-debt write-off. If it will not recur, it should not depress — or inflate — the earnings baseline.
- Related-party arrangements. Many owners hold their building in a separate LLC and charge the company below-market rent. The QoE restates rent to market, because that is what the buyer will pay.
- Personal expenses in the business. Vehicles, travel, family members on payroll. Legitimate tax planning, but not costs the next owner will bear.
Alongside the adjustments, a good QoE examines revenue quality: customer concentration, contract terms, recurring versus project revenue, and any recent gains or losses of major accounts. A company that lost a top-ten customer last year has a different risk profile than its trailing numbers suggest, and buyers will find that in diligence whether or not you disclose it up front.
Why buyers care so much
Because the multiple gets applied to this number. If a buyer values your company at five times adjusted EBITDA, every dollar of defensible add-back is worth five dollars of price. The reverse is also true: every adjustment the buyer's diligence team finds that you did not disclose becomes a price reduction — plus a credibility discount on everything else you have claimed.
Buyers also care about who prepared the analysis. An adjusted-EBITDA figure that arrives documented, sourced, and conservative gets accepted largely as-is. A figure scribbled on a broker one-pager gets rebuilt from scratch by the buyer's accountants — on their assumptions, not yours.
The seller's advantage: do it first
Traditionally, QoE work happens on the buyer's side, after a letter of intent, when your leverage is at its lowest. A sell-side QoE flips the sequence. You find the issues before buyers do, document the add-backs with evidence, and set the earnings baseline that the whole process negotiates from. Surprises get resolved on your timeline instead of surfacing during exclusivity, when the only direction the price moves is down.
That preparation used to cost tens of thousands of dollars from an accounting firm, which is why small deals rarely had it. Making it affordable at every deal size is one of the core things Bankerly was built to do — the analysis is drafted from your actual records, every adjustment cites its source, and your CPA reviews the output. The buyers notice the difference on page one.
Considering a sale in the next few years? See what a prepared process looks like.