This guide covers what a sell-side quality of earnings report actually contains, what it costs, how long it takes, and what the available evidence says about whether it pays for itself. Written for owners of lower middle market businesses preparing to sell.
Key takeaways
- A QoE is a consulting engagement, not an audit. No opinion is issued and no assurance is given.
- No AICPA standard governs what goes into a QoE, so scope varies by provider and must be negotiated.
- Published cost ranges run from roughly $12,000 for the smallest engagements to $50,000 and up above $30M in enterprise value. No industry survey of QoE fees exists.
- Typical turnaround for a draft is two to six weeks in the lower middle market.
- The strongest evidence for a sell-side QoE is defensive: diligence findings drove 46.6% of broken LOIs in 2025, up from 29.7% in 2023 (Axial, n=75).
- The one dataset on QoE and price shows no valuation benefit below $50M in enterprise value, and a negative association in the $10M to $25M range (GF Data, n=360).
What a quality of earnings report actually is
A QoE tests whether your earnings are repeatable. It rebuilds adjusted EBITDA from the ground up, verifies that cash matches reported revenue, and normalizes working capital so both sides know what a steady state looks like.
The distinction from an audit matters and is frequently blurred. Baker Tilly puts it directly: a quality of earnings study focuses on economic earnings rather than the balance sheet, it is a consulting engagement rather than an attest service, and materiality is much lower than in an audit. Warren Averett states the consequence plainly: a QoE is not an audit and therefore no opinion is given.
That flexibility cuts both ways. Because no AICPA standard governs QoE content, scope is a negotiation. Two providers quoting the same fee can deliver materially different work, and a seller who does not specify scope in writing will find out during buyer diligence which pieces were missing.
The three core workstreams
Most engagements are built around the same three pillars. Adjusted EBITDA is the headline: every add-back is tested for whether it is truly non-recurring, non-operating, or owner-discretionary.
Proof of cash reconciles bank activity to reported revenue and expenses. It is the single most effective test for revenue recognized in the wrong period, and it is the reason cut-off errors surface in a QoE that survived years of internal review.
Net working capital analysis rebuilds monthly balances, typically across 12 to 24 working capital cycles, to establish a defensible baseline. This feeds directly into the working capital peg you will negotiate at the LOI stage, which is where a great deal of purchase price quietly changes hands.
What a QoE costs and how long it takes
Published cost ranges vary widely and every one of them comes from an advisory firm's own marketing. There is no surveyed benchmark for QoE fees. Axial's 2026 M&A Fee Guide surveyed 331 advisors on transaction fees and contains no QoE fee data at all.
| Provider | Deal size band | Published range |
|---|---|---|
| Midwest CPA | Under $2.5M revenue | $12,000 to $15,000 |
| Bedrock QoE | $5M to $10M enterprise value | $8,000 to $15,000 |
| Midwest CPA | Under $10M enterprise value | $14,000 to $23,000 |
| Bedrock QoE | $10M to $30M enterprise value | $12,000 to $25,000 |
| Icon Business Advisors | $5M to $50M enterprise value | $25,000 to $50,000 |
| CT Acquisitions | Under $5M EBITDA | $30,000 to $50,000 |
| Bedrock QoE | Above $30M enterprise value | $25,000 to $50,000 and up |
| CT Acquisitions | $5M to $15M EBITDA | $50,000 to $75,000 |
On timing, published turnarounds cluster tightly. Warren Averett reports that most middle market analyses take three to four weeks. Eide Bailly puts most engagements at four to six weeks from engagement to draft report. Midwest CPA says two to four weeks, Bedrock two to three. A defensible planning assumption for the lower middle market is two to six weeks to draft, longer for multi-entity structures or cash-basis books that need converting to accrual.
Which EBITDA number would survive a buyer's diligence? The valuation calculator gives you a range based on your numbers and your industry.
Get StartedWhat the evidence actually shows
This is where most content on sell-side QoE overstates its case, so it is worth being precise about what is measured and what is not.
There is no data showing a QoE lifts your price
The one real dataset on QoE and valuation comes from GF Data, published in Middle Market Growth in October 2025, covering 360 private equity backed deals with total enterprise values between $10M and $500M closed between Q3 2024 and Q2 2025. Nearly 50% of tracked deals included a sell-side QoE.
Across the whole sample, QoE deals priced about half a turn higher: 7.4x EBITDA versus 7.0x. That headline is the one that gets quoted. The breakdown underneath it is the one that matters to a lower middle market seller.
| Total enterprise value | With sell-side QoE | Without |
|---|---|---|
| $10M to $25M | 5.9x | 6.6x |
| $25M to $50M | 6.9x | 7.2x |
| Full sample | 7.4x | 7.0x |
Claims circulating elsewhere, that a QoE closes deals 30 to 60 days faster or raises close probability from 70% to 85%, trace back to individual advisory firm blogs with no deal sample behind them. Treat them as marketing.
The defensible case is about deals that die
Axial's Dead Deal Report, published January 2026, examined 75 executed letters of intent that broke in 2025. Diligence findings dominate, and they are getting worse.
| Reason an executed LOI broke | 2023 | 2025 |
|---|---|---|
| Non-QoE diligence findings | 19.1% | 25.3% |
| QoE EBITDA discrepancies | 10.6% | 21.3% |
| Renegotiation | not reported | 14.7% |
| Seller backed out | not reported | 13.3% |
| Financing | 21.3% | 10.7% |
That is the honest argument for a sell-side QoE. Not that it raises your price, but that it stops you from discovering a $500,000 EBITDA problem while you are under exclusivity with one buyer and no leverage. For context on how often processes fail overall, Pepperdine's Private Capital Markets Report 2026 found that investment bankers reported a median 32% of engagements did not result in a closed transaction, though that is measured from mandate rather than from LOI.
What a QoE typically finds
The adjustments fall into recognizable categories. The Bonadio Group's public taxonomy is the most complete: GAAP adjustments, non-operating and non-cash items, non-recurring items, normalizing adjustments, owner-discretionary spending, owner compensation, related-party transactions, and pro forma effects.
In practice, five findings account for most of the movement in lower middle market engagements.
- Owner compensation above or below market. A $500,000 owner salary normalized to a $250,000 market rate is a $250,000 EBITDA adjustment in the seller's favor. The reverse is equally common and moves the other way.
- Recurring costs labeled one-time. Legal fees, consulting spend, or equipment repairs presented as non-recurring that appear in all three years under review.
- Cut-off and revenue recognition. Revenue booked when invoiced rather than when earned, most often at year end.
- Customer concentration. Baker Tilly recommends evaluating concentration on a gross profit or contribution margin basis rather than revenue, which frequently makes concentration look worse than the revenue split suggested. This is a well-documented drag on valuation.
- Working capital seasonality. Interim month-end balances that do not reflect year-end true-ups, which distorts the peg.
Worked example: what the exposure looks like
The following example is illustrative. It rebuilds a lower middle market income statement the way a QoE would and shows the gap that a buyer's diligence would otherwise discover under exclusivity.
| Step | Item | Amount |
|---|---|---|
| 1 | Reported EBITDA per internal statements | $1,050,000 |
| 2 | Owner add-backs claimed in the marketing materials | $195,000 |
| 3 | Adjusted EBITDA as taken to market | $1,245,000 |
| 4 | Add-backs a QoE rejects: recurring "one-time" legal, personal auto, understated market salary | ($135,000) |
| 5 | Legitimate add-backs the owner missed: ERP implementation, discontinued product line loss | $95,000 |
| 6 | Defensible adjusted EBITDA | $1,205,000 |
| 7 | Value as marketed at 6.0x | $7,470,000 |
| 8 | Value on defensible EBITDA at 6.0x | $7,230,000 |
| 9 | Exposure closed before going to market | $240,000 |
| 10 | Illustrative QoE fee | $35,000 |
The takeaway: $40,000 of net EBITDA correction moves value by $240,000 at a 6.0x multiple, roughly seven times the cost of the report. And that is the mild case. The version where the correction is $200,000 rather than $40,000 costs $1.2M in value and, based on the Axial data, has a material chance of ending the deal entirely rather than repricing it.
When a sell-side QoE makes sense and when it does not
A sell-side QoE is worth commissioning when three conditions hold. Your adjusted EBITDA carries meaningful add-backs, your books are on a cash basis or have not been audited or reviewed, and your enterprise value is high enough that a $25,000 to $50,000 fee is a rounding error against the price.
It is harder to justify below roughly $5M in enterprise value, where the fee can approach 1% of the deal and a structured internal cleanup captures most of the benefit. It is also less useful if you already have audited financials and a clean, well-supported add-back schedule, because the QoE will largely confirm what the audit established.
A middle path works for many owners: run a scoped internal exercise covering the add-back schedule, a proof of cash, and a 24-month working capital analysis, then decide whether a full engagement adds anything. This is the same work that sits at the front of a structured exit preparation process, and it belongs alongside the rest of the sell-side readiness agenda rather than as a standalone purchase.
Either way, the sequencing matters. A QoE finding is useful when you can still fix it, and useless once you have signed an LOI. The sell-side checklist and the broader question of how long a sale actually takes both point the same direction: this work belongs 12 months before the process, not during it.
What this means for your process
Commission the QoE, or the internal equivalent, before the marketing materials are written. The number in your teaser should be the number that survives diligence, because every dollar of difference between them becomes a negotiation you conduct from a weak position.
Be skeptical of any advisor who promises a valuation premium from a sell-side QoE. The only evidence that exists points the other way for deals under $50M. The real return is on the deals that would otherwise break, and on the retrades you never have to absorb. A finding you disclose and document before the LOI becomes a price discussion. The same finding surfacing after closing becomes an indemnification claim under the reps and warranties you signed.
How your adjusted EBITDA translates into price depends on the multiple your industry commands and on how many buyers are competing, which is the subject of how to sell a business and of what an M&A advisor is actually for. If you want a reference range before commissioning anything, the valuation calculator and the business valuation hub are the fastest starting points.
Not sure whether your add-back schedule holds up? Book a confidential consultation to work through where your earnings quality is likely to be challenged.
Get StartedThis article is for general information and does not replace individual advice from a qualified tax advisor, CPA or attorney.
About the author: Lud Schroedl is the founder of FISART. An operator who built and sold his own companies, he understands the sale process from the owner's side of the table.
Published on 17 August 2026. Last updated on 17 August 2026.